Management Accounting MCQ Questions and Solutions with Explanations | Management

Margin of safety = Budgeted revenue - Breakeven revenue
= $20000 - $15000 = $5,000.

Graph, which shows change in sold quantity and its effect on operating income is called PV graph. The PV diagram models the relationship between pressure (P) and volume (V) for an ideal gas.

Contribution margin is divided to operate income to calculate degree of operating leverage. The Degree of Operating Leverage (DOL) is the leverage ratio that sums up the effect of an amount of operating leverage on the company's earnings before interests and taxes (EBIT).

Sales mix = Total units of product (A + B + C)
= 200 + 300 + 400 = 900 units.

Difference between actual result and corresponding amount of flexible budget, on basis of actual level of output is classified as flexible budget variance. A flexible budget variance is any difference between the results generated by a flexible budget model and actual results. If actual revenues are inserted into a flexible budget model, this means that any variance will arise between budgeted and actual expenses, not revenues.

In corporate costs, costs incur for employee recruitment, development and training are classified as human resource management costs. They include all of the direct costs of recruitment, selection, hiring, and placement, as well as certain indirect costs. Recruitment costs are costs incurred to identify sources of human resources, including those both inside and outside an organization.

In customer cost hierarchy, cost of activities related to specific channel of distribution is classified as distribution-channel costs. A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers, retailers, distributors, and even the Internet.

Difference between corresponding static budget and flexible budget amount is called sales volume variance. Sales volume variance is the change in revenue or profit caused by the difference between actual and budgeted sales units.

Difference between budgeted contribution margin for actual sales mix and budgeted sales mix is called sales mix variance. Sales mix variance is the difference between a company's budgeted sales mix and the actual sales mix. Sales mix is the proportion of each product sold relative to total sales.

Executive salaries, rent and other general administration cost in corporate costs are classified under corporate administration costs. Administrative expenses are costs related to the general administration of the business. This category of costs does not relate specifically to any business function such as production and sales. These costs are incurred at the corporate level, rather than by individual departments or business units.