Question

QUESTION 1 Responsibility accounting is a system in which a manager is held responsible for those items of revenues and costs-and only those items-that the manager can control to a significant extent. O True O False QUESTION 2 The sales volume in units that are needed to achieve a specific Target Profit can be calculated by Dividing the dollars of fixed costs by the unit contribution margin Dividing the dollars of fixed costs and target profit by the unit contribution margin Dividing the dollars of target profit by the unit contrbuion margin Dividing the dollars of target profit by the sales price QUESTION 3 Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November 319,200 188 100 131,100 106 500 $ 24.600 Sales (5,700 units). Variable expenses. Net operating income. If the company sells 5,300 units instead of S,700, its net operating income would then amount to: 1.$24,600 O 2.$2,200 3.$22,874 4.$15,400 QUESTION 4 A company with sales of $60,000 and variable expenses of $30,000 should spend $40,000 on increased advertising if the increased advertising will increase sales by $60,000. True O False QUESTION 5 Drake Company's income statement for the most recent year appears below: Sales (26,000 units).. Less: Variable e Contribution margin. Less: Fixed expenses Net operating I $650,000 442,000 208,000 234.000 $(26,000) Drake's unit contribution margin is: 0 1.$17 QUESTION 6 Once the break-even point has been reached, net operating income will increase by the unit contribution margin for each additional unit sold. O True O False

Answer 1

Answers

• All working forms part of the answer
• Answer #1

TRUE.
Responsibility statement prepared by such system makes the manager responsible for kind of performances his department has achieved.

• Answer #2
  Correct Answer = Option #2: Dividing the dollars of fixed cost & target profit by the unit contribution margin will give sales volume needed to achieve the target profit.
  Sales required = (Fixed cost + Target profit) / Contribution margin per unit
• Answer #3
  Contribution margin when 5300 units are sold = ($13100/5700 units) x 5300 units = $ 121,900
  Net Operating income = 121900 - $ 106500 Fixed cost = $ 15,400
  Correct Answer = Option #4: $ 15,400
• Answer #4

False.
This is because CM Ratio = 50% [30000/60000]
If $ 60000 additional sales occurred, additional Contribution margin would be just $ 30,000.
This increased fixed cost however would be $ 40000 on advertising.
Hence, contribution margin would be less than fixed cost, and hence it would not be profitable to do so.

• Answer #5

Unit contribution = $ 208000 contribution margin / 26000 units
= $ 8
Correct Answer = Option #2: $ 8

• Answer #6
  TRUE.
  This is because at Break even point, net Income would be $ 0.
  Any increase over Break even point will give positive net operating income.
  Any decrease from Break even point will lead to net operating loss.