Finance for Non-Finance Managers Cost Management 2

Question 1

A manufacturer produces 10,000 units and total costs are $150,000. Fixed costs are $50,000. What is the variable cost per unit?

Accepted Answer

$10

Answer

Variable costs = $150,000 - $50,000 = $100,000; divided by 10,000 units = $10 per unit.

Question 2

Which cost behavior pattern remains constant per unit but increases in total as production volume rises?

Accepted Answer

Variable cost

Answer

Variable costs are constant per unit but increase in total as more units are produced.

Question 3

A company's break-even point in units is 2,000. If it sells 2,500 units, what is the margin of safety?

Accepted Answer

500 units

Answer

Margin of safety = actual sales - break-even sales = 2,500 - 2,000 = 500 units.

Question 4

Direct labor hours used to allocate manufacturing overhead is an example of which costing concept?

Accepted Answer

Cost driver

Answer

A cost driver is a factor that causes overhead costs to be incurred, used as the allocation base.

Question 5

When a factory produces below normal capacity, the resulting unabsorbed overhead is treated as:

Accepted Answer

A period cost expensed immediately

Answer

Under-absorbed overhead from idle capacity is typically written off as a period cost in the income statement.

Finance for Non-Finance Managers Practice Test