Question 1

Cost-volume-profit analysis includes all of the following assumptions except

Accepted Answer

A)  the behavior of costs is curvilinear throughout the relevant range. 
B)  costs can be classified accurately as either variable or fixed. 
C)  changes in activity are the only factors that affect costs. 
D)  all units produced are sold. 
A)  the behavior of costs is curvilinear throughout the relevant range. 
B)  costs can be classified accurately as either variable or fixed. 
C)  changes in activity are the only factors that affect costs. 
D)  all units produced are sold.

Question 2

Which of the following is not an underlying assumption of CVP analysis?

Accepted Answer

A)  Changes in activity are the only factors that affect costs. 
B)  Cost classifications are reasonably accurate. 
C)  Beginning inventory is larger than ending inventory. 
D)  Sales mix is constant. 
A)  Changes in activity are the only factors that affect costs. 
B)  Cost classifications are reasonably accurate. 
C)  Beginning inventory is larger than ending inventory. 
D)  Sales mix is constant.

Question 3

A cost-volume-profit graph is frequently used in business meetings because it presents a picture of cost relationships within a company. Briefly describe the type of information and data that you would need in order to prepare a CVP graph. After a CVP graph is prepared what are the major points that could be made from the graph that would be of interest to management?

Accepted Answer

To begin constructing a CVP graph inform

Question 4

If a firm increases its activity level

Accepted Answer

A)  costs should remain the same. 
B)  most costs will rise. 
C)  no costs will remain the same. 
D)  some costs will change others will remain the same. 
A)  costs should remain the same. 
B)  most costs will rise. 
C)  no costs will remain the same. 
D)  some costs will change others will remain the same.

Question 5

Hollis Industries produces flash drives for computers which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April 1000 drives were sold. Fixed costs for March were $2 per unit for a total of $1000 for the month. How much is the contribution margin ratio?

Accepted Answer

A)  25% 
B)  35% 
C)  65% 
D)  75% 
A)  25% 
B)  35% 
C)  65% 
D)  75%

Question 6

Nelson Manufacturing has the following data: Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The unit contribution margin is $500.
The fixed costs are $500000.
Which of the following does not express the break-even point?

Accepted Answer

A)  $500000 + .60X = X 
B)  $500000 + .40X = X 
C)  $500000 ÷ $500 = X 
D)  $500000 ÷ .40 = X 
A)  $500000 + .60X = X 
B)  $500000 + .40X = X 
C)  $500000 ÷ $500 = X 
D)  $500000 ÷ .40 = X

Question 7

Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?

Accepted Answer

A)  Labor specialization 
B)  Overtime wages 
C)  Total variable costs are constant within the relevant range 
D)  Availability of quantity discounts 
A)  Labor specialization 
B)  Overtime wages 
C)  Total variable costs are constant within the relevant range 
D)  Availability of quantity discounts

Question 8

The break-even point cannot be determined by

Accepted Answer

A)  computing it from a mathematical equation. 
B)  computing it using contribution margin. 
C)  reading the prior year's financial statements. 
D)  deriving it from a CVP graph. 
A)  computing it from a mathematical equation. 
B)  computing it using contribution margin. 
C)  reading the prior year's financial statements. 
D)  deriving it from a CVP graph.

Question 9

A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

Accepted Answer

A) True 
 B)False

Question 10

The amount of revenue remaining after deducting total variable costs is called the _________________________.

Accepted Answer

The answer of The amount of revenue remaining after deducting...

Question 11

A variable cost remains constant per unit at various levels of activity.

Accepted Answer

A) True 
 B)False

Question 12

The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit $42; Unit variable expenses $14; Total fixed expenses $42000; Actual sales for the month of June 3000 units. How much is the margin of safety for the company for June?

Accepted Answer

A)  $42000 
B)  $63000 
C)  $84000 
D)  $1500 
A)  $42000 
B)  $63000 
C)  $84000 
D)  $1500

Question 13

At the break-even point of 2000 units variable costs are $165000 and fixed costs are $96000. How much is the selling price per unit?

Accepted Answer

A)  $130.50 
B)  $34.50 
C)  $48.00 
D)  Not enough information 
A)  $130.50 
B)  $34.50 
C)  $48.00 
D)  Not enough information

Question 14

Cunningham Inc. sells MP3 players for $60 each. Variable costs are $40 per unit and fixed costs total $120000. What sales are needed by Cunningham to break even?

