Question 1

Which of the following does not typically appear on a contribution income statement?

Accepted Answer

A)  Net income. 
B)  Gross margin. 
C)  Contribution margin. 
D)  Total variable costs. 
E)  Total fixed costs. 
A)  Net income. 
B)  Gross margin. 
C)  Contribution margin. 
D)  Total variable costs. 
E)  Total fixed costs.

Question 2

For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.

Accepted Answer

A) True 
 B)False

Question 3

The safety margin is another name for the breakeven point.

Accepted Answer

A) True 
 B)False

Question 4

Use the following information to answer the following Questions
 
-Refer to the figure above. The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  profit or loss at that volume. 
D)  semivariable cost. 
E)  the safety margin. 
A)  fixed cost. 
B)  variable cost. 
C)  profit or loss at that volume. 
D)  semivariable cost. 
E)  the safety margin.

Question 5

Morgan Technologies sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the company will experience:

Accepted Answer

A)  no change in profit because a 20% drop in sales price is balanced by a 20% increase in volume. 
B)  an $80,000 drop in profit. 
C)  a $240,000 drop in profit. 
D)  a $400,000 drop in profit. 
E)  None of the answers is correct. 
A)  no change in profit because a 20% drop in sales price is balanced by a 20% increase in volume. 
B)  an $80,000 drop in profit. 
C)  a $240,000 drop in profit. 
D)  a $400,000 drop in profit. 
E)  None of the answers is correct.

Question 6

Flavol Corporation reported sales revenues of $1,850,000 for the period just ended. Cost of goods sold, selling expenses, and administrative expenses totaled $1,200,000, $280,000, and $170,000, respectively. A detailed analysis of the latter three amounts revealed respective fixed cost components of $780,000, $60,000, and $130,000.
A. Determine the amounts, if any, that Flavol would report on a traditional income statement for (1) gross margin, (2) contribution margin, and (3) income.
B. Determine the amounts, if any, that Flavol would report on a contribution income statement for (1) gross margin, (2) contribution margin, and (3) income.
C. Which of the two income statements (traditional or contribution) is more useful for studying a company's cost-volume-profit relationships?

Accepted Answer

A. 1. Sales ($1,850,000) - cost of goods

Question 7

Use the following information to answer the following Questions
 
-Refer to the figure above. The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

Accepted Answer

A)  fixed cost. 
B)  variable cost. 
C)  profit. 
D)  loss. 
E)  sales revenue. 
A)  fixed cost. 
B)  variable cost. 
C)  profit. 
D)  loss. 
E)  sales revenue.

Question 8

Vogt Corporation's product no. H647 has a negative contribution margin. How can such a situation arise? Should the company continue to stock and sell product no. H647? Explain.

Accepted Answer

A negative contribution arises because s

Question 9

Which of the following calculations can be used to measure a company's degree of operating leverage?

Accepted Answer

A)  Contribution margin / sales. 
B)  Contribution margin / income. 
C)  Sales / contribution margin. 
D)  Sales /income. 
E)  Sales / fixed costs. 
A)  Contribution margin / sales. 
B)  Contribution margin / income. 
C)  Sales / contribution margin. 
D)  Sales /income. 
E)  Sales / fixed costs.

Question 10

Gandee Company has an operating leverage factor of 5. Which of the following statements is true?
Thus, an 8% change in ______ should result in a 40% change in ______. The respective amounts that change are:

Accepted Answer

A)  An 8% change in income should result in a 40% change in sales revenue. 
B)  An 8% change in sales revenue should result in a 40% change in income. 
C)  An 8% change in variable costs should result in a 40% change in contribution margin. 
D)  An 8% change in fixed costs should result in a 40% change in income. 
E)  An 8% change in variable costs should result in a 40% change in break-even sales. 
A)  An 8% change in income should result in a 40% change in sales revenue. 
B)  An 8% change in sales revenue should result in a 40% change in income. 
C)  An 8% change in variable costs should result in a 40% change in contribution margin. 
D)  An 8% change in fixed costs should result in a 40% change in income. 
E)  An 8% change in variable costs should result in a 40% change in break-even sales.

Question 11

Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

Accepted Answer

A)  Product prices will remain constant as volume varies within the relevant range. 
B)  Costs can be categorized as fixed, variable, or semivariable. 
C)  The efficiency and productivity of the production process and workers will change to reflect manufacturing advances. 
D)  Total fixed costs remain constant as activity changes. 
E)  Unit variable cost remains constant as activity changes. 
A)  Product prices will remain constant as volume varies within the relevant range. 
B)  Costs can be categorized as fixed, variable, or semivariable. 
C)  The efficiency and productivity of the production process and workers will change to reflect manufacturing advances. 
D)  Total fixed costs remain constant as activity changes. 
E)  Unit variable cost remains constant as activity changes.

Question 12

On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

Accepted Answer

A) True 
 B)False

Question 13

Cost structures differ widely among industries and among firms within an industry.

