Sample questions for the 3rd midterm
Business Economics II.
Multiple-choice tests
1. What are the main cost types by nature?
ý Expenses of a material character
¨ Indirect costs
¨ Expenses of a quality character
¨ Expenses of a marketing character
¨ Alternate costs
ý Expenses of a personal character
¨ Progressive costs
ý Depreciation
2. In the break-even point,
¨ there is no production
¨ the cost variation factor is zero
ý the income is zero
¨ the contribution is zero
¨ half of the machines is not working
ý there is neither profit, nor loss
¨ the company is profitable
ý the cost equals the revenue
3. Cost type reduction
ý uses the cost variation factor
ý takes degressive costs apart into two parts
¨ reduces progressive costs
¨ reduces the amount of indirect costs
¨ determines the total product cost
¨ gives information about profitability
Short open questions
4. Define cost!
5. What type of cost (direct/indirect) is the rent of the office for an accountant with several
clients?
6. What type of cost (fix/variable) is the rent of the office for an accountant with several
clients?
7. What is the difference between the restricted and the total product cost?
8. Define contribution!
9. Why does management need cost type reduction?
Calculations
10. A company has only one product. In a month, 2,600 items was assembled and 2,470,000
Ft cost occurred. How much is the total product cost?
Solution:
Simple average costing
V=2,600 items; C=2,470,000 Ft
c = C / V = 2,470,000 / 2,600 = 950 Ft/item
11. A company produces two very similar products. The only difference between them is in
the amount of painted for them. Therefore; the total cost of the company (6,500,000 Ft).
The data for the two product types are the following,
− Type A: 100 Ft paint cost, 1000 items produced;
− Type B: 150 Ft paint cost, 1500 items produced.
How much are the total product costs of the two types?
Solution:
Equivalent number average costing
Reference product: Type A
Equivalent numbers: Type A: 1; Type B: 150 / 100 = 1.5
Equivalent production (as Type A): 1 ∙ 1,000 + 1.5 ∙ 1,500 = 3,250 items
Total product cost of Type A: 6,500,000 / 3,250 = 2,000 Ft/item
Total product cost of Type B: 1.5 ∙ 2,000 = 3,000 Ft/item
12. A company assembles two really different products. The total direct cost of the company
is 10,000,000 Ft, the operating overhead cost is 2,000,000 Ft, the company overhead cost
is 1,400,000 Ft. When determining the product cost of both types, the cost driver for the
operating overhead cost is the direct cost, while the cost driver for the company overhead
cost is the direct cost. With the help of the information in the table, answer the following
questions,
a) How much is the allocation factor of the operating overhead cost?
b) How much is the restricted product cost of Type B?
c) How much is the allocation factor of the company overhead cost?
d) How much is the total product cost of Type B?
Product
Type A
Type B
Amount
200 items
100 items
Direct cost
2,000 Ft/item
6,000 Ft/item
Holding cost
500 Ft/item
400 Ft/item
Solution:
Cost breakdown by allocation
a) operating overhead cost, cost driver is the direct cost
2,000,000
2,000,000
Allocation factor =
=
= 2 Ft/Ft
200 ∙ 2,000 + 100 ∙ 6,000 1,000,000
b)
operating overhead cost for product Type B (per item): 2 ∙ 6,000 = 12,000 Ft
restricted product cost = direct cost + operating overhead cost =
= 6,000 + 12,000 = 18,000 Ft/item
c) company overhead cost, cost driver is the holding cost
1,400,000
1,400,000
Allocation factor =
=
= 10 Ft/Ft
200 ∙ 500 + 100 ∙ 400
140 ,000
d)
company overhead cost for product Type B (per item): 10 ∙ 400 = 4,000 Ft
total product cost = restricted product cost + company overhead cost =
= 18,000 + 4,000 = 22,000 Ft/item
13. The revenue of a company is 10,000,000 Ft, its profit is 2,000,000 Ft. The company’s
cost variation factor is 0.8.
a) Draw the CVP statement!
b) How much price change (%) is needed to increase the profit with 500,000 Ft?
c) How much volume change (%) is needed to increase the profit with
500,000 Ft?
d) The proportionate costs are increasing with 3 percentages and fix costs are
increasing with 1 percentage. Meanwhile the price is raised with 2
percentages. Will this compensate for the cost increase?