Accepted Answer

A)  $160000. 
B)  $300000. 
C)  $360000. 
D)  $480000. 
A)  $160000. 
B)  $300000. 
C)  $360000. 
D)  $480000.

Question 15

Required sales in dollars to meet a target net income is computed by dividing

Accepted Answer

A)  fixed costs plus target net income by unit contribution margin. 
B)  variable costs plus target net income by unit contribution margin. 
C)  fixed costs plus target net income by contribution margin ratio. 
D)  total costs plus target net income by contribution margin ratio. 
A)  fixed costs plus target net income by unit contribution margin. 
B)  variable costs plus target net income by unit contribution margin. 
C)  fixed costs plus target net income by contribution margin ratio. 
D)  total costs plus target net income by contribution margin ratio.

Question 16

At the high level of activity in November 7000 machine hours were run and power costs were $18000. In April a month of low activity 2000 machine hours were run and power costs amounted to $9000. Using the high-low method the estimated fixed cost element of power costs is

Accepted Answer

A)  $18000. 
B)  $9000. 
C)  $5400. 
D)  $12600. 
A)  $18000. 
B)  $9000. 
C)  $5400. 
D)  $12600.

Question 17

The difference between actual or expected sales and break-even sales is called the __________________________.

Accepted Answer

The answer of The difference between actual or expected sales...

Question 18

A CVP income statement is frequently prepared for internal use by management. Describe the features of the CVP income statement that make it more useful for management decision-making than the traditional income statement that is prepared for external users.

Accepted Answer

Several features of the CVP income state

Question 19

Werth & Garza Manufacturing's sales slumped badly in 2016 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500000 units of product: net sales $2125000; total costs and expenses $2500000; and net loss $375000. Costs and expenses consisted of the following: $\begin{array}{lrrr}
&\underline{\text { Total }} &\underline{\text { Variable } }&\underline{ \text { Fixed }}\
\text { Cost of goods sold } & \$ 2,000,000 & \$ 1,300,000 & \$ 700,000 \
\text { Selling expenses } & 200,000 & 50,000 & 150,000 \
\text { Administrative expenses } &\underline{300,000}&\underline{150,000}&\underline{150,000}\
&\underline{\$2,500,000}&\underline{\$1,500,000}&\underline{1,000,000}
\end{array}$ Management is considering the following alternative for 2016:
Purchase new automated equipment that will change the proportion between variable and fixed expenses to 45% variable and 55% fixed.
Instructions
(a) Compute the break-even point in dollars for 2016.
(b) Compute the break-even point in dollars under the alternative course of action.

Accepted Answer

(a) Selling price = $2125000 ÷ 500000 =

Question 20

In CVP analysis the term "cost" includes manufacturing costs and selling and administrative expenses.

Accepted Answer

A) True 
 B)False

Exam 22: Cost-Volume-Profit

Cost-volume-profit analysis includes all of the following assumptions except

Which of the following is not an underlying assumption of CVP analysis?

If a firm increases its activity level

Hollis Industries produces flash drives for computers which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April 1000 drives were sold. Fixed costs for March were $2 per unit for a total of $1000 for the month. How much is the contribution margin ratio?

Nelson Manufacturing has the following data: Variable costs are 60% of the unit selling price. The contribution margin ratio is 40%. The unit contribution margin is $500. The fixed costs are $500000. Which of the following does not express the break-even point?

Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?

The break-even point cannot be determined by

A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

The amount of revenue remaining after deducting total variable costs is called the _________________________.

A variable cost remains constant per unit at various levels of activity.

The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit $42; Unit variable expenses $14; Total fixed expenses $42000; Actual sales for the month of June 3000 units. How much is the margin of safety for the company for June?

At the break-even point of 2000 units variable costs are $165000 and fixed costs are $96000. How much is the selling price per unit?

Cunningham Inc. sells MP3 players for $60 each. Variable costs are $40 per unit and fixed costs total $120000. What sales are needed by Cunningham to break even?

Required sales in dollars to meet a target net income is computed by dividing

At the high level of activity in November 7000 machine hours were run and power costs were $18000. In April a month of low activity 2000 machine hours were run and power costs amounted to $9000. Using the high-low method the estimated fixed cost element of power costs is

The difference between actual or expected sales and break-even sales is called the __________________________.

A CVP income statement is frequently prepared for internal use by management. Describe the features of the CVP income statement that make it more useful for management decision-making than the traditional income statement that is prepared for external users.

In CVP analysis the term "cost" includes manufacturing costs and selling and administrative expenses.

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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