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Franklin University Accounting 225 Test #2 Preparation Chapter 5 through 7 1 Chapter 5 1. Contribution margin equals revenue minus all variable costs. 2. The reluctance of managers to lay off employees when activity declines in the short- run leads to an increase in the ratio of variable to fixed costs. 3. Contribution margin and gross margin mean the same thing. 4. Committed fixed costs have a short-term planning horizon usually one year. 5. A major problem with the high-low method of cost estimation is that some data are omitted from the analysis. 6. Contribution margin is computed as sales revenue minus: a. fixed expenses b. variable expenses c. cost of goods sold d. cost of goods manufactured 7. For an automobile manufacturer, the cost of a driver's side air bag purchased from a supplier and installed in every automobile would best be described as a: a. fixed cost. b. mixed cost. c. step-variable cost. d. variable cost. 8. In the standard cost formula Y = a + bX, what does the "a" represent? a. total cost b. total fixed cost c. total variable cost d. variable cost per unit Franklin University Accounting 225 Test #2 Preparation Chapter 5 through 7 2 9. In the standard cost formula Y = a + bX, what does the "b" represent? a. total cost b. total fixed cost c. total variable cost d. variable cost per unit 10. A is a fixed cost; B is a variable cost. During the current year the level of activity has decreased but is still within the relevant range. We would expect that: a. The cost per unit of A has remained unchanged. b. The cost per unit of B has decreased. c. The cost per unit of A has decreased. d. The cost per unit of B has remained unchanged. 11. The following costs are budgeted for Ghana Corporation for next year : The costs above are based on a level of activity of 10,000 units. Assuming that this activity is within the relevant range, what would total costs be for Ghana if the level of activity was 12,000 units? activity was 12,000 units?... View Full Document

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