Question

1.

Use this information to do questions 42-48

Jones company makes two products A & B. Here is some financial information about those products.

                         A    B     Combined total cost of cost drivers

Direct labor    $45,000 $35,000

Direct materials              $40,000 $30,000

Cost drivers

               Set ups 6    4 $10,000

             Inspections    4    6 $5,000

                 Test Runs 12     8 $25,000

                 Units produced    1000 1000

Using ABC Costing for overhead, what is the total for product B?

		$82500
		$81000
		$83000
		$82000

2.

If sales remained the same & variable costs increased, the contribution margin would

		increase
		decrease
		remain the same
		cannot tell

3.

Which of the following is true about fixed and variable costs?

		both costs are constant when considered on a total basis .
		variable costs are constant in total; fixed costs are constant per unit .
		both costs are constant when considered on a per unit basis.
		fixed costs are constant in total and variable costs are constant per unit.

4.

On a per unit basis a variable cost will

		be constant
		be unknown
		decrease
		increase

5.

DEF sells its shirts for $50 a piece . If fixed costs are $300,000 and variable costs are $20 per unit, what is break-even in units if they want $150,000 in profit?

		20000
		8750
		65000
		15000

Answer 1

1. Total cost of product B is calculated as follows:

Particulars	Amount ($)
Direct Labour	35000.00
Direct Material	30000.00
Set-ups cost - 10000*4/10	4000.00
Inspection cost - 5000*6/10	3000.00
Test-run cost - 25000*8/20	10000.00
Total Cost	$ 82000.00

2. If sales remained the same & variable costs increased, the contribution margin would decrease.

3. Fixed costs are constant in total and variable costs are constant per unit. - True

4. On a per unit basis a variable cost will be constant

5. DEF sells its shirts for $50 a piece . If fixed costs are $300,000 and variable costs are $20 per unit, what is break-even in units if they want $150,000 in profit?

Answer is 15000 units