Question 1

A cost-volume-profit (CVP)chart is a graph that plots number of units produced on the horizontal axis and dollars of costs and sales on the vertical axis.

Accepted Answer

A) True 
 B)False

Question 2

Cost-volume-profit analysis is based on necessary assumptions.Which of the following is not one of these assumptions?

Accepted Answer

A) Costs can be classified as variable or fixed. 
B) Relevant range includes all possible levels of activity that a company might experience. 
C) Sales price and variable costs per unit of output remain constant as volume changes. 
D) A constant sales mix in a multiproduct company. 
E) Total fixed costs are held constant. 
A) Costs can be classified as variable or fixed. 
B) Relevant range includes all possible levels of activity that a company might experience. 
C) Sales price and variable costs per unit of output remain constant as volume changes. 
D) A constant sales mix in a multiproduct company. 
E) Total fixed costs are held constant.

Question 3

Kent Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Kent can buy a new production machine that will increase fixed costs by $11,400 per year,but will decrease variable costs by $3.50 per unit.What effect would the purchase of the new machine have on Kent's break-even point in units?

Accepted Answer

A) 800 unit increase. 
B) 800 unit decrease. 
C) 5,714 unit increase. 
D) 4,444 unit decrease. 
E) No effect on the break-even point in units. 
A) 800 unit increase. 
B) 800 unit decrease. 
C) 5,714 unit increase. 
D) 4,444 unit decrease. 
E) No effect on the break-even point in units.

Question 4

Degree of operating leverage (DOL)is defined as total contribution margin in dollars divided by pretax income.

Accepted Answer

A) True 
 B)False

Question 5

Crookshank Manufacturing has total fixed costs of $460,000.A unit of product sells for $20 and variable costs per unit are $11.
Prepare a contribution margin income statement showing predicted net income (loss)if Crookshank sells 100,000 units for the year ended December 31.

Accepted Answer

The answer of Crookshank Manufacturing has total fixed costs of...

Question 6

The excess of expected sales over the sales level at the break-even point is known as the:

Accepted Answer

A) Sales turnover. 
B) Profit margin. 
C) Contribution margin. 
D) Relevant range. 
E) Margin of safety. 
A) Sales turnover. 
B) Profit margin. 
C) Contribution margin. 
D) Relevant range. 
E) Margin of safety.

Question 7

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit.The selling price of $100 is not expected to change.Forrester's current break-even sales are $400,000 and current break-even units are 4,000.If Forrester purchases this new equipment,the revised break-even point in dollars would be:

Accepted Answer

A) $300,000. 
B) $400,000. 
C) $325,000. 
D) $500,000. 
E) $375,000. 
A) $300,000. 
B) $400,000. 
C) $325,000. 
D) $500,000. 
E) $375,000.

Question 8

In Keegan Corporation's most recent fiscal year,the company reported pretax earnings of $215,000.Fixed costs totaled $325,800,the unit selling price of the firm's only product was $60,and the variable costs per unit were 40% of the selling price.Based on this information,the firm's break-even point in units was:

Accepted Answer

A) 13,575 units. 
B) 15,023 units. 
C) 13,750 units. 
D) 9,050 units. 
E) 8,750 units. 
A) 13,575 units. 
B) 15,023 units. 
C) 13,750 units. 
D) 9,050 units. 
E) 8,750 units.

Question 9

Locus Company has total fixed costs of $112,000.Its product sells for $35 per unit and variable costs amount to $25 per unit.Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs.How many units must be sold to achieve this target income level?

Accepted Answer

A) 1,120. 
B) 8,214. 
C) 11,200. 
D) 12,320. 
E) 14,080. 
A) 1,120. 
B) 8,214. 
C) 11,200. 
D) 12,320. 
E) 14,080.

Question 10

Cost-volume-profit analysis requires management to classify all costs as either fixed or variable with respect to production or sales volume within the relevant range of operations.

Accepted Answer

A) True 
 B)False

Question 11

A company has fixed costs of $270,000,a unit contribution margin of $14,and a contribution margin ratio of 55%.If the firm wants to earn a target $60,000 pretax income,what amount of sales must the company make (rounded to the nearest whole dollar)?

Accepted Answer

A) 490,909. 
B) 330,000. 
C) 109,090. 
D) 381,818. 
E) 600,000. 
A) 490,909. 
B) 330,000. 
C) 109,090. 
D) 381,818. 
E) 600,000.

Question 12

The margin of safety is the excess of:

Accepted Answer

A) Break-even sales over expected sales. 
B) Expected sales over variable costs. 
C) Expected sales over fixed costs. 
D) Fixed costs over expected sales. 
E) Expected sales over break-even sales. 
A) Break-even sales over expected sales. 
B) Expected sales over variable costs. 
C) Expected sales over fixed costs. 
D) Fixed costs over expected sales. 
E) Expected sales over break-even sales.

Question 13

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year.If Burkett Corporation is able to achieve the budgeted level of sales,its margin of safety in dollars would be:

Accepted Answer

A) $172,420. 
B) $150,000. 
C) $262,500. 
D) $275,862. 
E) $310,115. 
A) $172,420. 
B) $150,000. 
C) $262,500. 
D) $275,862. 
E) $310,115.