Solution:
a) R=10,000,000 Ft; P=2,000,000; δcomp =0.8
Total cost: C = R – P = 8,000,000 Ft
CpT = δcomp C = 6,400,000 Ft
CfT = C – CpT = 1,600,000 Ft
Contribution = R – CpT = 3,600,000 Ft
Revenue
Proportionate cost
Contribution
Fix cost
Profit
10,000,000
6,400,000
3,600,000
1,600,000
2,000,000
b) ΔP = 500,000 Ft
∆𝑃
500,000
∆R =
∙ 100 =
∙ 100 = 5%
R
10,000,000
c) ΔP = 500,000 Ft
∆𝑃
500,000
∆𝑉 =
∙ 100 =
∙ 100 = 13.9%
Contribution
3,600,000
d) ΔR +2%; ΔCpT +3%; ΔCfT +1%;
R: 10,000,000 ∙ 1.02 = 10,200,000 Ft
CpT: 6,400,000 ∙ 1.03 = 6,592,000 Ft
Contribution: 10,200,000 - 6,592,000 = 3,608,000 Ft
CfT: 1,600,000 ∙ 1.01 = 1,616,000 Ft
P: 3,608,000 – 1,616,000 = 1,992,000 Ft
No, it won’t.
Revenue
Proportionate cost
Contribution
Fix cost
Profit
10,200,000
6,592,000
3,608,000
1,616,000
1,992,000
14. A company has 50,000,000 Ft originally fixed cost and 25,000,000 Ft originally
proportionate cost. The degressive cost is 16,000,000 Ft, its reaction degree is 0.25. Draw
the CVP statement if the revenue is 100,000,000 Ft!
Solution:
Cost type reduction for the degressive cost:
Cpr = δ ∙ Cd = 0.25 ∙ 16,000,000 = 4,000,000
Cfr = (1 – δ) ∙ Cd = 0.75 ∙ 16,000,000 = 12,000,000
CVP:
R: 100,000,000 Ft
CpT: Cpo + Cpr = 25,000,000 + 4,000,000 = 29,000,000 Ft
Contribution: 100,000,000 – 29,000,000 = 71,000,000 Ft
CfT: Cfo + Cfr = 50,000,000 + 12,000,000 = 62,000,000 Ft
P: 71,000,000 – 62,000,000 = 9,000,000 Ft
Revenue
Proportionate cost
Contribution
Fix cost
Profit
100,000,000
29,000,000
71,000,000
62,000,000
9,000,000
15. The total fix cost is 10,000,000 Ft. The total proportionate cost as the function of the
production amount (V) is CpT=5,000V. The revenue function is R=9,000V.
a) Calculate the critical volume belonging to the break-even point!
b) Draw on a graph the cost and revenue functions! Sign unequivocally the
critical volume on the graph!
c) The actual volume is V=5,000 items. How much are the contribution and the
profit?
d) Sign unequivocally the actual profit on the graph!
Solution:
a) Break-even point
R = C = CpT + CfT
9,000V = 10,000,000 + 5,000V
V = 2,500 items is the critical volume
b)
R = 9,000 V
R, C
[Ft/year]
C
Break even
point
CpT = 5,000 V
CfT = 10,000,000
V [item]
Vcrit
c) V = 5,000 items
R: 9,000 ∙ 5,000 = 45,000,000 Ft
CpT: 5000 ∙ 5000 = 25,000,000 Ft
Contribution: 45,000,000 – 25,000,000 = 20,000,000 Ft
CfT: 10,000,000 Ft
P: 20,000,000 – 10,000,000 = 10,000,000 Ft
d)
R
R, C
[Ft/year]
Ract
Pact
Cact
C
Break even
point
CpT
CfT
Vcrit
Vact
V [item]