Question 1

Which of the following statements is TRUE?

Accepted Answer

A)  The slope of the total cost line is dependent on the variable cost per unit. 
B)  The total cost line normally begins at zero. 
C)  The total revenue line typically begins above zero. 
D)  The slope of the total revenue line is the contribution margin per unit. 
A)  The slope of the total cost line is dependent on the variable cost per unit. 
B)  The total cost line normally begins at zero. 
C)  The total revenue line typically begins above zero. 
D)  The slope of the total revenue line is the contribution margin per unit. A

Question 2

Information about two products is as follows:   The firm expects 60 per cent of its sales (in units) to be Product C (a sales mix of 6:4). Fixed costs are expected to be £82,000. Break-even in units would be

Accepted Answer

D

Question 3

Figure 8-2
Lewis Production Company had the following projected information for 2011:  
-Refer to Figure 8-2. What is the profit when one unit more than the break-even point is sold?

Accepted Answer

A)  £150 
B)  £60 
C)  £1,500,150 
D)  £600,060 
A)  £150 
B)  £60 
C)  £1,500,150 
D)  £600,060 B

Question 4

Figure 8-6
The following diagram is a cost-volume-profit graph for a manufacturing company:  
-Refer to Figure 8-6. The difference between line AB and line AC (area BAC) is the

Accepted Answer

A)  contribution ratio. 
B)  total variable cost. 
C)  contribution margin per unit. 
D)  total fixed cost. 
A)  contribution ratio. 
B)  total variable cost. 
C)  contribution margin per unit. 
D)  total fixed cost.

Question 5

Figure 8-4
Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 per cent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales.
-Refer to Figure 8-4. What sales pound level is needed to obtain a before-tax profit of £60,000 when the selling price is £6.00 per unit?

Accepted Answer

A)  £360,000 
B)  £120,000 
C)  £72,000 
D)  £90,000 
A)  £360,000 
B)  £120,000 
C)  £72,000 
D)  £90,000

Question 6

A profit-volume graph

Accepted Answer

A)  measures profit or loss on the horizontal axis. 
B)  illustrates total revenues, total cost, and profits at various sales volumes. 
C)  is not subject to the same limiting assumptions as cost-volume-profit graphs. 
D)  illustrates the relationship between volume and profits. 
A)  measures profit or loss on the horizontal axis. 
B)  illustrates total revenues, total cost, and profits at various sales volumes. 
C)  is not subject to the same limiting assumptions as cost-volume-profit graphs. 
D)  illustrates the relationship between volume and profits.

Question 7

The Millennium Company produces two types of products: Quality and Superior. The company expects to sell 1,200 units of Quality and 800 units of Superior.
A projected income statement for the firm as a whole follows:   Required: 
a.
Determine the break-even point in terms of sales revenue.
b.
Determine the sales revenue necessary to generate a before-tax profit of £300,000.
c.
Determine the sales revenue necessary to generate an after-tax profit of £270,000 if the tax rate is 40 per cent.

Accepted Answer

The answer of The Millennium Company produces two types of...

Question 8

The contribution margin at the break-even point

Accepted Answer

A)  equals total fixed costs. 
B)  is zero. 
C)  plus total fixed costs equals total revenues. 
D)  is greater than variable costs. 
A)  equals total fixed costs. 
B)  is zero. 
C)  plus total fixed costs equals total revenues. 
D)  is greater than variable costs.

Question 9

Figure 8-7
The income statement for Thomas Manufacturing Company for 2011 is as follows:  
-Refer to Figure 8-7. If sales increase by £60,000, what will happen to profit?

Accepted Answer

A)  increase by £60,000 
B)  increase by £24,000 
C)  increase by £6,000 
D)  increase by £36,000 
A)  increase by £60,000 
B)  increase by £24,000 
C)  increase by £6,000 
D)  increase by £36,000

Question 10

The range of operations within which a linear cost function is valid is called:

Accepted Answer

A)  the linear average. 
B)  the relevant range. 
C)  the marginal range. 
D)  the functional range. 
A)  the linear average. 
B)  the relevant range. 
C)  the marginal range. 
D)  the functional range.

Question 11

In a cost-volume-profit graph, the slope of the total cost line represents

Accepted Answer

A)  the selling price per unit. 
B)  the contribution margin per unit. 
C)  the variable cost per unit. 
D)  total contribution margin. 
A)  the selling price per unit. 
B)  the contribution margin per unit. 
C)  the variable cost per unit. 
D)  total contribution margin.

Question 12

Which of the following assumptions does NOT pertain to cost-profit-volume analysis?

Accepted Answer

A)  Sales price per unit remains constant. 
B)  The sales mix is constant. 
C)  Inventories in a manufacturing entity may go up or down. 
D)  Fixed expenses are constant at all volumes of activities within the relevant range. 
A)  Sales price per unit remains constant. 
B)  The sales mix is constant. 
C)  Inventories in a manufacturing entity may go up or down. 
D)  Fixed expenses are constant at all volumes of activities within the relevant range.

Question 13

Using cost-volume-profit analysis, we can conclude that a 20 per cent reduction in variable costs will

Accepted Answer

A)  reduce the break-even sales volume by 20 per cent. 
B)  reduce total costs by 20 per cent. 
C)  reduce the slope of the total cost line by 20 per cent. 
D)  not affect the break-even sales volume if there is an offsetting 20 per cent increase in fixed costs. 
A)  reduce the break-even sales volume by 20 per cent. 
B)  reduce total costs by 20 per cent. 
C)  reduce the slope of the total cost line by 20 per cent. 
D)  not affect the break-even sales volume if there is an offsetting 20 per cent increase in fixed costs.

