Question 1

Understanding how costs behave is useful to management for all the following reasons except

Accepted Answer

A)  predicting customer demand 
B)  predicting profits as sales and production volumes change 
C)  estimating costs 
D)  changing an existing product production 
A)  predicting customer demand 
B)  predicting profits as sales and production volumes change 
C)  estimating costs 
D)  changing an existing product production

Question 2

The contribution margin ratio is

Accepted Answer

A)  the same as the variable cost ratio 
B)  the same as profit 
C)  the portion of equity contributed by the stockholders 
D)  the same as the profit-volume ratio 
A)  the same as the variable cost ratio 
B)  the same as profit 
C)  the portion of equity contributed by the stockholders 
D)  the same as the profit-volume ratio

Question 3

Explain how variable costing net income will be different than absorption costing net income under the following situations:
1) A company had no beginning or ending inventory. During the year, it produced and sold 10,000 units.
2) A company had no beginning inventory. During the year, it produced 10,000 units and sold 8,000 units.
3) A company had 2,000 units in beginning inventory. During the year, it produced 10,000 units and sold 12,000 units.

Accepted Answer

1) When there are no inventories everyth

Question 4

Match the following terms with their definitions.
-The excess of sales revenues over variable costs

Accepted Answer

A) Relevant range 
B) Break-even point 
C) Contribution margin 
D) Fixed costs 
E) Variable costs 
A) Relevant range 
B) Break-even point 
C) Contribution margin 
D) Fixed costs 
E) Variable costs

Question 5

Louis Company sells a single product at a price of $65 per unit. Variable costs per unit are $45 and total fixed costs are $625,500. Louis is considering the purchase of a new piece of equipment that would increase the fixed costs to $800,000, but decrease the variable costs per unit to $42.
Required:
If Louis Company expects to sell 44,000 units next year, should they purchase this new equipment?

Accepted Answer

Under the current system, Louis' profit

Question 6

Figure 21-1
-Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?

Accepted Answer

A)  Graph 2 
B)  Graph 3 
C)  Graph 4 
D)  Graph 1 
A)  Graph 2 
B)  Graph 3 
C)  Graph 4 
D)  Graph 1

Question 7

Given the following information:
Variable cost per unit = $5.00 July fixed cost per unit = $7.00
Units sold and produced in July = 28,000
What is total estimated cost for August if 30,000 units are projected to be produced and sold?

Accepted Answer

Total fixed costsD = $7.00 × 2

Question 8

Cost behavior refers to the manner in which

Accepted Answer

A)  a cost changes as the related activity changes 
B)  a cost is allocated to products 
C)  a cost is used in setting selling prices 
D)  a cost is estimated 
A)  a cost changes as the related activity changes 
B)  a cost is allocated to products 
C)  a cost is used in setting selling prices 
D)  a cost is estimated

Question 9

If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?

Accepted Answer

A)  25,000 units 
B)  10,000 units 
C)  400,000 units 
D)  20,000 units 
A)  25,000 units 
B)  10,000 units 
C)  400,000 units 
D)  20,000 units

Question 10

Cost-volume-profit analysis cannot be used if which of the following occurs?

Accepted Answer

A)  Costs cannot be properly classified into fixed and variable costs. 
B)  The total fixed costs change. 
C)  The per-unit variable costs change. 
D)  Per-unit sales prices change. 
A)  Costs cannot be properly classified into fixed and variable costs. 
B)  The total fixed costs change. 
C)  The per-unit variable costs change. 
D)  Per-unit sales prices change.

Question 11

If the contribution margin ratio for France Company is 45%, sales were $425,000, and fixed costs were $100,000, what was the income from operations?

Accepted Answer

A)  $233,750 
B)  $91,250 
C)  $191,250 
D)  $133,750 
A)  $233,750 
B)  $91,250 
C)  $191,250 
D)  $133,750

Question 12

Match the following terms with their definitions.
-Where a business's revenues exactly equal costs

Accepted Answer

A) Relevant range 
B) Break-even point 
C) Contribution margin 
D) Fixed costs 
E) Variable costs 
A) Relevant range 
B) Break-even point 
C) Contribution margin 
D) Fixed costs 
E) Variable costs

Question 13

The contribution margin ratio is the same as the profit-volume ratio.

Accepted Answer

A) True 
 B)False

Question 14

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.

Accepted Answer

A) True 
 B)False

Question 15

Match the following terms a-e) with their definitions.
-Contribution margin divided by income from operations

Accepted Answer

A) Profit-volume chart 
B) Cost-volume-profit chart 
C) Sales mix 
D) Operating leverage 
E) Margin of safety 
A) Profit-volume chart 
B) Cost-volume-profit chart 
C) Sales mix 
D) Operating leverage 
E) Margin of safety

Question 16

Costs that vary in total in direct proportion to changes in an activity level are called

Accepted Answer

A)  fixed costs 
B)  sunk costs 
C)  variable costs 
D)  differential costs 
A)  fixed costs 
B)  sunk costs 
C)  variable costs 
D)  differential costs

Question 17

A mixed cost has characteristics of both a variable and a fixed cost.

Accepted Answer

A) True 
 B)False

Question 18

A low operating leverage is normal for highly automated industries.

Accepted Answer

A) True 
 B)False

Question 19

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

Accepted Answer

A)  decrease 
B)  increase 
C)  remain the same 
D)  increase or decrease, depending upon the percentage increase in utility rates 
A)  decrease 
B)  increase 
C)  remain the same 
D)  increase or decrease, depending upon the percentage increase in utility rates

Question 20

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are

Accepted Answer

A)  47% and $11 per unit 
B)  53% and $7 per unit 
C)  47% and $8 per unit 
D)  52% and $11 per unit 
A)  47% and $11 per unit 
B)  53% and $7 per unit 
C)  47% and $8 per unit 
D)  52% and $11 per unit

Exam 19: Cost Behavior and Cost-Volume-Profit Analysis

Understanding how costs behave is useful to management for all the following reasons except

The contribution margin ratio is

Match the following terms with their definitions. -The excess of sales revenues over variable costs

Figure 21-1 -Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?

Given the following information: Variable cost per unit = $5.00 July fixed cost per unit = $7.00 Units sold and produced in July = 28,000 What is total estimated cost for August if 30,000 units are projected to be produced and sold?

Cost behavior refers to the manner in which

If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?

Cost-volume-profit analysis cannot be used if which of the following occurs?

If the contribution margin ratio for France Company is 45%, sales were $425,000, and fixed costs were $100,000, what was the income from operations?

Match the following terms with their definitions. -Where a business's revenues exactly equal costs

The contribution margin ratio is the same as the profit-volume ratio.

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.

Match the following terms a-e) with their definitions. -Contribution margin divided by income from operations

Costs that vary in total in direct proportion to changes in an activity level are called

A mixed cost has characteristics of both a variable and a fixed cost.

A low operating leverage is normal for highly automated industries.

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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