Question 1

Why is identification of a relevant range important?

Accepted Answer

A)  It is required under GAAP. 
B)  Cost behavior outside of the relevant range is not linear which distorts CVP analysis. 
C)  It directly impacts the number of units of product a customer buys. 
D)  It is a cost that is incurred by a company that must be accounted for. 
A)  It is required under GAAP. 
B)  Cost behavior outside of the relevant range is not linear which distorts CVP analysis. 
C)  It directly impacts the number of units of product a customer buys. 
D)  It is a cost that is incurred by a company that must be accounted for.

Question 2

Bolton Industries had actual sales of $1000000 when break-even sales were $600000. What is the margin of safety ratio?

Accepted Answer

A)  40% 
B)  33% 
C)  60% 
D)  67% 
A)  40% 
B)  33% 
C)  60% 
D)  67%

Question 3

O'Malley Company sells 100000 units for $13 a unit. Fixed costs are $350000 and net income is $250000. What should be reported as variable expenses in the CVP income statement?

Accepted Answer

A)  $600000. 
B)  $700000. 
C)  $950000. 
D)  $1050000. 
A)  $600000. 
B)  $700000. 
C)  $950000. 
D)  $1050000.

Question 4

At the break-even point

Accepted Answer

A)  sales equal total variable costs. 
B)  contribution margin equals total variable costs. 
C)  contribution margin equals total fixed costs. 
D)  sales equal total fixed costs. 
A)  sales equal total variable costs. 
B)  contribution margin equals total variable costs. 
C)  contribution margin equals total fixed costs. 
D)  sales equal total fixed costs.

Question 5

Price Company sells 100000 units for $13 a unit. Fixed costs are $350000 and net income is $250000. What should be reported as variable expenses in the CVP income statement?

Accepted Answer

A)  $600000. 
B)  $700000. 
C)  $950000. 
D)  $1050000. 
A)  $600000. 
B)  $700000. 
C)  $950000. 
D)  $1050000.

Question 6

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: $\begin{array}{cc}
 \text { Unit Variable Cost } & \text { Unit Fixed Cost } \\end{array}$
A)$\begin{array}{cc}\text { Increases } &&&&& \text { Decreases } \\end{array}$
B)$\begin{array}{cc}\text { Remains constant }&\text { Remains constant }\end{array}$
C)$\begin{array}{cc}\text { Decreases }  &&&&
\text { Remains constant }\end{array}$
D)$\begin{array}{cc}\text { Remains constant } & &\text { Decreases } \
\end{array}$

Accepted Answer

The answer of An increase in the level of activity...

Question 7

Both variable and fixed costs are included in calculating the contribution margin.

Accepted Answer

A) True 
 B)False

Question 8

A variable cost is a cost that

Accepted Answer

A)  varies per unit at every level of activity. 
B)  occurs at various times during the year. 
C)  varies in total in proportion to changes in the level of activity. 
D)  may or may not be incurred depending on management's discretion. 
A)  varies per unit at every level of activity. 
B)  occurs at various times during the year. 
C)  varies in total in proportion to changes in the level of activity. 
D)  may or may not be incurred depending on management's discretion.

Question 9

Determine the missing amounts. $\begin{array}{ccccc}
&\text { Unit Selling Price } & \text { Unit Variable } & \text { Unit Contribution } & \text { Contribution } \
&& \text { Costs } & \text { Margin } & \text { Margin Ratio }\
\hline \text { 1. } & \$ 300 & \$ 165 & \text { A. } & \text { B. } \
\text { 2. } & \$ 600 & \text { C. } & \$ 150 & \text { D. } \
\text { 3. } & \text { E. } & \text { F. } & \$ 440 & 40 \%
\end{array}$

Accepted Answer

A. $300 - $165 = $135
B. $135 ÷ $300 = 4

Question 10

In 2015 Stallman Co. had a break-even point of $800000 based on a selling price of $10 per unit and fixed costs of $200000. In 2016 the selling price and variable costs per unit did not change but the break-even point increased to $840000.
Instructions
(a) Compute the variable cost per unit and the contribution margin ratio for 2015.
(b) Using the contribution margin ratio compute the increase in fixed costs for 2016.

Accepted Answer

None

Question 11

Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4800. If Lansbury sells 30 more units beyond breakeven how much does profit increase as a result?

Accepted Answer

A)  $360 
B)  $600 
C)  $240 
D)  $1200 
A)  $360 
B)  $600 
C)  $240 
D)  $1200

Question 12

Aero Inc. requires sales of $2000000 to cover its fixed costs of $600000 and to earn net income of $500000. What percent are variable costs of sales?

Accepted Answer

A)  25% 
B)  45% 
C)  30% 
D)  55% 
A)  25% 
B)  45% 
C)  30% 
D)  55%

Question 13

CVP analysis is not important in

Accepted Answer

A)  calculating depreciation expense. 
B)  setting selling prices. 
C)  determining the product mix. 
D)  utilizing production facilities. 
A)  calculating depreciation expense. 
B)  setting selling prices. 
C)  determining the product mix. 
D)  utilizing production facilities.

Question 14

The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Accepted Answer

A) True 
 B)False

Question 15

Sweet Manufacturing is planning to sell 400000 hammers for $6 per unit. The contribution margin ratio is 20%. If Sweet will break even at this level of sales what are the fixed costs?

Accepted Answer

A)  $480000 
B)  $1120000 
C)  $1600000 
D)  $1920000 
A)  $480000 
B)  $1120000 
C)  $1600000 
D)  $1920000

Exam 22: Cost-Volume-Profit

Why is identification of a relevant range important?

Bolton Industries had actual sales of $1000000 when break-even sales were $600000. What is the margin of safety ratio?

O'Malley Company sells 100000 units for $13 a unit. Fixed costs are $350000 and net income is $250000. What should be reported as variable expenses in the CVP income statement?

At the break-even point

Price Company sells 100000 units for $13 a unit. Fixed costs are $350000 and net income is $250000. What should be reported as variable expenses in the CVP income statement?

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: Unit Variable Cost Unit Fixed Cost A) Increases Decreases B) Remains constant Remains constant C) Decreases Remains constant D) Remains constant Decreases

Both variable and fixed costs are included in calculating the contribution margin.

A variable cost is a cost that

Determine the missing amounts. Unit Selling Price Unit Variable Unit Contribution Contribution Costs Margin Margin Ratio 1. \ 300 \ 165 A. B. 2. \ 600 C. \ 150 D. 3. E. F. \ 440 40\%

Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4800. If Lansbury sells 30 more units beyond breakeven how much does profit increase as a result?

Aero Inc. requires sales of $2000000 to cover its fixed costs of $600000 and to earn net income of $500000. What percent are variable costs of sales?

CVP analysis is not important in

The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Sweet Manufacturing is planning to sell 400000 hammers for $6 per unit. The contribution margin ratio is 20%. If Sweet will break even at this level of sales what are the fixed costs?

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

Time Value of Money

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