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
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?
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