Question 1

Which of the following statements is TRUE about relevant range?

Accepted Answer

A)  When costs reach a level above the relevant range, they are considered appropriate for analysis. 
B)  Linear estimates of an economist's curvilinear cost function is only valid within the relevant range. 
C)  When costs reach a level below the relevant range, they are considered appropriate for analysis. 
D)  The nonlinear relevant range is ignored, and only those costs outside of this range may be considered. 
A)  When costs reach a level above the relevant range, they are considered appropriate for analysis. 
B)  Linear estimates of an economist's curvilinear cost function is only valid within the relevant range. 
C)  When costs reach a level below the relevant range, they are considered appropriate for analysis. 
D)  The nonlinear relevant range is ignored, and only those costs outside of this range may be considered.

Question 2

The following data pertain to the three products produced by Alberts Ltd.:   Fixed costs are £90,000 per month. Sixty per cent of all units sold are Product A, 30 per cent are Product B, and 10 per cent are Product C.
What is the monthly break-even point for total units?

Accepted Answer

A)  45,000 units 
B)  36,000 units 
C)  60,000 units 
D)  180,000 units 
A)  45,000 units 
B)  36,000 units 
C)  60,000 units 
D)  180,000 units

Question 3

Figure 8-2
Lewis Production Company had the following projected information for 2011:  
-Refer to Figure 8-2. What is the contribution margin ratio?

Accepted Answer

A)  0.400 
B)  1.667 
C)  2.500 
D)  0.600 
A)  0.400 
B)  1.667 
C)  2.500 
D)  0.600

Question 4

Figure 8-6
The following diagram is a cost-volume-profit graph for a manufacturing company:  
-Refer to Figure 8-6. Select the answer that best describes the labeled item on the diagram.

Accepted Answer

A)  Area CDE represents the area of net loss. 
B)  Line AC graphs total fixed costs. 
C)  Point D represents the point at which the contribution margin per unit increases. 
D)  Line AC graphs total costs. 
A)  Area CDE represents the area of net loss. 
B)  Line AC graphs total fixed costs. 
C)  Point D represents the point at which the contribution margin per unit increases. 
D)  Line AC graphs total costs.

Question 5

Management is interested in utilizing the full capacity of production facilities because it

Accepted Answer

A)  spreads variable costs over a greater number of units, thereby reducing the variable cost per unit. 
B)  spreads fixed costs over a greater number of units, thereby reducing the fixed cost per unit. 
C)  reduces total variable costs. 
D)  reduces total fixed costs. 
A)  spreads variable costs over a greater number of units, thereby reducing the variable cost per unit. 
B)  spreads fixed costs over a greater number of units, thereby reducing the fixed cost per unit. 
C)  reduces total variable costs. 
D)  reduces total fixed costs.

Question 6

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 new break-even point in units for Dirth Company when the selling price is £6.00?

Accepted Answer

A)  10,000 units 
B)  6,667 units 
C)  4,000 units 
D)  20,000 units 
A)  10,000 units 
B)  6,667 units 
C)  4,000 units 
D)  20,000 units

Question 7

For each of the following situations, draw a graph that best describes the cost behaviour pattern. The vertical axis represents costs, and the horizontal axis represents volume.
a.
Direct materials per unit
b.
Depreciation expense on a building per unit
c.
An employee paid £50 per hour with a guaranteed salary of £1,000 per week
d.
A consultant paid £100 per hour with a maximum fee of £2,000
e.
Salaries of teachers where each teacher can handle a maximum of 15 students

Accepted Answer

The answer of For each of the following situations, draw...

Question 8

Figure 8-1
The Kringel Company provides the following information:  
-Refer to Figure 8-1. What is the break-even point in units for Kringel?

Accepted Answer

A)  33,334 units 
B)  100,000 units 
C)  40,000 units 
D)  200,000 units 
A)  33,334 units 
B)  100,000 units 
C)  40,000 units 
D)  200,000 units

Question 9

Figure 8-5
Information about the Harmon Company's two products includes:  
-Refer to Figure 8-5. What is the total monthly sales volume in units required to break even when the sales mix in units is 70 per cent Product X and 30 per cent Product Y?

Accepted Answer

A)  8,333 units 
B)  50,000 units 
C)  16,667 units 
D)  56,667 units 
A)  8,333 units 
B)  50,000 units 
C)  16,667 units 
D)  56,667 units

Question 10

The following information is provided:   The margin of safety is

Accepted Answer

A)  2,000 units. 
B)  3,000 units. 
C)  5,000 units. 
D)  7,000 units. 
A)  2,000 units. 
B)  3,000 units. 
C)  5,000 units. 
D)  7,000 units.

Question 11

Which of the following statements is true concerning the use of linear analysis at high activity levels (above the range for which the company's facility was designed)?

Accepted Answer

A)  Linear analysis is well suited for estimating total costs at high activity levels. 
B)  Linear analysis likely understates total costs at high activity levels. 
C)  Linear analysis likely overstates total costs at high activity levels. 
D)  Linear analysis of high activity levels fails to capture the fact that total fixed costs decrease as more units are produced. 
A)  Linear analysis is well suited for estimating total costs at high activity levels. 
B)  Linear analysis likely understates total costs at high activity levels. 
C)  Linear analysis likely overstates total costs at high activity levels. 
D)  Linear analysis of high activity levels fails to capture the fact that total fixed costs decrease as more units are produced.

