Ch12 Marginal & Short-Term Decisions Verified Test Bank

Chapter 12: Relevant Costs Marginal Costing, and Short-term Decision Making

Test Bank

Type: multiple choice question

Title: Chapter 12 Question 01

1) Which one of the following statements does not describe contribution?

a. The surplus that arises from the production and sale of one unit of product or service.

Heading reference: Contribution, Marginal v. absorption costing

b. The profit that is left over once all the costs of the producing or service organization have been deducted from sales revenue.

Heading reference: Contribution, Marginal v. absorption costing

c. The marginal revenue generated from selling and producing one more unit of product or service.

Heading reference: Contribution, Marginal v. absorption costing

d. The selling price less all the variable costs of production.

Heading reference: Contribution, Marginal v. absorption costing

Type: true-false

Title: Chapter 12 Question 02

2) Selling price – total costs = contribution

a. True

Heading reference: Contribution

b. False

Heading reference: Contribution

Type: true-false

Title: Chapter 12 Question 03

3) Contribution = selling price – variable costs

a. True

Heading reference: Contribution

b. False

Heading reference: Contribution

Type: multiple choice question

Title: Chapter 12 Question 04

4) The directors of BB Limited are quoting for a construction contract and are drawing up a list of the expected costs for the contract. Which one of the following costs is not a relevant cost for this quotation?

a. The firm’s own plant and machinery bought four years ago for £35,000 and which will be used on site during the construction contract.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

b. Crane hire at a daily rate of £500 which will be charged to the business on this contract.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

c. Surplus materials that can be sold for £600.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

d. The £12 hourly rate paid to the workforce on the basis of the number of hours worked on a job.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

Type: true-false

Title: Chapter 12 Question 05

5) In decision making, irrelevant costs are those costs that will not change as a result of a decision being made to follow a certain course of action.

a. True

Heading reference: Relevant costs and sunk costs

b. False

Heading reference: Relevant costs and sunk costs

Type: multiple response question

Title: Chapter 12 Question 06

6) Which of the following costs are relevant costs in short term decision making? Please select all that apply.

Heading reference:

Contribution

Marginal v. absorption costing

Relevant costs and sunk costs

Relevant costs: opportunity cost

a. Fixed costs

b. Opportunity costs

c. Sunk costs

d. Variable costs

Type: multiple choice question

Title: Chapter 12 Question 07

7) TVA Limited has a set of 25 fencing panels. It plans to use these fencing panels to build a new fence for a customer. The invoice price for the new fence is £1,500. The fencing panels originally cost £400 but they could be sold today for £500. The cost of replacing the fencing panels is £450. What is the opportunity cost of these fencing panels?

a. £400

Heading reference: Relevant costs: opportunity cost

b. £450

Heading reference: Relevant costs: opportunity cost

c. £500

Heading reference: Relevant costs: opportunity cost

d. £1,500

Heading reference: Relevant costs: opportunity cost

Type: true-false

Title: Chapter 12 Question 08

8) Opportunity cost is the next best alternative price that can be paid for a product or service.

a. True

Heading reference: Relevant costs: opportunity cost

b. False

Heading reference: Relevant costs: opportunity cost

Type: multiple choice question

Title: Chapter 12 Question 09

9) Your audit firm has been approached by a large company with a view to appointing your firm as its auditor at the next annual general meeting. You are considering the costs that you will incur in taking on this new audit client in order to quote an expected fee for the audit for next year. Which one of the following is not a relevant cost in drawing up this audit fee quote?

a. Overnight accommodation for staff staying away from home in order to audit the large company’s branch operations.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

b. The cost of audit software that is already used as standard by the firm on all its existing audit assignments.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

c. The services of a tax expert that will have to be bought in to deal with certain complex tax issues in the large company.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

d. Additional time used on the audit by existing staff members that will have to be paid as overtime.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

Type: multiple choice question

Title: Chapter 12 Question 10

10) Which one of the following statements is not correct?

a. Opportunity costs are only considered when resources are limited.

Heading reference: Relevant costs: opportunity cost

b. Short term decision making is all about analysing those costs that will change as a result of taking a particular course of action.

Heading reference: Relevant costs and sunk costs

c. Contribution analysis is used to determine how many units of a product or service a business has to sell in order to cover all the costs of the business.

