Question 1

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost

pool, which is then applied to work in process using a single application base. The assembly plant

management wants to estimate the magnitude of the total manufacturing overhead costs for

different volume levels of the application activity base using a flexible budget formul a. If there is an

increase in the application activity base that is within the relevant range of activity for the assembly

plant, which one of the following relationships regarding variable and fixed costs is true?

Options :

A : The variable cost per unit is constant, and the total fixed costs decrease.

B : The variable cost per unit is constant, and the total fixed costs increase.

C : The variable cost per unit and the total fixed costs remain constant.

D : The variable cost per unit increases, and the total fixed costs remain constant.

Answer: C

Question 2

Which of the following is a market-oriented definition of a business versus a productoriented definition of a business?

Options :

A : We make air conditioners and furnaces

B : We supply energy

C : We produce movies

D : We sell men’s shirts and pants

Answer: B

Question 3

The costs described in situations Ill and V are

Options :

A : Prime costs.

B : Sunk costs.

C : Discretionary costs.

D : Imputed costs.

Answer: B

Question 4

A manufacturing concern sells its sole product for $10 per unit, with a unit contribution margin of $6.

The fixed manufacturing cost rate per unit is $2 based on a denominator capacity of 1 million units,

and fixed marketing costs are $1.5 million. If 900,000 units are produced, the absorption-costing

breakeven point in units sold is

Options :

A : 425,000 units,

B : 583.333 units

C : 900,000 units

D : 1,000,000 units.

Answer: A

Question 5

Flex Corporation is studying a capital acquisition proposal in which newly acquired assets will be

depreciated using the straight-line method. Which one of the following statements about the

proposal would be incorrect if a switch is made to the Modified Accelerated Cost Recovery System

(MACRS)?

Options :

A : The net present value will increase.

B : The internal rate of return will increase.

C : The payback period will be shortened.

D : The profitability index will decrease.

Answer: D

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