Question

1. Which of the following is correct about a company’s contribution margin ratio?

a) The smaller the ratio, the smaller the total level of sales required to cover fixed expenses.

b) Two companies with the same margin of safety in dollars will always have the same contribution margin ratio.

c) The contribution margin decreases if the variable expense per unit decreases if all other factors remain unchanged.

d) In two companies making the same product with the same sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses in its cost structure.

2. In process costing, a separate work-in-process (WIP) account is kept for each:

a) Individual order

b) Processing department

c) Equivalent unit

d) Cost category (ie. materials, conversion costs)

3. Which of the following is incorrect in regards to process costing?

a) Costs are accumulated by processing department.

b) Units produced are indistinguishable from each other.

c) Process costing is appropriate for a manufacturer who makes products to order.

d) A job-order costing system has the same basic purposes as a process costing system.

Answer 1

Answers:

1. Option D

In two companies making the same product with the same sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses in its cost structure is correct about a company’s contribution margin ratio.

2. Option D

In process costing, a separate work-in-process (WIP) account is kept for each cost category (ie. materials, conversion costs).

3. Option C

Process costing is appropriate for a manufacturer who makes products to order is incorrect in regards to process costing.

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