1. Which cost is categorized as manufacturing overhead cost?
A. OIL
B. Plant maintenance costs Correct
C. CEO salary
D. Plant assembly line worker wages
Explanation
Manufacturing overhead costs are indirect costs associated with the production process that cannot be easily traced to individual units. Plant maintenance costs are a classic example of an indirect cost that supports the entire manufacturing operation. OIL is not a standard cost category. CEO salary is a period cost related to general administration, not manufacturing. Plant assembly line worker wages are a direct labor cost, which is a prime cost, not an overhead cost.
2. How can the breakeven formula assist in setting a new selling price?
A. It highlights cost inefficiencies.
B. It shows the company's total cash flow.
C. It indicates which fixed costs can be eliminated.
D. It simulates how different prices affect target profit and break-even point. Correct
Explanation
The breakeven formula is a crucial tool for cost-volume-profit (CVP) analysis. It helps management understand the relationship between selling price, volume, costs, and profit. By inputting different selling prices into the formula, a company can model and simulate the resulting impact on both the break-even point (the number of units needed to sell to cover all costs) and the potential to achieve a target profit. This allows for informed decision-making when adjusting prices in response to factors like inflation. The other options describe functions not directly performed by the breakeven formula.
3. Which type of organization purchases finished goods from a supplier or wholesaler to need it then to customers for print?
A. Merchandising Correct
B. Service
C. Manufacturing
D. Governmental
Explanation
A merchandising business is an entity that purchases finished, ready-to-sell goods from suppliers, wholesalers, or manufacturers and then resells those same goods to customers without altering them. The phrase 'to need it then to customers for print' appears to be a corrupted version of 'to sell them to customers for a profit,' which is the core activity of a merchandiser. A service company sells intangible services, not physical goods. A manufacturing company produces goods from raw materials. A governmental organization is not primarily focused on buying and selling goods for profit.
4. A construction company has the following costs: Plant supervisor salary $82,000, Limited $83,000, Production worker wages $86,000, Machine maintenance $15,000, Lease on factory $80,000. Which three of these costs are window costs?
A. Lumber, production worker wages, and machine maintenance
B. Production worker wages, machine maintenance, and lease on factory
C. Plant supervisor salary, lumber, and production worker wages
D. Machine maintenance, lease on factory, and plant supervisor salary Correct
Explanation
The term 'window costs' is not standard accounting terminology. Based on the context and the options, it is likely a misspelling or misstatement of 'indirect costs' or more specifically, 'manufacturing overhead costs.' Overhead costs are indirect product costs that cannot be easily traced to a specific unit. They include indirect materials, indirect labor, and other indirect factory costs. Plant supervisor salary (indirect labor), machine maintenance (indirect materials/labor), and lease on factory (other indirect factory cost) are all manufacturing overhead. 'Lumber' is likely a direct material cost. 'Production worker wages' are direct labor costs. Both direct materials and direct labor are prime costs, not overhead costs.
5. A company wants to increase overall profitability by only increasing its product's selling price. Which effect should this have?
A. Increased risk of customers seeking substitutes Correct
B. Increased breakeven point in units
C. Increased fixed cost per unit
D. Decreased contribution margin per unit
Explanation
Increasing the selling price, while holding costs constant, will increase the contribution margin per unit (contribution margin = selling price - variable cost per unit). This would actually decrease the break-even point in units (break-even point = fixed costs / contribution margin per unit). Fixed costs per unit are not affected by selling price changes; they change with the volume of production. The primary risk of increasing price is that it may make the product less competitive in the market. Customers might find the product too expensive and seek cheaper alternatives or substitutes, potentially leading to a decrease in sales volume that could offset the gains from the higher price.