Heading reference: Break-even point, Break-even point: graphical illustration

d. Both fixed and variable costs influence future short term decision making.

Heading reference: Relevant costs and sunk costs

Type: multiple choice question

Title: Chapter 12 Question 11

11) Which one of the following describes sensitivity analysis in the context of break-even point?

a. Enables us to determine how far our sales can fall before we reach break-even point.

Heading reference: The margin of safety

b. Enables us to determine the profit or loss from any given level of sales.

Heading reference: Sensitivity analysis

c. Enables us to calculate the level of sales required to achieve a given level of profit.

Heading reference: Target profit

d. Enables us to decide whether it is more cost effective to buy goods and services from external parties or to produce or deliver those goods and services within the organization.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

Type: multiple choice question

Title: Chapter 12 Question 12

12) Which one of the following describes the way in which limiting factor analysis uses contribution and relevant cost analysis?

a. Total fixed costs divided by contribution per unit of sales.

Heading reference: Break-even point, Break-even point: graphical illustration

b. Using relevant cost and contribution analysis to determine whether accepting an order to supply goods at lower than the usual selling price will increase or decrease overall profit.

Heading reference: Special orders

c. Using relevant cost analysis to determine whether it is more cost effective to produce products inside an organization or to buy them in from outside.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

d. Calculating the contribution per unit of scarce resource to determine the profit maximizing production plan.

Heading reference: Limited factor (key factor) analysis

Type: multiple choice question

Title: Chapter 12 Question 13

13) Which one of the following uses contribution and relevant cost analysis to determine the profit or loss at any given level of sales?

a. Sensitivity analysis

Heading reference: Sensitivity analysis

b. Break-even analysis

Heading reference: Break-even point, Break-even point: graphical illustration

c. Margin of safety

Heading reference: The margin of safety

d. Target profit

Heading reference: Target profit

Type: multiple choice question

Title: Chapter 12 Question 14

14) Angela sets up in business making teddy bears. Materials cost £3 per bear, employees are paid £2 for each bear produced and there are packaging costs of £1 for each bear. The fixed costs of Angela’s teddy bear workshop amount to £25,000 per annum. Each bear sells for £10. Angela’s aim is to sell 15,000 teddy bears in her first year of operations. What is the number of teddy bears that Angela will need to produce and sell in order to break even?

a. 2,500

Heading reference: Break-even point, Break-even point: graphical illustration

b. 5,000

Heading reference: Break-even point, Break-even point: graphical illustration

c. 6,250

Heading reference: Break-even point, Break-even point: graphical illustration

d. 15,000

Heading reference: Break-even point, Break-even point: graphical illustration

Type: multiple choice question

Title: Chapter 12 Question 15

15) Aisha sells cutlery sets for £120 per set. Variable costs of production are £72 and the fixed costs per cutlery set are £6 based on the expectation that the normal level of production will be 42,000 cutlery sets per annum. A sales commission of £3 is paid to the company’s sales representatives for every cutlery set sold. What is Aisha’s break-even point in sales units?

a. 5,250

Heading reference: Break-even point, Break-even point: graphical illustration

b. 5,600

Heading reference: Break-even point, Break-even point: graphical illustration

c. 6,000

Heading reference: Break-even point, Break-even point: graphical illustration

d. 6,462

Heading reference: Break-even point, Break-even point: graphical illustration

Type: multiple choice question

Title: Chapter 12 Question 16

16) Chiara and Co, a firm of accountants, employs 4 qualified accounting staff at an annual salary cost of £45,500 each. Each accountant works 1,820 hours in a year. The firm charges clients £40 for each hour that each accountant spends working on the clients’ accounts, tax returns and on general business advice. The firm has fixed overhead costs of £87,000 per annum. What is Chiara and Co’s break-even point in hours?

a. 2,175 hours.

Heading reference: Break-even point, Break-even point: graphical illustration

b. 3,480 hours

Heading reference: Break-even point, Break-even point: graphical illustration

c. 5,800 hours.

Heading reference: Break-even point, Break-even point: graphical illustration

d. 7,280 hours.

