Question

The factor to remember is that the sales unit forecast provides the catalyst for all the period budgets. T OR F?

An increase in the unit sales price will cause the breakeven point to increase T OR F?

Period costs can be found in inventory accounts on the balance sheet. T OR F?

Product cost also means period cost. T OR F?

Job order costing is used by companies who make large or unique products T OR F?

Budgets are prepared with a bottom up perspective, meaning we accumulate our cost and determine our revenue budget based upon our cost structure. T OR F ?

You can always sell more products to achieve profitability T OR F?

Answer 1

1) True

A budget refers to a forecast of expenses and revenues for a specific period. Period budgets are usually prepared on the basis of unit sales because sales budget is a basic and first component of the master budget, hence the given statement is true.

2) False

BEP = Fixed costs / Contribution margin per unit

Where, contribution margin per unit = Selling price per unit - Variable costs per unit

As per the above formula contribution margin has a indirect relationship with break even point which means an increase in contribution margin per unit will decrease the BEP and contribution margin increases when there is an increase in selling price per unit if variable costs remain the constant.  

3) False

Period costs are always expensed in the period in which they incurred on the income statement of the company.

4) False

Product costs are those costs that can be directly identified with products means it include all those costs that incurred to produce the end products. And, period costs are those costs that can't be identified with products directly or can't be linked to end products.

5) True

Job order costing is used for unique and large products such as buildings, boats, customized furniture etc.

6) False

First of all sales are forecasted and on the basis of sales forecast all the rest budgets are prepared.

7) False

Profitability depends on the profit margin which is computed as selling price minus total expenses, if someone sells its units in large quantity but below its cost price then it will not result in higher profits even more products are sold.