IVY SOFTWARE MBA PREPWORKS – MANAGERIAL ACCOUNTING
EXAM 2025 – FULL Q&A GUIDE WITH VERIFIED SOLUTIONS
Question 1
If Elli Inc. sells 20,000 units of X and 60,000 units of Y, the composite unit consists of 0.25x and
0.75y.
A) True
B) False
Correct Answer: A) True
Rationale: To determine the composite unit, sum the total units sold (20,000 + 60,000 =
80,000). Then, calculate the proportion for each product: 20,000/80,000 = 25% (0.25) for X,
and 60,000/80,000 = 75% (0.75) for Y. This creates the composite unit of 0.25x and 0.75y.
Question 2
If the quantity sold is greater than the quantity produced, there must have been:
A) An increase in work-in-process inventory.
B) A decrease in raw materials inventory.
C) Finished goods beginning inventory.
D) Unfavorable production variances.
E) A backlog of customer orders.
Correct Answer: C) Finished goods beginning inventory.
Rationale: If a company sells more units than it produced during a period, it must have
drawn those additional units from its existing stock of finished goods inventory from a
prior period (beginning inventory).
Question 3
Contribution margin and contribution margin per unit are always the same.
A) True
B) False
Correct Answer: B) False
Rationale: Contribution margin refers to the total amount remaining to cover fixed costs
and contribute to profit (Total Sales - Total Variable Costs). Contribution margin per unit
is the amount per single unit sold (Selling Price per Unit - Variable Cost per Unit). They are
only the same if "per unit" is assumed.
Question 4
Breakeven indicates that the sales dollars cover all fixed and variable costs of manufacturing.
A) True
B) False
Correct Answer: A) True
Rationale: The breakeven point is the level of sales (in units or dollars) at which total
,[Type here]
revenues equal total costs, meaning the company earns zero net income (covers all fixed
and variable costs).
Question 5
Inventoriable costs using variable costing is appropriate for external reporting.
A) True
B) False
Correct Answer: B) False
Rationale: Variable costing (or direct costing) treats fixed manufacturing overhead as a
period cost, expensing it in the period incurred. GAAP (Generally Accepted Accounting
Principles) for external reporting (and IFRS) requires the use of absorption costing, where
fixed manufacturing overhead is treated as an inventoriable cost.
Question 6
Essex Company sells two products - A and B. Product A sales are two times that of product B.
The contribution per unit for A is $4 and B is $1. What is the weighted average contribution
margin per unit?
A) $1.50
B) $2.00
C) $3.00
D) $3.50
E) $4.50
Correct Answer: C) $3
Rationale: If A sales are two times B, then the sales mix is 2 units of A for every 1 unit of B.
This means out of 3 units, 2 are A and 1 is B.
Weighted Average Contribution Margin per Unit = (Proportion of A * CM per unit A) +
(Proportion of B * CM per unit B)
= (2/3 * $4) + (1/3 * $1)
= $8/3 + $1/3
= $9/3 = $3.
Question 7
Absorption costing clearly separates fixed costs from variable costs.
A) True
B) False
Correct Answer: B) False
Rationale: Absorption costing does not clearly separate fixed and variable costs for internal
reporting; instead, it includes fixed manufacturing overhead in the cost of goods sold.
Variable costing, on the other hand, explicitly separates fixed and variable costs, treating
fixed manufacturing overhead as a period expense.
,[Type here]
Question 8
Converse Company has two products - A and B. The weighted average contribution margin per
unit is $4. Converse sells twice as many A's as B's. The contribution margin per unit for B is $2.
What is it for A?
A) $3
B) $4
C) $5
D) $6
E) $7
Correct Answer: C) $5
Rationale: Let CM_A be the contribution margin per unit for A.
Sales mix: 2 units of A for every 1 unit of B (2/3 A, 1/3 B).
Weighted Avg CM = (2/3 * CM_A) + (1/3 * CM_B)
$4 = (2/3 * CM_A) + (1/3 * $2)
$4 = (2/3 * CM_A) + $2/3
$12/3 = (2/3 * CM_A) + $2/3
$10/3 = 2/3 * CM_A
$10 = 2 * CM_A
CM_A = $5.
Question 9
If the breakeven point is 5,000 units and fixed costs are $50,000, what is the contribution margin
per unit?