Heading reference: Break-even point, Break-even point: graphical illustration

Type: multiple choice question

Title: Chapter 12 Question 17

17) The BV hotel has 50 rooms and is open for 360 days a year, giving a total number of room nights of 50 x 360 = 18,000. The charge for each room is £80 per night and the variable costs of each night’s stay are £20 plus breakfast costing £10. Total fixed costs of the hotel are £540,000 per annum. What is the break-even point in room nights?

a. 6,750

Heading reference: Break-even point, Break-even point: graphical illustration

b. 9,000

Heading reference: Break-even point, Break-even point: graphical illustration

c. 10,800

Heading reference: Break-even point, Break-even point: graphical illustration

d. 18,000

Heading reference: Break-even point, Break-even point: graphical illustration

Type: multiple choice question

Title: Chapter 12 Question 18

18) Which one of the following statements about break-even point is incorrect?

a. Break-even point = the point at which revenue from sales = the variable costs of the business.

Heading reference: Break-even point, Break-even point: graphical illustration

b. Break-even point = total fixed costs ÷ contribution per unit of sales.

Heading reference: Break-even point, Break-even point: graphical illustration

c. Break-even point = the point at which a £nil profit and £nil loss result.

Heading reference: Break-even point, Break-even point: graphical illustration

d. Break-even point = the number of units of production and sales that will cover all the business’ costs.

Heading reference: Break-even point, Break-even point: graphical illustration

Type: multiple response question

Title: Chapter 12 Question 19

19) Which of the following costing techniques do not employ knowledge of the break-even point?

Please select all that apply.

Heading reference:

Limited factor (key factor) analysisSensitivity analysis

Outsourcing (make or buy decisions) Special orders

a. Limiting factor analysis

b. Sensitivity analysis

c. Make or buy decisions

d. Special orders

Type: multiple choice question

Title: Chapter 12 Question 20

20) WS Limited currently sells 15,000 bookshelves at £50 each. For each bookshelf, direct materials cost £15, direct labour costs £17.50 and variable overheads cost £2.50. WS Limited’s fixed costs total up to £105,000. What is the margin of safety for WS Limited in number of bookshelves?

a. 7,000 bookshelves

Heading reference: The margin of safety

b. 8,000 bookshelves

Heading reference: The margin of safety

c. 22,000 bookshelves

Heading reference: The margin of safety

d. 23,000 bookshelves

Heading reference: The margin of safety

Type: multiple choice question

Title: Chapter 12 Question 21

21) Dino and Co, a firm of accountants, employs 6 qualified accounting staff at an annual salary cost of £53,625 each. Each accountant works 1,950 hours in a year. Of the 11,700 available hours in the year, 11,400 are spent on work that is chargeable to the clients. Dino and Co charges clients £50 for each hour that each accountant spends working on the clients’ accounts, tax returns and on general business advice. The firm has fixed overhead costs of £202,500 per annum. What is Dino and Co’s margin of safety in hours?

a. 2,400 hours.

Heading reference: The margin of safety

b. 2,700 hours

Heading reference: The margin of safety

c. 7,350 hours.

Heading reference: The margin of safety

d. 9,000 hours.

Heading reference: The margin of safety

Type: multiple choice question

Title: Chapter 12 Question 22

22) Rupinder sells crockery sets for £80 per set. Variable costs of production are £38 and the fixed costs per crockery set are £6 based on the expectation that the normal level of production and sales will be 34,000 crockery sets per annum. A sales commission of £2 is paid to the company’s sales representatives for every crockery set sold. What is Rupinder’s margin of safety?

a. 5,100

Heading reference: The margin of safety

b. 6,000

Heading reference: The margin of safety

c. 28,000

Heading reference: The margin of safety

d. 28,900

Heading reference: The margin of safety

Type: multiple choice question

Title: Chapter 12 Question 23

23) The Lake View hotel has 60 rooms and is open for 360 days a year, giving a total number of room nights of 60 x 360 = 21,600. The charge for each room is £90 per night and the variable costs of each night’s stay are £25 plus breakfast costing £10. Total fixed costs of the hotel are £715,000 per annum. The hotel has an occupancy rate of 80% each year. What is the margin of safety for the Lake View hotel in room nights?

