Free Practice Questions for Saylor BUS105 Exam

Comprehensive and Detailed Explanation:

Contribution Margin = Sales − Variable Costs

Variable Costs = Variable COGS + Variable S&A

= $340,000 + $164,000 = $504,000

Contribution Margin = $830,000 − $504,000 = $326,000

Answer: B

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To assess the performance of division managers fairly, companies must evaluate performance in terms of relative efficiency—not absolute dollar amounts—especially when the divisions vary significantly in size, scope, or sales volume.

From the data:

Western location has the highest sales ($4,500,000) and highest net income ($2,720,000).

Eastern and Southern have significantly lower sales and net incomes.

While net income is a useful figure, it can be misleading in isolation when comparing divisions of unequal size. A larger division will naturally generate more profit, not necessarily due to better management, but simply due to scale.

To fairly compare performance, we should use measures like:

Return on Sales (ROS)

Profit Margin

ROI (Return on Investment)

Controllable Margin or Segment Margin

For example:

Western ROS = Net Income / Sales = 2,720,000 / 4,500,000 ≈ 60.4%

Eastern ROS = 774,200 / 1,250,000 ≈ 61.9%

Southern ROS = 668,800 / 1,120,000 ≈ 59.7%

→ Eastern actually has the highest profitability ratio.

Thus, using absolute net income alone would unfairly favor the Western location’s manager. It’s important to normalize the data across divisions of different size.

This aligns with Managerial Accounting best practices.

Comprehensive and Detailed Explanation:

The Manufacturing Overhead account is used to track both actual and applied overhead. At the end of the period, the difference is calculated:

If actual > applied → underapplied (debit balance)

If applied > actual → overapplied (credit balance)

Answer: A

Bethel Bakery uses multiple departments (blending, cutting, baking, decorating, packaging) to produce a standardized product—frosted sugar cookies—in a continuous, repetitive flow. This is a textbook example of a business that uses process costing.

According to Saylor Academy BUS105:

“Process costing is used when the production process is continuous, and the units of output are indistinguishable from each other. Separate work-in-process (WIP) accounts are typically maintained for each department.”

Let’s evaluate the options:

A. Job costing is used for customized or unique products (e.g., custom furniture).

B. Process costing is used for mass-produced items through multiple production departments.✅

C. Departmental costing refers to applying overhead by department, not necessarily tied to production cost method.

D. Activity-based costing focuses on cost allocation based on activities but does not define how WIP is tracked across departments.

Answer: B

Comprehensive and Detailed Explanation:

Management by Exception is a management style that focuses attention and resources on areas where actual results deviate significantly from expected results.

According to Saylor Academy BUS105:

“Management by exception is a principle where managers focus only on significant variances between actual and budgeted results.”

Only Option D reflects a significant unfavorable variance that exceeds a predefined threshold—this is exactly the kind of situation where management by exception would trigger action.

Answer: D