1. True or False: A contribution margin income statement classifies costs by fun
ID: 2497991 • Letter: 1
Question
1. True or False: A contribution margin income statement classifies costs by function; that is, costs are classified as either product costs or period costs.
2. True or False: The times-interest-earned ratio is also known as interest-coverage ratio.
3. Which of the following is a capital budgeting method?
A) return on assets
B) net present value
C) inventory turnover
D) return on equity
4. Which capital budgeting method uses accrual accounting, rather than net cash flows, as a basis for calculations?
A) payback
B) accounting rate of return
C) net present value
D) internal rate of return
5. Which of the following is used to charge the cost of direct labor to the production?
A) Debit for standard quantity for actual production times standard cost per hour
B) Credit for standard quantity usage for actual production times actual cost per hour
C) Debit for actual quantity times standard cost per hour
D) Credit for standard quantity for actual production times standard cost per hour
6. True or False: CVP analysis assumes that the selling price per unit does not change as volume changes.
7. The management technique whereby managers concentrate on results that are outside the accepted parameters is called management by:
A) variance.
B) standard.
C) exception.
D) budget.
8. Which of the following describes the term time value of money?
A) Money can be used only at certain times and only for certain purposes.
B) Money loses its purchasing power over time through inflation.
C) Wasted time can result in wasted money.
D) Value of a dollar received today will be higher than that received after some time.
9. The relationship between total liabilities and total assets is known as the:
A) debt ratio.
B) debt to equity ratio.
C) current ratio.
D) earnings per share.
10. An unfavorable sales volume variance in operating income suggests a(n):
A) increase in number of actual units sold.
B) decrease in number of actual units sold when compared to the expected number of units sold.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
Explanation / Answer
1, False . Contribution Margin divides the costs into fixed and variable costs unlike traditional approach which divides into period and product costs.
2. True. Times-interest-earned ratio or Interest Coverage ratio signifies the number of times a company is capable of bearing its interest expense obligation out of the operating profits earned during a period.
3. b i.e. Net Present Value method ( NPV ). It is a capital budgeting technique where the difference between the project cost (cash outflows) and cash flows generated by that project (cash inflows) is calculated. The NPV method is an effective capital budgeting technique because it uses discounted cash flow analysis, where future cash flows are discounted at a discount rate to compensate for the uncertainty of those future cash flows.
4. b i.e. Accounting Rate of Return . It is the only capital budgeting method which uses accrual accounting figures, ignores time value of money and shows how investment will affect operating income.
5. d. Credit for standard quantity for actual production times standard cost per hour is used to charge cost of direct labor to production.
6. True. Cost Volume Profit ( CVP ) Analysis assumes that sales price, variable cost per unit, total fixed cost remain constanct and Number of units sold equal number of units produced.
7. c. i.e. Management by Exception- iIt is a management technique where only significant deviations or variations from a budget or plan are brought to the attention of management so that they can focus on only those areas and let other matters be handled by staff.If nothing is reported to management, they can assume that everthing is going as per the plan.
8. d i.e. term Time Value of money means that Value of a dollar received today will be higher than that received after some time. We can invest the dollar today and earn a return on that investment, such as interest or dividend payments.Calculations involving the time value of money help people to find and compare the value of future payments.
9. A. i.e. Debt Ratio . Debt Ratio or Debt to Total asset Ratio is defined as the ratio of total long-term and short-term debts to total assets and is expressed as a decimal or percentage. It is used to indicate as the proportion of a company’s assets that are financed by debt.
10. B. Unfavorable Sales Volume Variance suggests that there has been a decrease in the total number of actual units sold as compared to the expected number of units sold.
Sales Volume Variance measures the effect of a change in the level of sales on the profit or contribution over the period. Unfavorable or Adverse Sales Volume variance signifies a lower standard profit or contribution than the budgeted profit or contribution.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.