Multiple Choice Answers


Question 1
Customer relations are usually part of:
A. the supply chain.
B. the value chain.
C. both the value chain and the supply chain.
D. neither the value chain nor the supply chain.
Question 2
Which of the following statements is true?
A. A company’s value chain is not part of its supply chain.
B. A manufacturer’s supply chain typically includes research and development and customer service.
C. A company’s supply chain includes the value chains of its suppliers.
D. Your supplier’s suppliers are part of your value chain.
Question 3
Process value analysis (PVA) identifies all activities of a production and/or assembly operation for the purpose of:
A. preparing budgets based on activity centers.
B. determining the value of the process.
C. replacing cost drivers used in cost assignment analyses with activities.
D. relating cost assignment to the activities that caused the cost to be incurred.
Question 4
A nonvalue-adding activity is defined as a(n):
A. administrative or support activity that adds overhead cost to the product and increases its market value.
B. activity that adds cost to a product but does not increase its market value.
C. activity that adds no cost to the product but increases its market value.
D. wasteful but unavoidable production activity.
Question 5
Product unit costs computed using activity-based costing compared to product unit costs computed using a traditional costing approach will:
A. sometimes be the same.
B. always be higher.
C. always be the same.
D. always be lower.
Question 6
A framework for classifying value-adding and nonvalue-adding activities according to the level at which their costs are incurred is called a:
A. bill of activities.
B. full product cost.
C. value chain.
D. cost hierarchy.
Question 7
Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses activity-based management for sewing seams on a garment?
A. Unit-level activity
B. Batch-level activity
C. Product-level activity
D. Facility-level activity
Question 8
The initial step in achieving the efficiency of a just-in-time system is to:
A. redesign the plant layout.
B. replace laborers with machines.
C. stop ordering materials for inventory.
D. identify products that are not profitable.
Question 9
Backflush costing aims at reducing waste in the:
A. accounting system.
B. cost of goods sold.
C. storage of raw materials.
D. production process.
Question 10
The typical relationship between variable costs and volume may be described best as which of the following?
A. Costs increase in an erratic, unpredictable fashion with changes in volume.
B. Costs stay fairly constant with changes in volume.
C. Costs increase with changes in volume up to a certain point and then remain constant.
D. Costs increase in direct proportion to increases in volume.
Question 11
The variable cost per unit __________ as the number of sales increase.
A. decreases
B. changes
C. remains constant
D. increases
Question 12
The level of operating capacity that is needed to meet expected sales demand is called:
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.

Question 13
Theoretical capacity reduced by normal and anticipated work stoppages is called:
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.
Question 14
Theoretical capacity refers to:
A. extra machinery and equipment kept on hand.
B. the maximum productive output possible.
C. an output level that allows for normal work stoppages.
D. the operating capacity that will meet expected sales demand.

Question 15
The high-low method:
A. calculates variable costs per unit by dividing the difference in the high and low activity levels by the high and low costs.
B. assumes that the fixed portion of the mixed cost is the lowest monthly cost incurred during the period under consideration.
C. allows differentiation between fixed and variable costs when dealing with mixed costs.
D. combines the fixed and variable portions of a cost to determine the total cost.
Question 16
The equation for finding the breakeven point may be written as:
A. S – VC – FC = 0.
B. VC – FC = S.
C. S + FC = VC.
D. S + VC + FC = 0.

 Question 17
The breakeven point is:
A. where fixed and variable costs reach the upper level of the relevant range.
B. the level of activity where all fixed costs are recovered.
C. where total revenue equals total costs.
D. where fixed costs meet variable costs.
Question 18
The equation that will provide the breakeven point in units (SP = selling price) is:
A. BE units = (SP – VC) ÷ FC per unit.
B. VC per unit + FC = SP per unit x BE units.
C. BE units = FC ÷ CM per unit.
D. SP per unit – VC per unit = FC ÷ BE units.
Question 19
Contribution margin equals sales minus:
A. cost of goods sold.
B. total costs.
C. fixed costs.
D. variable costs.
Question 20
For every unit that a company produces and sells above the breakeven point, its profitability is improved (ignoring taxes) by the unit’s:
A. gross margin.
B. selling price minus fixed cost.
C. variable cost.
D. contribution margin.