Question 12

Which of the following items would NOT be considered in cost-volume-profit analysis?

Accepted Answer

A)  units of production 
B)  fixed costs 
C)  product mix 
D)  gross profit margin 
A)  units of production 
B)  fixed costs 
C)  product mix 
D)  gross profit margin

Question 13

Zachary Plumbing Company has the following information for 20011:   Required:
Prepare a profit-volume graph identifying the following items: 
a.
Profit line
b.
Intersection of profit line and vertical axis
c.
Break-even point
d.
Profit area
e.
Loss area

Accepted Answer

@#IMG-DLM& *The brea

Question 14

A decrease in the sales price in the basic cost-volume-profit model would

Accepted Answer

A)  require a recomputation of the gross profit per unit. 
B)  be offset by an increase in unit costs. 
C)  decrease the break-even volume. 
D)  increase the break-even volume. 
A)  require a recomputation of the gross profit per unit. 
B)  be offset by an increase in unit costs. 
C)  decrease the break-even volume. 
D)  increase the break-even volume.

Question 15

Assuming all other things are the same, selling price per unit 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 16

In a profit-volume graph, the slope of the profit 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 17

Figure 8-3
Sarah Smith, a sole proprietor, has the following projected figures for next year:  
-Refer to Figure 8-3. What is the break-even point in monetary terms?

Accepted Answer

A)  £426,000 
B)  £2,100,000 
C)  £189,000 
D)  £900,000 
A)  £426,000 
B)  £2,100,000 
C)  £189,000 
D)  £900,000

Question 18

On a profit-volume graph, the intersection of the profit line with the vertical axis provides a

Accepted Answer

A)  profit of £1,000. 
B)  profit equal to zero. 
C)  profit equal to fixed costs. 
D)  loss equal to fixed costs. 
A)  profit of £1,000. 
B)  profit equal to zero. 
C)  profit equal to fixed costs. 
D)  loss equal to fixed costs.

Question 19

Figure 8-3
Sarah Smith, a sole proprietor, has the following projected figures for next year:  
-Refer to Figure 8-3. What selling price per unit is needed to obtain a before-tax profit of £270,000 at a volume of 4,000 units?

Accepted Answer

A)  £150.00 
B)  £330.00 
C)  £225.00 
D)  £105.00 
A)  £150.00 
B)  £330.00 
C)  £225.00 
D)  £105.00

Question 20

What is the first step in classifying costs according to behaviour?

Accepted Answer

A)  identify the resources needed and the output of the activity 
B)  measure the outputs and inputs 
C)  determine the time horizon 
D)  determine the impact of output changes on the activity cost 
A)  identify the resources needed and the output of the activity 
B)  measure the outputs and inputs 
C)  determine the time horizon 
D)  determine the impact of output changes on the activity cost

Exam 8: Cost-Volume-Profit Analysis

Which of the following statements is TRUE about relevant range?

The following data pertain to the three products produced by Alberts Ltd.: Fixed costs are £90,000 per month. Sixty per cent of all units sold are Product A, 30 per cent are Product B, and 10 per cent are Product C. What is the monthly break-even point for total units?

Figure 8-2 Lewis Production Company had the following projected information for 2011: -Refer to Figure 8-2. What is the contribution margin ratio?

Figure 8-6 The following diagram is a cost-volume-profit graph for a manufacturing company: -Refer to Figure 8-6. Select the answer that best describes the labeled item on the diagram.

Management is interested in utilizing the full capacity of production facilities because it

Figure 8-1 The Kringel Company provides the following information: -Refer to Figure 8-1. What is the break-even point in units for Kringel?

Figure 8-5 Information about the Harmon Company's two products includes: -Refer to Figure 8-5. What is the total monthly sales volume in units required to break even when the sales mix in units is 70 per cent Product X and 30 per cent Product Y?

The following information is provided: The margin of safety is

Which of the following statements is true concerning the use of linear analysis at high activity levels (above the range for which the company's facility was designed)?

Which of the following items would NOT be considered in cost-volume-profit analysis?

Zachary Plumbing Company has the following information for 20011: Required: Prepare a profit-volume graph identifying the following items: a. Profit line b. Intersection of profit line and vertical axis c. Break-even point d. Profit area e. Loss area

A decrease in the sales price in the basic cost-volume-profit model would

Assuming all other things are the same, selling price per unit must have ____ if there was a decrease in the break-even point.

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

Figure 8-3 Sarah Smith, a sole proprietor, has the following projected figures for next year: -Refer to Figure 8-3. What is the break-even point in monetary terms?

On a profit-volume graph, the intersection of the profit line with the vertical axis provides a

Figure 8-3 Sarah Smith, a sole proprietor, has the following projected figures for next year: -Refer to Figure 8-3. What selling price per unit is needed to obtain a before-tax profit of £270,000 at a volume of 4,000 units?

What is the first step in classifying costs according to behaviour?

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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