Accepted Answer

A) True 
 B)False

Question 14

Santa Fe Production sells a single product to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000. If Santa Fe's unit sales are 200 units less than anticipated, its break-even point will:

Accepted Answer

A)  increase by $12 per unit sold. 
B)  decrease by $12 per unit sold. 
C)  increase by $8 per unit sold. 
D)  decrease by $8 per unit sold. 
E)  not change. 
A)  increase by $12 per unit sold. 
B)  decrease by $12 per unit sold. 
C)  increase by $8 per unit sold. 
D)  decrease by $8 per unit sold. 
E)  not change.

Question 15

Which of the following statements is (are) true regarding a company that has implemented flexible manufacturing systems and activity-based costing?
I. The company has erred, as these two practices used in conjunction with one another will severely limit the firm's ability to analyze costs over the relevant range.
II. Costs formerly viewed as fixed under traditional-costing systems may now be considered variable with respect to changes in cost drivers such as number of setups, number of material moves, and so forth.
III. As compared with the results obtained under a traditional-costing system, the concept of break-even analysis loses meaning.

Accepted Answer

A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  II and III. 
A)  I only. 
B)  II only. 
C)  III only. 
D)  I and II. 
E)  II and III.

Question 16

Which of the following occurs if a company experiences an increase in its fixed costs?

Accepted Answer

A)  Net income would increase. 
B)  The break-even point would increase. 
C)  The contribution margin would increase. 
D)  The contribution margin would decrease. 
E)  More than one of the answers would occur. 
A)  Net income would increase. 
B)  The break-even point would increase. 
C)  The contribution margin would increase. 
D)  The contribution margin would decrease. 
E)  More than one of the answers would occur.

Question 17

The following information relates to Dazie Company:
 
Dazie's operating leverage factor is closest to:

Accepted Answer

A)  0.067. 
B)  0.167. 
C)  0.400. 
D)  2.500. 
E)  6.000. 
A)  0.067. 
B)  0.167. 
C)  0.400. 
D)  2.500. 
E)  6.000.

Question 18

High Flying takes tourists on helicopter tours of Hawaii. Each tourist buys a $150 ticket; the variable costs average $60 per person. High Flying has annual fixed costs of $702,000.
Required: 
A. Compute the average number of tours the company must conduct per month to break even.
B. Compute the average sales revenue needed per month to produce a target average profit of $36,000 per month. See below (answer to "B").
C. Calculate the contribution margin ratio.
D. Determine whether the actions that follow will increase, decrease, or not affect the company's break-even point.
1. A decrease in tour prices.
2. The termination of a salaried clerk (no replacement is planned).
3. A decrease in the number of tours sold.

Accepted Answer

A.
 @#IMG-DLM& B. Tours to earn $36,000:

Question 19

The requirement that companies pay income taxes does not affect their cost-volume-profit relationships.

Accepted Answer

A) True 
 B)False

Question 20

The PowerClean Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.
   
Cost of goods sold consists of $810,000 of variable costs and $310,000 of fixed costs. Operating expenses consist of $30,000 of variable costs and $70,000 of fixed costs. 
A. Calculate the break-even point in units and sales dollars.
B. Calculate the safety margin (in dollars).
C. PowerClean received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order, assuming there are no opportunity costs.

Accepted Answer

A.
 @#IMG-DLM& Unit contribution margin: $760,000

Which of the following does not typically appear on a contribution income statement?

For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.

The safety margin is another name for the breakeven point.

Use the following information to answer the following Questions -Refer to the figure above. The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

Morgan Technologies sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the company will experience:

Use the following information to answer the following Questions -Refer to the figure above. The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

Vogt Corporation's product no. H647 has a negative contribution margin. How can such a situation arise? Should the company continue to stock and sell product no. H647? Explain.

Which of the following calculations can be used to measure a company's degree of operating leverage?

Gandee Company has an operating leverage factor of 5. Which of the following statements is true? Thus, an 8% change in should result in a 40% change in . The respective amounts that change are:

Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

Cost structures differ widely among industries and among firms within an industry.

Which of the following occurs if a company experiences an increase in its fixed costs?

The following information relates to Dazie Company: Dazie's operating leverage factor is closest to:

The requirement that companies pay income taxes does not affect their cost-volume-profit relationships.

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 7: Cost-Volume-Profit Analysis

Which of the following does not typically appear on a contribution income statement?

For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.

The safety margin is another name for the breakeven point.

Use the following information to answer the following Questions -Refer to the figure above. The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

Morgan Technologies sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the company will experience:

Use the following information to answer the following Questions -Refer to the figure above. The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

Vogt Corporation's product no. H647 has a negative contribution margin. How can such a situation arise? Should the company continue to stock and sell product no. H647? Explain.

Which of the following calculations can be used to measure a company's degree of operating leverage?

Gandee Company has an operating leverage factor of 5. Which of the following statements is true? Thus, an 8% change in ______ should result in a 40% change in ______. The respective amounts that change are:

Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

Cost structures differ widely among industries and among firms within an industry.

Which of the following occurs if a company experiences an increase in its fixed costs?

The following information relates to Dazie Company: Dazie's operating leverage factor is closest to:

The requirement that companies pay income taxes does not affect their cost-volume-profit relationships.

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Gandee Company has an operating leverage factor of 5. Which of the following statements is true? Thus, an 8% change in should result in a 40% change in . The respective amounts that change are: