Question 1

When the variable cost per unit increases, the contribution margin on each unit decreases.

Accepted Answer

A) True 
 B)False

Question 2

Garcia Company provides the following information about its product:   What is the contribution margin ratio?

Accepted Answer

A) 75% 
B) 100% 
C) 125% 
D) 25% 
A) 75% 
B) 100% 
C) 125% 
D) 25%

Question 3

Identify the breakeven point in the graph given below.

Accepted Answer

A) O 
B) E 
C) D 
D) B 
A) O 
B) E 
C) D 
D) B

Question 4

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total variable costs would:

Accepted Answer

A) increase by 20%. 
B) remain the same. 
C) increase by an amount less than 20%. 
D) decrease by 20%. 
A) increase by 20%. 
B) remain the same. 
C) increase by an amount less than 20%. 
D) decrease by 20%.

Question 5

A CVP graph shows how changes in the level of sales will affect profits.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the right formula for calculating total mixed cost?

Accepted Answer

A) Total mixed cost = (Variable cost per unit ÷ Number of units)+ Total fixed cost 
B) Total mixed cost = (Variable cost per unit × Number of units)- Total fixed cost 
C) Total mixed cost = (Variable cost per unit × Number of units)+ Total fixed cost 
D) Total mixed cost = (Variable cost per unit ÷ Number of units)- Total fixed cost 
A) Total mixed cost = (Variable cost per unit ÷ Number of units)+ Total fixed cost 
B) Total mixed cost = (Variable cost per unit × Number of units)- Total fixed cost 
C) Total mixed cost = (Variable cost per unit × Number of units)+ Total fixed cost 
D) Total mixed cost = (Variable cost per unit ÷ Number of units)- Total fixed cost

Question 7

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would:

Accepted Answer

A) increase by 20%. 
B) remain the same. 
C) increase by an amount less than 20%. 
D) decrease by 20%. 
A) increase by 20%. 
B) remain the same. 
C) increase by an amount less than 20%. 
D) decrease by 20%.

Question 8

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows:   Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit. What is the amount of revenue Colin should earn each month to break even?

Accepted Answer

A) $9,952 
B) $6,635 
C) $4,968 
D) $5,833 
A) $9,952 
B) $6,635 
C) $4,968 
D) $5,833

Question 9

Which of the following formulae is the right formula for calculating contribution margin ratio?

Accepted Answer

A) Contribution margin ratio = Contribution margin + Net sales revenue 
B) Contribution margin ratio = Contribution margin ÷ Net sales revenue 
C) Contribution margin ratio = Contribution margin × Net sales revenue 
D) Contribution margin ratio = Contribution margin - Net sales revenue 
A) Contribution margin ratio = Contribution margin + Net sales revenue 
B) Contribution margin ratio = Contribution margin ÷ Net sales revenue 
C) Contribution margin ratio = Contribution margin × Net sales revenue 
D) Contribution margin ratio = Contribution margin - Net sales revenue

Question 10

A company that sells multiple products will always set selling prices such that all products have the same contribution margin.

Accepted Answer

A) True 
 B)False

Question 11

A 15% increase in production volume will result in a:

Accepted Answer

A) 15% increase in the variable cost per unit. 
B) 15% increase in total mixed costs. 
C) 15% increase in total administration costs. 
D) 15% increase in total variable costs. 
A) 15% increase in the variable cost per unit. 
B) 15% increase in total mixed costs. 
C) 15% increase in total administration costs. 
D) 15% increase in total variable costs.

Question 12

Contribution margin is the amount that contributes to covering variable costs.

Accepted Answer

A) True 
 B)False

Question 13

The purpose of managerial accounting is to provide managers with information that is useful for internal decision making.

Accepted Answer

A) True 
 B)False

Question 14

Variable cost per unit, within the relevant range, will:

Accepted Answer

A) increase as production decreases. 
B) decrease as production decreases. 
C) remain the same as production levels change. 
D) decrease as production increases. 
A) increase as production decreases. 
B) decrease as production decreases. 
C) remain the same as production levels change. 
D) decrease as production increases.

Question 15

Margaret sells hand-knit scarves at a flea market. Each scarf sells for $25. Margaret pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. How many scarves should she sell each day in order to break even?

Accepted Answer

A) 4 scarves 
B) 3 scarves 
C) 5 scarves 
D) 2 scarves 
A) 4 scarves 
B) 3 scarves 
C) 5 scarves 
D) 2 scarves

Question 16

When a company produces more units than it sells, income under absorption costing will exceed income under variable costing.

Accepted Answer

A) True 
 B)False

Question 17

James Company sells glass vases at a wholesale price of $2.50 per unit. The variable cost of manufacture is $1.75 per unit. The monthly fixed costs are $7,500. James's current sales are 25,000 units per month. If James wants to increase operating income by 20%, how many additional units, must James sell? (Round your intermediate calculations to two decimal places)

Accepted Answer

A) 145,000 glass vases 
B) 7,500 glass vases 
C) 13,500 glass vases 
D) 3,000 glass vases 
A) 145,000 glass vases 
B) 7,500 glass vases 
C) 13,500 glass vases 
D) 3,000 glass vases

Question 18

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Accepted Answer

A) True 
 B)False

Question 19

A contribution margin income statement classifies costs by function; that is, costs are classified as either product costs or period costs.

Accepted Answer

A) True 
 B)False

Question 20

One of the assumptions of cost-volume-profit (CVP)analysis is that there are no changes in the:

Accepted Answer

A) accounts payable. 
B) cash balance. 
C) inventory levels. 
D) accounts receivables. 
A) accounts payable. 
B) cash balance. 
C) inventory levels. 
D) accounts receivables.

Exam 21: Cost-Volume-Profit Analysis

When the variable cost per unit increases, the contribution margin on each unit decreases.

Garcia Company provides the following information about its product: What is the contribution margin ratio?

Identify the breakeven point in the graph given below.

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total variable costs would:

A CVP graph shows how changes in the level of sales will affect profits.

Which of the following is the right formula for calculating total mixed cost?

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would:

Which of the following formulae is the right formula for calculating contribution margin ratio?

A company that sells multiple products will always set selling prices such that all products have the same contribution margin.

A 15% increase in production volume will result in a:

Contribution margin is the amount that contributes to covering variable costs.

The purpose of managerial accounting is to provide managers with information that is useful for internal decision making.

Variable cost per unit, within the relevant range, will:

Margaret sells hand-knit scarves at a flea market. Each scarf sells for $25. Margaret pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. How many scarves should she sell each day in order to break even?

When a company produces more units than it sells, income under absorption costing will exceed income under variable costing.

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

A contribution margin income statement classifies costs by function; that is, costs are classified as either product costs or period costs.

One of the assumptions of cost-volume-profit (CVP)analysis is that there are no changes in the:

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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