a. 4,280

Heading reference: The margin of safety

b. 8,600

Heading reference: The margin of safety

c. 13,000

Heading reference: The margin of safety

d. 17,280

Heading reference: The margin of safety

Type: true-false

Title: Chapter 12 Question 24

24) The higher the margin of safety, the more likely it is that a business will make a loss.

a. True

Heading reference: The margin of safety

b. False

Heading reference: The margin of safety

Type: multiple choice question

Title: Chapter 12 Question 25

25) GF Limited makes and sells mini greenhouses for £80 each. The direct material component of each mini greenhouse costs £40, direct labour makes up £15 of the variable cost and variable overheads total up to £5. GF Limited has annual fixed costs of £54,000. A commission of £2 per mini greenhouse is paid to the sales representative for each sale achieved. GF Limited currently has sales of 5,000 mini greenhouses. Calculate the profit that GF Limited will make if 4,000 mini greenhouses are sold.

a. £18,000

Heading reference: Sensitivity analysis

b. £26,000

Heading reference: Sensitivity analysis

c. £36,000

Heading reference: Sensitivity analysis

d. £46,000

Heading reference: Sensitivity analysis

Type: multiple choice question

Title: Chapter 12 Question 26

26) Podcaster University Press produces and sells a text book which provides comprehensive coverage of International Financial Reporting Standards. The book generates a contribution of £30 and each book is allocated a fixed overhead charge of £10 to give a profit of £20 on each book produced and sold. Fixed overheads for the book total up to £27,000 per annum. Podcaster University Press is experiencing a fall in demand for this book and expected sales have fallen from 2,700 to 1,200 books. Using sensitivity analysis, what is the profit or loss that Podcaster University Press will make from selling 1,200 copies of this book?

a. A loss of £3,000.

Heading reference: Sensitivity analysis

b. A profit of £9,000.

Heading reference: Sensitivity analysis

c. A profit of £24,000.

Heading reference: Sensitivity analysis

d. A profit of £36,000.

Heading reference: Sensitivity analysis

Type: true-false

Title: Chapter 12 Question 27

27) Under sensitivity analysis, profit or loss = (unit sales – break-even point in units) x contribution per unit.

a. True

Heading reference: Sensitivity analysis

b. False

Heading reference: Sensitivity analysis

Type: multiple choice question

Title: Chapter 12 Question 28

28) Sensitivity analysis uses contribution and break-even analysis to determine the profit or loss at any given level of sales. Which one of the following is the calculation used in sensitivity analysis?

a. Fixed costs divided by contribution per unit of sales.

Heading reference: Break-even point, Break-even point: graphical illustration, Sensitivity analysis

b. Contribution per unit of sales x (unit sales – break-even point in sales units).

Heading reference: Sensitivity analysis

c. Contribution per unit of sales x (unit sales + break-even point in sales units).

Heading reference: Sensitivity analysis, Target profit

d. Total sales in units – the break-even point in sales units.

Heading reference: The margin of safety, Sensitivity analysis

Type: multiple choice question

Title: Chapter 12 Question 29

29) JSP produces printers. The total variable production cost of each printer amounts to £35 and each printer sells for £60. In addition to the variable production cost, a royalty payment of £1 is paid to the special chip designer for each printer sold. JSP’s fixed costs total up to £480,000 per annum. JSP currently sells 25,000 printers every year. A new managing director has been appointed and she has set a target profit of £216,000 for JSP in the coming financial year. How many printers will JSP have to sell in total to achieve a target profit of £216,000?

a. 8,640

Heading reference: Target profit

b. 9,000

Heading reference: Target profit

c. 28,640

Heading reference: Target profit

d. 29,000

Heading reference: Target profit

Type: multiple choice question

Title: Chapter 12 Question 30

30) Vijay produces shelving units. The total variable production cost of each shelving unit is £27 and each shelving unit sells for £55. In addition to the variable production cost of each unit, a sales commission of £3 is paid to the sales staff for each shelving unit sold. Vijay allocates a fixed overhead of £10 to each shelving unit on the basis that normal annual production and sales of 21,000 shelving units are achieved. Vijay is looking to achieve a target profit of £360,000 for the next financial year. How many shelving units will Vijay need to sell in total to achieve a target profit of £360,000?

a. 14,400

Heading reference: Target profit

b. 20,357

Heading reference: Target profit

c. 22,800

Heading reference: Target profit

d. 38,000

Heading reference: Target profit

Type: multiple choice question

Title: Chapter 12 Question 31

31) Target profit uses contribution analysis to determine the level of sales required to achieve a certain level of profit. Which one of the following is the correct method to use to calculate target profit?

a. Fixed costs divided by contribution per unit of sales.

Heading reference: Break-even point, Break-even point: graphical illustration, Target profit

b. Contribution per unit of sales x (unit sales – break-even point in sales units).

Heading reference: Sensitivity analysis, Target profit

c. Contribution per unit of sales x (unit sales + break-even point in sales units).

Heading reference: Target profit

d. Total sales in units – the break-even point in sales units.

Heading reference: The margin of safety, Target profit

Type: multiple choice question

Title: Chapter 12 Question 32

32) Which of the following is not a potential problem to take into account when making decisions to outsource production of goods or services?

a. The potential loss of in-house skills and expertise in the provision of goods and services.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

b. The potential for improved morale and commitment from the entity’s remaining workforce resulting in higher productivity and profitability.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

c. Future price increases in the cost of goods and services outsourced could cancel out any cost savings made when production was originally outsourced.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

d. The potential loss of reputation if outsourced products and services are of lower quality compared to those that could be produced or provided in-house.

Heading reference: Outsourcing (make or buy decisions), Outsourcing (make or buy decisions): additional considerations

Type: true-false

Title: Chapter 12 Question 33

33) Outsourcing = loss of control.

a. True

Heading reference: Outsourcing (make or buy decisions): additional considerations

b. False

Heading reference: Outsourcing (make or buy decisions): additional considerations

Type: multiple choice question

Title: Chapter 12 Question 34

34) David 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 £5. The company produces four products, A, B, C and D. The selling prices and cost information relating to these four products is as follows:

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

a. A

Heading reference: Limited factor (key factor) analysis

b. B

Heading reference: Limited factor (key factor) analysis

c. C

Heading reference: Limited factor (key factor) analysis

d. D

Heading reference: Limited factor (key factor) analysis

Type: multiple choice question

Title: Chapter 12 Question 35

35) Alex Limited manufactures 3 products, A, B and C. Product A generates a contribution of £20, product B a contribution of £30 and product C a contribution of £40. The company is currently anticipating a shortage of the necessary grade of skilled labour over the next month when only 4,000 hours of skilled labour will be available. Product A uses 2 hours of this skilled labour per unit of production, product B uses 4 hours and product C uses 5 hours. The demand for the next month for each product is as follows:

Product A: 500 units

Product B: 600 units

Product C: 700 units

What is the profit maximizing production schedule that Alex Limited should follow for the next month?

a. Zero units of product A, 125 units of product B and 700 units of product C.

Heading reference: Special orders: additional considerations

b. 250 units of product A, zero units of product B and 700 units of product C.

Heading reference: Special orders: additional considerations

c. 500 units of product A, 300 units of product B and 360 units of product C

Heading reference: Special orders: additional considerations

d. 500 units of product A, zero units of product B and 600 units of product C

Heading reference: Special orders: additional considerations

Type: multiple choice question

Title: Chapter 12 Question 36

36) a) Calculate the contribution maximising production schedule.

b) Calculate the quantity of limiting factor used in the production of each product.

c) Calculate the contribution per unit of limiting factor delivered by each product.

The three stages in limiting factor analysis are listed above. However, they are not currently listed in the correct order. What is the correct order which these stages should follow?

a. c, b, a

Heading reference: Special orders: additional considerations

b. c, a, b

Heading reference: Special orders: additional considerations

c. b, c, a

Heading reference: Special orders: additional considerations

d. b, a, c

Heading reference: Special orders: additional considerations

Type: multiple choice question

Title: Chapter 12 Question 37

37) Which one of the following statements is not an assumption of relevant cost and contribution analysis?

a. It is assumed that variable costs can be identified with the required level of precision.

Heading reference: Relevant costs, marginal costing and decision making: assumptions

b. Period fixed costs are assumed to be completely predictable and unchanging.

Heading reference: Relevant costs, marginal costing and decision making: assumptions

c. Prices are assumed to be stable.

