Theory Review

Exam II

1.) Which of the following companies would likely use a process costing system for inventory
costing purposes?
1. Dairy farm
2. Custom house builder
3. Chick-fil-a that caters to parties
4. Marketing agency
5. Mineral mining company
A. 1, 4, and 5
B. 1 only
C. 1 and 5
D. 1. 2 and 5
E. 2, 3, and 4
2.) Which of the following characteristics applies to process costing, but does not apply to job
order costing?
A. The need to assign production costs to the units produced
B. The use of equivalent units of production
C. The use of predetermined overhead rates
D. All of the above
E. None of the above
3.) A company should use process costing, rather than job order costing, if:
A. Production is only partially completed during the accounting period
B. The product is manufactured in batches only as orders are reveiced
C. The product is composed of mass-produced homogeneous units
D. The produces goes through several steps of production
4.) Which of the following statements is (are) true?
A. The salary of the treasurer of a corporation is an example of a common cost which
normally cannot be traced to product segments
B. Segmented statements for internal use are most useful when prepared in the
contribution format
C. Fixed costs that are traceable to a segment may become common if the segments is
divided into smaller units.
D. A and B are true
E. A, B and C are true
5.) Break even analysis assumes that:
A. Total cost are constant
B. The average fixed expenses per unit is constant
C. The average variable expense per unit is constant
D. Variable expenses are nonlinear

6.) The amount by which a companys sales can decline before losses are incurred is called the:
A. Contribution margin
B. Degree of operating leverage
C. Margin of safety
D. Contribution margin ratio
7.) Which of the following statements is (are) true?
I.
A company with a degree of operating leverage of 4 would expect net operating
income to increase by 200% if sales increased from $100,000 to $150,000
II.
A shift in the sales mix from products with a low contribution margin ratio
toward products with a high contribution margin ratio will lower the break-even
point in the company as a whole
III.
If two companies produce the same product and have the same total sales and
same total expenses, operating leverage will be lower in the company with a
higher proportion of fixed expenses in its cost structure
A. II only
B. III only
C. II and III
D. I and II
E. I and III

KEY: C, B, C, E, C, C, D