Question 14

Cost-volume-profit analysis is a precise tool for determining the profit consequences of future cost changes,price changes,and volume of activity changes.

Accepted Answer

A) True 
 B)False

Question 15

Mason Company manufactures and sells shoelaces for $2.00 per pair.Its variable cost per unit is $1.70.Mason's total fixed costs are $10,500.How many pairs must Mason Company sell to break even?

Accepted Answer

A) 5,250. 
B) 6,176. 
C) 35,000. 
D) 52,500. 
E) 61,760. 
A) 5,250. 
B) 6,176. 
C) 35,000. 
D) 52,500. 
E) 61,760.

Question 16

In cost-volume-profit analysis,the unit contribution margin is:

Accepted Answer

A) Sales price per unit less cost of goods sold per unit. 
B) Sales price per unit less unit fixed cost per unit. 
C) Sales price per unit less total variable cost per unit. 
D) Sales price per unit less unit total cost per unit. 
E) The same as the contribution margin ratio. 
A) Sales price per unit less cost of goods sold per unit. 
B) Sales price per unit less unit fixed cost per unit. 
C) Sales price per unit less total variable cost per unit. 
D) Sales price per unit less unit total cost per unit. 
E) The same as the contribution margin ratio.

Question 17

Mullis Corp.manufactures DVDs that sell for $5.00.Fixed costs are $28,000 and variable costs are $3.60 per unit.Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year,but will decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Mullis' break-even point in units?

Accepted Answer

A) 4,444 unit increase. 
B) 9,850 unit decrease. 
C) 5,714 unit increase. 
D) 4,444 unit decrease. 
E) No effect. 
A) 4,444 unit increase. 
B) 9,850 unit decrease. 
C) 5,714 unit increase. 
D) 4,444 unit decrease. 
E) No effect.

Question 18

Which of the following is the correct interpretation of a degree of operating leverage of 5?

Accepted Answer

A) Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point. 
B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point. 
C) Operating leverage of 5 means that if sales increase by 5%,there will be a 25% increase in the firm's pretax profit. 
D) Operating leverage of 5 measures the degree of debt employed by the firm's debt structure. 
E) Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point. 
A) Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point. 
B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point. 
C) Operating leverage of 5 means that if sales increase by 5%,there will be a 25% increase in the firm's pretax profit. 
D) Operating leverage of 5 measures the degree of debt employed by the firm's debt structure. 
E) Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.

Question 19

The following information is available for a company's cost of sales over the last five months.   Using the high-low method,the estimated variable cost of sales per unit sold is:

Accepted Answer

A) $25.42. 
B) $77.50. 
C) $34.23. 
D) $15.00. 
E) $30.62. 
A) $25.42. 
B) $77.50. 
C) $34.23. 
D) $15.00. 
E) $30.62.

Question 20

_____________ is a statistical method of identifying an estimated line of cost behavior.

Accepted Answer

Least-squa

Exam 21: Cost-Volume-Profit Analysis

A cost-volume-profit (CVP)chart is a graph that plots number of units produced on the horizontal axis and dollars of costs and sales on the vertical axis.

Cost-volume-profit analysis is based on necessary assumptions.Which of the following is not one of these assumptions?

Degree of operating leverage (DOL)is defined as total contribution margin in dollars divided by pretax income.

Crookshank Manufacturing has total fixed costs of $460,000.A unit of product sells for $20 and variable costs per unit are $11. Prepare a contribution margin income statement showing predicted net income (loss)if Crookshank sells 100,000 units for the year ended December 31.

The excess of expected sales over the sales level at the break-even point is known as the:

Locus Company has total fixed costs of $112,000.Its product sells for $35 per unit and variable costs amount to $25 per unit.Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs.How many units must be sold to achieve this target income level?

Cost-volume-profit analysis requires management to classify all costs as either fixed or variable with respect to production or sales volume within the relevant range of operations.

A company has fixed costs of $270,000,a unit contribution margin of $14,and a contribution margin ratio of 55%.If the firm wants to earn a target $60,000 pretax income,what amount of sales must the company make (rounded to the nearest whole dollar)?

The margin of safety is the excess of:

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year.If Burkett Corporation is able to achieve the budgeted level of sales,its margin of safety in dollars would be:

Cost-volume-profit analysis is a precise tool for determining the profit consequences of future cost changes,price changes,and volume of activity changes.

Mason Company manufactures and sells shoelaces for $2.00 per pair.Its variable cost per unit is $1.70.Mason's total fixed costs are $10,500.How many pairs must Mason Company sell to break even?

In cost-volume-profit analysis,the unit contribution margin is:

Which of the following is the correct interpretation of a degree of operating leverage of 5?

The following information is available for a company's cost of sales over the last five months. Using the high-low method,the estimated variable cost of sales per unit sold is:

_____________ is a statistical method of identifying an estimated line of cost behavior.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Appendix B: Time Value of Money

Appendix C: Activity-Based Costing

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