Question 14

Figure 8-4
Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 per cent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales.
-Refer to Figure 8-4. What is the monetary sales level required to break even at the old price of £7.50?

Accepted Answer

A)  £75,000 
B)  £12,000 
C)  £18,000 
D)  £50,000 
A)  £75,000 
B)  £12,000 
C)  £18,000 
D)  £50,000

Question 15

Which of the following is a TRUE statement about sales mix?

Accepted Answer

A)  Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the high contribution margin product. 
B)  Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the lower contribution margin product. 
C)  Profits will remain constant with an increase in total monetary sales if the total sales in units remains constant. 
D)  Profits will remain constant with a decrease in total monetary sales if the sales mix also remains constant. 
A)  Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the high contribution margin product. 
B)  Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the lower contribution margin product. 
C)  Profits will remain constant with an increase in total monetary sales if the total sales in units remains constant. 
D)  Profits will remain constant with a decrease in total monetary sales if the sales mix also remains constant.

Question 16

Figure 8-8
Urban Company had the following information:  
-Refer to Figure 8-8. Suppose Urban could reduce setup costs by £300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

Accepted Answer

A)  10,670 units 
B)  21,340 units 
C)  6,350 units 
D)  7,500 units 
A)  10,670 units 
B)  21,340 units 
C)  6,350 units 
D)  7,500 units

Question 17

In a cost-volume-profit graph, the slope of the total revenue line represents

Accepted Answer

A)  the selling price per unit. 
B)  the contribution margin per unit. 
C)  the variable cost per unit. 
D)  total contribution margin. 
A)  the selling price per unit. 
B)  the contribution margin per unit. 
C)  the variable cost per unit. 
D)  total contribution margin.

Question 18

Assuming all other things are equal, fixed costs must have ____ if there was a decrease in the break-even point.

Accepted Answer

A)  remained the same 
B)  increased first, then decreased 
C)  increased 
D)  decreased 
A)  remained the same 
B)  increased first, then decreased 
C)  increased 
D)  decreased

Question 19

Assuming all other things are the same, contribution margin per unit must have ____ if there was an increase in the break-even point.

Accepted Answer

A)  remained the same 
B)  increased first, then decreased 
C)  increased 
D)  decreased 
A)  remained the same 
B)  increased first, then decreased 
C)  increased 
D)  decreased

Question 20

Product 1 has a contribution margin of £6.00 per unit, and Product 2 has a contribution margin of £7.50 per unit. Total fixed costs are £300,000. Sales mix and total volume varies from one period to another. Which of the following is TRUE?

Accepted Answer

A)  At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable. 
B)  The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1. 
C)  The contribution margin per unit of direct materials is lower for 1 than for 2. 
D)  The ratio of contribution to total sales always will be larger for 1 than for 2. 
A)  At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable. 
B)  The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1. 
C)  The contribution margin per unit of direct materials is lower for 1 than for 2. 
D)  The ratio of contribution to total sales always will be larger for 1 than for 2.

Exam 8: Cost-Volume-Profit Analysis

Which of the following statements is TRUE?

Information about two products is as follows: The firm expects 60 per cent of its sales (in units) to be Product C (a sales mix of 6:4). Fixed costs are expected to be £82,000. Break-even in units would be

Figure 8-2 Lewis Production Company had the following projected information for 2011: -Refer to Figure 8-2. What is the profit when one unit more than the break-even point is sold?

Figure 8-6 The following diagram is a cost-volume-profit graph for a manufacturing company: -Refer to Figure 8-6. The difference between line AB and line AC (area BAC) is the

A profit-volume graph

The contribution margin at the break-even point

Figure 8-7 The income statement for Thomas Manufacturing Company for 2011 is as follows: -Refer to Figure 8-7. If sales increase by £60,000, what will happen to profit?

The range of operations within which a linear cost function is valid is called:

In a cost-volume-profit graph, the slope of the total cost line represents

Which of the following assumptions does NOT pertain to cost-profit-volume analysis?

Using cost-volume-profit analysis, we can conclude that a 20 per cent reduction in variable costs will

Which of the following is a TRUE statement about sales mix?

Figure 8-8 Urban Company had the following information: -Refer to Figure 8-8. Suppose Urban could reduce setup costs by £300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

In a cost-volume-profit graph, the slope of the total revenue line represents

Assuming all other things are equal, fixed costs must have ____ if there was a decrease in the break-even point.

Assuming all other things are the same, contribution margin per unit must have ____ if there was an increase in the break-even point.

Product 1 has a contribution margin of £6.00 per unit, and Product 2 has a contribution margin of £7.50 per unit. Total fixed costs are £300,000. Sales mix and total volume varies from one period to another. Which of the following is TRUE?

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Cost Assignment

Accounting Entries for a Job Costing System

Process Costing

Joint and By-Product Costing

Income Effects of Alternative Cost Accumulation Systems

Measuring Relevant Costs and Revenues for Decision-Making

Activity-Based Costing

Pricing Decisions and Profitability Analysis

Decision-Making Under Conditions of Risk and Uncertainty

Capital Investment Decisions: Appraisal Methods

Capital Investment Decisions: the Impact of Capital Rationing, Taxation, Inflation and Risk

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis 1

Standard Costing and Variance Analysis 2: Further Aspects

Divisional Financial Performance Measures

Transfer Pricing in Divisionalized Companies

Cost Management

Strategic Management Accounting

Cost Estimation and Cost Behaviour

Quantitative Models for the Planning and Control of Stocks

The Application of Linear Programming to Management Accounting

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