Heading reference: Relevant costs, marginal costing and decision making: assumptions

d. Variable costs are assumed to be curvilinear and not to vary directly in line with production.

Heading reference: Relevant costs, marginal costing and decision making: assumptions

Type: multiple choice question

Title: Chapter 12 Question 38

38) In which one of the following situations can relevant cost and contribution analysis not be used?

a. When organizations face a shortage of resources and seek to maximize profit over the short term.

Heading reference: Special orders: additional considerations

b. Making outsourcing decisions.

Heading reference: Outsourcing (make or buy decisions)

c. Break even analysis involving two or more products.

Heading reference: Relevant costs, marginal costing and decision making: assumptions

d. Distinguishing between different marketing strategies involving different selling prices.

Heading reference: Marketing and selling price

Type: multiple response question

Title: Chapter 12 Question 39

39) Variable costs are assumed to be linear, that is, variable costs vary directly in line with production of goods and delivery of services. Which of the following would result in costs not behaving in a strictly linear fashion?

Please select all that apply.

Heading reference:

Special orders: additional considerations

Relevant costs, marginal costing and decision making: assumptions

a. Bulk discounts for bulk purchases of raw materials.

b. Bonus payments to production employees.

c. Stepped fixed costs.

d. Overtime payments to production employees.

Type: true-false

Title: Chapter 12 Question 40

40) Break-even analysis is just as valid for two or more products as it is for one product.

a. True

Heading reference: Relevant costs, marginal costing and decision making: assumptions

b. False

Heading reference: Relevant costs, marginal costing and decision making: assumptions

Type: multiple response question

Title: Chapter 12 Question 41

41) Which of the following are irrelevant costs in short term decision making? Please select all that apply.

Heading reference: Relevant costs and sunk costs, Relevant costs: opportunity cost

a. Sunk costs.

b. Fixed costs.

c. Past costs.

d. Opportunity costs.

Type: multiple choice question

Title: Chapter 12 Question 42

42) XYZ makes one product which it sells for £100 per unit. Annual sales are 4,000 units. Break-even point is 2,000 units and total annual fixed costs are £120,000. What is the variable cost per unit of production and sales?

a. £30

Heading reference: Break-even point

b. £40

Heading reference: Break-even point

c. £60

Heading reference: Break-even point

d. £70

Heading reference: Break-even point

Type: multiple choice question

Title: Chapter 12 Question 43

43) Target profit in units =

a. Actual sales units – break-even sales units

Heading reference: Target profit

b. Target profit in £s ÷ contribution per unit of sales

Heading reference: Target profit

c. (Actual sales units – break-even sales in units) x contribution per unit of sales.

Heading reference: Target profit

d. Break-even point in units + (target profit in £s ÷ contribution per unit of sales) Feedback: Profit is the surplus that remains after all the costs (both fixed and variable) of a business have been deducted from total sales revenue. Before any profit is made, the fixed costs of the business have to be covered by the contribution earned from sales of products or services. Once these fixed costs have been covered by contribution from sales of products or services, then any remaining contribution from sales of products or services over and above the break-even point is pure profit. Therefore, the calculation of target profit in units must first take into account the number of sales units required to reach the break-even point (the point at which a business makes neither a profit nor a loss and at which sales revenue = total costs, both fixed and variable). Target profit is therefore the (target profit in £s ÷ contribution per unit of sales) + the number of units required to break even.

Heading reference: Target profit

Type: multiple response question

Title: Chapter 12 Question 44

44) Which of the following costing techniques employ knowledge of break-even point in their calculations?

Please select all that apply.

Heading reference:

The margin of safety

Sensitivity analysis

Target profit

Marketing and selling price

a. Margin of safety

b. Sensitivity analysis

c. Target profit

d. Marketing decisions

Type: multiple choice question

Title: Chapter 12 Question 45

45) DTT makes one product. Annual sales of this product are 5,000 units and the margin of safety is 2,000 units. Total annual fixed costs are £150,000 and the variable cost per unit of production is £35. What is the selling price of each unit of product?

a. £50

Heading reference: Break-even point

b. £65

Heading reference: Break-even point

c. £85

Heading reference: Break-even point

d. £110

Heading reference: Break-even point