CORRECT ANSWERS

(TCO A) The variable portion of advertising costs is a: (Points : 6) 
Conversion YES... Period NO
Conversion YES .... Period YES
Conversion NO.... Period YES 
Conversion NO.... Period NO


2. (TCO A) Fixed costs expressed on a per unit basis: (Points : 6) 
will increase with increases in activity. 
will decrease with increases in activity. 
are not affected by activity. 
should be ignored in making decisions since they cannot change. 


3. (TCO A) Depreciation of office buildings and equipment are also known as: (Points : 6) 
variable costs
conversion costs
product costs
period costs


4. (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following? 
Fixed Cost Per Unit Variable Cost Per Unit
(Points : 6) 
Increase No Change
Increase Increase
decrease No Change
No Change Increase


5. (TCO F) Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company included in direct labor cost a portion of indirect labor. The effect of this misclassification will be to: (Points : 6) 
understate the predetermined overhead rate
overstate the predetermined overhead rate
have no effect on the predetermined overhead rate
cannot be determined from the information given


6. (TCO F) Under a job-order costing system, the product being manufactured: (Points : 6) 
is homogeneous.
passes from one manufacturing department to the next before being completed. 
can be custom manufactured.
has a unit cost that is easy to calculate by dividing total production costs by the units produced.

7. (TCO F) Equivalent units for a process costing system using the FIFO method would be equal to: (Points : 6) 
units completed during the period, plus equivalent units in the ending work in process inventory
units started and completed during the period, plus equivalent units in the ending work in process inventory
units completed during the period and transferred out
units started and completed during the period, plus equivalent units in the ending work in process inventory, plus work needed to complete units in the beginning work in process inventory

8. (TCO B) The contribution margin ratio always decreases when the: (Points : 6) 
break-even point increases
break-even point decreases
variable expenses as a percentage of net sales increase
variable expenses as a percentage of net sales decrease


9. (TCO B) The unit sales needed to attain the target profit is found by: (Points : 6) 
dividing fixed costs by the contribution margin.
adding variable expenses to fixed expenses and dividing the total by the contribution margin.
adding target profit to the fixed expenses and then dividing the total by the unit contribution margin.
adding target profit to the fixed expenses and then dividing the total by the contribution margin.

10. (TCO E) Under variable costing: (Points : 6) 
net operating income will tend to move up and down in response to changes in levels of production
inventory costs will be lower than under absorption costing
net operating income will tend to vary inversely with production changes
net operating income will always be higher than under absorption costing
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