Chapter 12 Self-test questions

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. Which one of the following statements is not correct?

Limiting factor analysis is only relevant where two or more products are produced. correct incorrect

Special orders are only accepted when there is no spare production capacity. correct incorrect

Decision making is not just about determining a selling price for a product or service. correct incorrect

The margin of safety tells us how far our sales can fall before we reach break-even point. correct incorrect

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. Which of the following statements describe variable costs? Please select all that apply.

Costs that change as levels of production or service delivery change. correct incorrect

Costs that remain the same at all levels of production and service delivery. correct incorrect

Costs that rise and fall directly in line with rises and falls in production or service delivery. correct incorrect

Sales – contribution = variable costs. correct incorrect

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. ___________________ is the loss that is incurred by choosing one alternative course of action over another.

Your response

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. When there is a shortage of direct materials or direct labour, contribution analysis tells us to produce the product with the highest contribution.

True correct incorrect

False correct incorrect

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. Which of the following costs are relevant costs and which are non-relevant costs in the context of short-term decision making?

Sunk costs

Non-relevant cost Relevant cost Relevant cost Non-relevant cost

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.

Opportunity cost

Relevant cost Relevant cost Non-relevant cost Non-relevant cost

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.

Variable cost

Relevant cost Non-relevant cost Relevant cost Non-relevant cost

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.

Fixed costs

Non-relevant cost Relevant cost Relevant cost Non-relevant cost

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. Which one of the following statements about the limitations of marginal costing is not true?

Fixed costs are fixed. correct incorrect

The variable costs of a product can be identified with the required level of precision to enable accurate calculations to be made. correct incorrect

Break-even analysis can be applied to determine break even points for one or more products. correct incorrect

Variable costs are completely linear and vary directly in line with production. correct incorrect

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. Break-even analysis is used in making which of the following decisions? Please select all that apply.

Outsourcing correct incorrect

Sensitivity analysis correct incorrect

Margin of safety correct incorrect

Target profit correct incorrect

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. Selling price – ______________________ = contribution.

Your response

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. Businesses with low variable costs and high fixed costs will tend to have a low margin of safety.

True correct incorrect

False correct incorrect

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. Which of the following statements describe break-even analysis?
Please select all that apply.

The point at which revenue from sales = total costs. correct incorrect

The level of sales that produces neither a profit nor a loss. correct incorrect

The units of sales needed to cover all costs both fixed and variable. correct incorrect

The point on the graph at which the sales line intersects with the fixed costs line. correct incorrect

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. EGT produces sofas. The total variable production cost of each sofa is £300 and each sofa sells for £480. Fixed overhead of £90 is added to the cost of each sofa on the basis that the company sells 2,000 sofas each year. How many sofas will EGT need to sell to achieve a target profit of £270,000?

1,500 correct incorrect

2,500 correct incorrect

3,000 correct incorrect

5,000 correct incorrect

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. Which of the following are factors that should be taken into account when making outsourcing decisions? Please select all that apply.

Quality control correct incorrect

Reputation correct incorrect

Spare capacity correct incorrect

Loss of skills and knowledge correct incorrect

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. FYI Limited produces a single product which has a selling price of £120. Variable costs of production are £80 and fixed costs of £25 are allocated to each product on the basis of sales of 3,000 units. Current sales of the product are 5,000 units per annum. What is the current break-even point and margin of safety for FYI Limited?

Break-even point: 1,125 units, margin of safety: 1,875 units correct incorrect

Break-even point: 1,875 units, margin of safety: 1,125 units correct incorrect

Break-even point: 1,875 units, margin of safety: 3,125 units correct incorrect

Break-even point: 5,000 units, margin of safety: Nil units correct incorrect

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. Which one of the following statements is the odd one out?

Orders for goods at a reduced selling price. correct incorrect

Reducing selling prices to increase market share. correct incorrect

Reduction in long-term profits as information about lower selling prices leaks out into the market. correct incorrect

Only accept when there is spare capacity. correct incorrect

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. TSG Limited can sell as much production as it can make of each of its products. The company is currently facing a shortage of input materials for its products and has to decide which product to produce in the next three months in order to maximize its profits. Each kilogram of input material used in all four products costs £8. The company produces four products, W, X, Y and Z. The selling prices and cost information relating to these four products is as follows:

Product	Selling price per unit of production	Kilograms of material used in one unit of production	Other variable costs per unit of production
	£	Kgs	£
W	64	3	16
X	90	5	35
Y	50	2	10
Z	120	6	30

Which product should TSG Limited produce and sell in order to maximise profits over the next three months?

W correct incorrect

X correct incorrect

Y correct incorrect

Z correct incorrect