Admas University

Faculty of Business
Mekelle Campus
Department of Accounting & Finance
Cost & Management Accounting II
Name ___________________________ Id. No. ________ Sec ______
Part I. Fill in the Blank Space Questions
1. Three important assumptions in cost-volume-profit analysis is that (1) _______________ per
unit is constant, (2) _____________ per unit is constant, and (3) ______________ are constant
in total.
2. A _______________ cost is one that remains unchanged in amount when volume of activity
varies from period to period within a relevant range.
3. A ______________ cost is one that changes in proportion to changes in volume of activity.
4. The unit contribution margin divided by the selling price per unit is the _______________.
5. The ______________________ is the sales level at which a company neither earns a profit nor
incurs a loss.
6. The ratio of the volumes of the various products sold by a company is called the
____________________________.
7. Difference caused solely by difference between in volume sold and volume expected to be sold
in static budget. _______________________________
8. Differences between amount based on actual result and amount supposed to be according to
budget amount. ___________________________
9. Budget based on output planned at the start of the budget period. _______________________
10. Budget based on level of output actually achieved at the budget period. ___________________
11. Difference between actual result and flexible budget amount. ___________________________
12. Difference between actual result and static budget amount. ____________________________

Part II. True or False Questions

For each of the following questions write True for correct ones and False for incorrect ones.
1. On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis and both
dollars of sales and dollars of costs are represented on the vertical axis.
2. An important assumption in multiproduct analysis is that the sales mix is known and remains
constant.
3. As the level of output activity increases, fixed cost per unit remains constant.
4. Cost-volume-profit analysis is frequently based on the assumption that the production level is
the same as the sales level.
5. The margin of safety is the amount that sales can drop before the company incurs a loss.
6. To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and
sales price.
Part III. Multiple Choice Questions
Choose the best answer from the given alternatives
1. Which is the mostly likely purpose of budgeting?
a) Communicates company objectives throughout the firm
b) Effectively allocates resources
c) Reveals bottlenecks d) All of the above
2. Which of the following is not a component of operating budget?

a) sales budget d) Budgeted income statement

b) Cash budget e) None of the above
c) Purchase budget
3. The formula for break-even point in terms of units is
a) Total variable costs/Unit contribution c) Total fixed costs/Unit contribution
margin margin
b) Total fixed costs/Contribution margin d) Total variable costs/Total fixed costs
ratio
4. What budgeted amounts appear on the flexible budget?
a) Original budgeted amounts at the static budget activity level
b) Actual costs for the budgeted activity level
c) Budgeted amounts for the actual activity level achieved
d) Actual costs for the estimated activity level
5. One of the following costs are relevant cost
a) Differential cost c) Sales price
b) Variable costs d) All are possible answers
6. A favorable variance occurs when
a) actual costs are less than static costs
b) standard costs are less than actual costs
c) standard costs are less than static costs
d) actual costs are less than standard costs

Part IV. Workout Questions

Trojan Company is considering the production and sale of a new product with the following sales and
cost data: unit sales price, $350; unit variable costs, $180; total fixed costs, $399,500; and projected
sales, $910,000. Round your answers to the nearest whole unit or dollar.

a. Calculate break-even in units and in dollars.

b. Calculate number of units that would need to be sold to generate an operating profit of
$420,000.
c. Calculate dollar sales that would be needed to generate the same profit as above.
d. Calculate the margin of safety stated as a percentage using the $910,000 projected sales level.