A) $5
B) $10
C) $15
D) $20
E) $25
Correct Answer: B) $10
Rationale: Breakeven Point in Units = Fixed Costs / Contribution Margin per Unit.
So, Contribution Margin per Unit = Fixed Costs / Breakeven Point in Units
= $50,,000 units
= $10 per unit.
Question 10
Which of the following will be found on an absorption costing income statement but not on a
variable costing income statement?
A) Sales Revenue and Variable Selling & Administrative Expenses
B) Contribution Margin and Total Fixed Costs
C) Gross Margin and Cost of Goods Sold
, [Type here]
D) Net Income and Income Tax Expense
E) Variable Manufacturing Costs and Fixed Manufacturing Costs
Correct Answer: C) Gross Margin and Cost of Goods Sold
Rationale: Absorption costing income statements use the traditional format, which includes
Gross Margin (Sales - Cost of Goods Sold). Under absorption costing, Cost of Goods Sold
includes fixed manufacturing overhead. Variable costing separates fixed manufacturing
overhead as a period expense, so it does not calculate a Gross Margin and its "Cost of
Goods Sold" would only include variable manufacturing costs.
Question 11
If units produced are less than units sold, net income using absorption costing is:
A) Equal to variable costing.
B) Greater than variable costing.
C) Less than variable costing.
D) Indeterminate compared to variable costing.
E) Always zero.
Correct Answer: C) Less than variable costing
Rationale: When units produced are less than units sold, absorption costing will
report less net income than variable costing. This is because absorption costing will release
previously inventoried fixed manufacturing overhead (from beginning inventory) into cost
of goods sold, while variable costing will have expensed all fixed manufacturing overhead
in the period it was incurred.
Question 12
If the selling price is $5 per unit, the variable cost is $1 per unit, and the fixed cost is $20,000,
what is the breakeven point in units?
A) 4,000 units
B) 5,000 units
C) 6,000 units
D) 7,500 units
E) 10,000 units
Correct Answer: B) $5,000 (5x - 1x - 20000 = 0, 4x - 20,000=0, 4x=20000, x = 5000)
Rationale: Breakeven in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per
Unit)
=
20,000/(
5 - $1)
= $20,000 / $4
= 5,000 units.
EXAM 2025 – FULL Q&A GUIDE WITH VERIFIED SOLUTIONS
Question 1
If Elli Inc. sells 20,000 units of X and 60,000 units of Y, the composite unit consists of 0.25x and
0.75y.
A) True
B) False
Correct Answer: A) True
Rationale: To determine the composite unit, sum the total units sold (20,000 + 60,000 =
80,000). Then, calculate the proportion for each product: 20,000/80,000 = 25% (0.25) for X,
and 60,000/80,000 = 75% (0.75) for Y. This creates the composite unit of 0.25x and 0.75y.
Question 2
If the quantity sold is greater than the quantity produced, there must have been:
A) An increase in work-in-process inventory.
B) A decrease in raw materials inventory.
C) Finished goods beginning inventory.
D) Unfavorable production variances.
E) A backlog of customer orders.
Correct Answer: C) Finished goods beginning inventory.
Rationale: If a company sells more units than it produced during a period, it must have
drawn those additional units from its existing stock of finished goods inventory from a
prior period (beginning inventory).
Question 3
Contribution margin and contribution margin per unit are always the same.
A) True
B) False
Correct Answer: B) False
Rationale: Contribution margin refers to the total amount remaining to cover fixed costs
and contribute to profit (Total Sales - Total Variable Costs). Contribution margin per unit
is the amount per single unit sold (Selling Price per Unit - Variable Cost per Unit). They are
only the same if "per unit" is assumed.
Question 4
Breakeven indicates that the sales dollars cover all fixed and variable costs of manufacturing.
A) True
B) False
Correct Answer: A) True
Rationale: The breakeven point is the level of sales (in units or dollars) at which total
,[Type here]
revenues equal total costs, meaning the company earns zero net income (covers all fixed
and variable costs).
Question 5
Inventoriable costs using variable costing is appropriate for external reporting.
A) True
B) False
Correct Answer: B) False
Rationale: Variable costing (or direct costing) treats fixed manufacturing overhead as a
period cost, expensing it in the period incurred. GAAP (Generally Accepted Accounting
Principles) for external reporting (and IFRS) requires the use of absorption costing, where
fixed manufacturing overhead is treated as an inventoriable cost.
