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Questions Related to Profit Analysis

Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Profit Analysis Main Page | Profit Analysis MC Questions | MAAW's Chapter 13

1. What are the four factors that affect profit? (See Chapter 13).

2. What are the two main variances in a profit analysis? (See Exhibit 13-1).

3. Which two variances are affected when actual product prices are different from budgeted prices? (See Exhibit 13-5).

4. Which two variances are affected when the actual prices of direct materials or direct labor are different from budgeted prices? (See Exhibit 13-5).

5. Which variances are affected when the actual units sold are different from budget? (See Exhibit 13-5).

6. Which calculation is common to both the Price Cost (or Flexible Budget) variance and the Sales Volume variance? (See Exhibit 13-2).

7. Which calculation is common to both the Sales Price variance and the Revenue part of the Sales Volume variance? (See Exhibit 13-3).

8. Which calculation is common to both the Unit Cost variance and the Cost part of the Sales Volume variance? (See Exhibit 13-4).

9. What is the basis for separating the Sales Volume variance into Sales Mix and Sales Quantity variances? (See the Sales Mix and Sales Quantity variance calculations and Example).

10. What do the sales mix variances tell us? (See the Alternative Four variance approach and the Example).

11. Assume that the actual sales mix is the same as the budgeted sales mix. Then what is the relationship between the Sales Volume variance and the Sales Quantity variance? (See the Alternative Four variance approach and Exhibit 13-5).

12. Which two variances add more explanation to the Price Cost (or Flexible Budget) variance? (See Exhibit 13-5).

13. Which two variances add more explanation to the Sales Volume variance? (See Exhibit 13-5).

14. Which two variances explain the total variance in revenue or sales dollars? (See Exhibit 13-3, Exhibit 13-5 and Exhibit 13-9).

15. Which two variances explain the total variance in cost? (See Exhibit 13-4, Exhibit 13-5 and Exhibit 13-9).

16. In an analysis of contribution margin, which variances include the manufacturing variances for direct material, direct labor and variable overhead? (See Exhibit 13-1).

17. Explain the $9,000 favorable variance in sales revenue in problem 13-1. What caused this variance? (See solution). Multiple choice. Was the price decrease a good idea? Choose an alternative below assuming the volume effect was caused by the price decrease.

a. Yes, the overall effect was to increase contribution margin by $20,000.
b. Yes, the overall effect was to increase contribution margin by $8,000.
c. No, the overall effect was to decrease contribution margin by $11,000.
d. No, the overall effect was to decrease contribution margin by $3,000.

18. Explain the $17,500 unfavorable variance in variable cost in problem 13-1. What caused this variance? (See solution).

19. What is the total effect of sales price and unit cost differences on contribution margin in problem 13-1? (See solution).

20. What is the total effect of sales volume differences on contribution margin in problem 13-1? (See solution).