Question 6
Essex Company sells two products - A and B. Product A sales are two times that of product B.
The contribution per unit for A is $4 and B is $1. What is the weighted average contribution
margin per unit?
A) $1.50
B) $2.00
C) $3.00
D) $3.50
E) $4.50
Correct Answer: C) $3
Rationale: If A sales are two times B, then the sales mix is 2 units of A for every 1 unit of B.
This means out of 3 units, 2 are A and 1 is B.
Weighted Average Contribution Margin per Unit = (Proportion of A * CM per unit A) +
(Proportion of B * CM per unit B)
= (2/3 * $4) + (1/3 * $1)
= $8/3 + $1/3
= $9/3 = $3.
Question 7
Absorption costing clearly separates fixed costs from variable costs.
A) True
B) False
Correct Answer: B) False
Rationale: Absorption costing does not clearly separate fixed and variable costs for internal
reporting; instead, it includes fixed manufacturing overhead in the cost of goods sold.
Variable costing, on the other hand, explicitly separates fixed and variable costs, treating
fixed manufacturing overhead as a period expense.
,[Type here]
Question 8
Converse Company has two products - A and B. The weighted average contribution margin per
unit is $4. Converse sells twice as many A's as B's. The contribution margin per unit for B is $2.
What is it for A?
A) $3
B) $4
C) $5
D) $6
E) $7
Correct Answer: C) $5
Rationale: Let CM_A be the contribution margin per unit for A.
Sales mix: 2 units of A for every 1 unit of B (2/3 A, 1/3 B).
Weighted Avg CM = (2/3 * CM_A) + (1/3 * CM_B)
$4 = (2/3 * CM_A) + (1/3 * $2)
$4 = (2/3 * CM_A) + $2/3
$12/3 = (2/3 * CM_A) + $2/3
$10/3 = 2/3 * CM_A
$10 = 2 * CM_A
CM_A = $5.
Question 9
If the breakeven point is 5,000 units and fixed costs are $50,000, what is the contribution margin
per unit?
A) $5
B) $10
C) $15
D) $20
E) $25
Correct Answer: B) $10
Rationale: Breakeven Point in Units = Fixed Costs / Contribution Margin per Unit.
So, Contribution Margin per Unit = Fixed Costs / Breakeven Point in Units
= $50,,000 units
= $10 per unit.
Question 10
Which of the following will be found on an absorption costing income statement but not on a
variable costing income statement?
A) Sales Revenue and Variable Selling & Administrative Expenses
B) Contribution Margin and Total Fixed Costs
C) Gross Margin and Cost of Goods Sold
, [Type here]
D) Net Income and Income Tax Expense
E) Variable Manufacturing Costs and Fixed Manufacturing Costs
Correct Answer: C) Gross Margin and Cost of Goods Sold
Rationale: Absorption costing income statements use the traditional format, which includes
Gross Margin (Sales - Cost of Goods Sold). Under absorption costing, Cost of Goods Sold
includes fixed manufacturing overhead. Variable costing separates fixed manufacturing
overhead as a period expense, so it does not calculate a Gross Margin and its "Cost of
Goods Sold" would only include variable manufacturing costs.
Question 11
If units produced are less than units sold, net income using absorption costing is:
A) Equal to variable costing.
B) Greater than variable costing.
C) Less than variable costing.
D) Indeterminate compared to variable costing.
E) Always zero.
Correct Answer: C) Less than variable costing
Rationale: When units produced are less than units sold, absorption costing will
report less net income than variable costing. This is because absorption costing will release
previously inventoried fixed manufacturing overhead (from beginning inventory) into cost
of goods sold, while variable costing will have expensed all fixed manufacturing overhead
in the period it was incurred.
Question 12
If the selling price is $5 per unit, the variable cost is $1 per unit, and the fixed cost is $20,000,
what is the breakeven point in units?
A) 4,000 units
B) 5,000 units
C) 6,000 units
D) 7,500 units
E) 10,000 units
Correct Answer: B) $5,000 (5x - 1x - 20000 = 0, 4x - 20,000=0, 4x=20000, x = 5000)
Rationale: Breakeven in Units = Fixed Costs / (Selling Price per Unit - Variable Cost per
Unit)
=
20,000/(
5 - $1)
= $20,000 / $4
= 5,000 units.
