Question 1

Total variable costs change in proportion to changes in volume of activity.

Accepted Answer

A) True 
 B)False

Question 2

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

Accepted Answer

Contribution margin = $120 - $

Question 3

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: $\begin{array}{lrrrr}
&\text {M}&\text {N}&\text {O}\
\text { Unit sales price } & \$ 7 & \$ 4 & \$ 6 \
\text { Unit variable costs } & 3 & 2 & 3
\end{array}$
 Total fixed costs are $340,000. 
-The selling price per composite unit for the current sales mix (rounded to the nearest cent) is:

Accepted Answer

A)  $25.00. 
B)  $37.00. 
C)  $17.00. 
D)  $ 5.67. 
E)  $20.00. 
A)  $25.00. 
B)  $37.00. 
C)  $17.00. 
D)  $ 5.67. 
E)  $20.00.

Question 4

Select cost information for Klondike Corporation is as follows: $\begin{array} { l c c c c c } 
& 1,000 \text { units of output } && { 2,000 \text { units of output } } \
& \text { Total } & \text { Cost/Unit } & \text { Total } & \text { Cost/Unit } \
\text { Direct materials } & \$ 4,000 & \$ 4.00 & \$ 8,000 & \$ 4.00 \
\text { Rent expense } & \$ 2,000 & \$ 2.00 & \$ 2,000 & \$ 1.00
\end{array}$
Based on this information:

Accepted Answer

A)  Both direct materials and rent expense are fixed costs. 
B)  Direct materials is a fixed cost and rent expense is a variable cost. 
C)  Both direct materials and rent expense are mixed costs. 
D)  Both direct materials and rent expense are variable costs. 
E)  Direct materials is a variable cost and rent expense is a fixed cost. 
A)  Both direct materials and rent expense are fixed costs. 
B)  Direct materials is a fixed cost and rent expense is a variable cost. 
C)  Both direct materials and rent expense are mixed costs. 
D)  Both direct materials and rent expense are variable costs. 
E)  Direct materials is a variable cost and rent expense is a fixed cost.

Question 5

Curvilinear costs always increase:

Accepted Answer

A)  On a per unit basis when volume of activity goes down. 
B)  With decreases in volume. 
C)  When volume increases, but at a nonconstant rate. 
D)  When management performs break-even analysis. 
E)  In constant proportion to changes in production levels. 
A)  On a per unit basis when volume of activity goes down. 
B)  With decreases in volume. 
C)  When volume increases, but at a nonconstant rate. 
D)  When management performs break-even analysis. 
E)  In constant proportion to changes in production levels.

Question 6

Describe what happens to the net income of a company under each of the following assumptions:
(a) Units sold are less than break-even units. (b) Units sold are greater than break-even units. (c) Units sold are equal to the break-even units.

Accepted Answer

(a) If the units sold are less than the

Question 7

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

Accepted Answer

A)  Total fixed costs are held constant. 
B)  Costs can be classified as variable or fixed. 
C)  Relevant range includes all possible levels of activity that a company might experience. 
D)  A constant sales mix in a multiproduct company. 
E)  Sales price and variable costs per unit of output remain constant as volume changes. 
A)  Total fixed costs are held constant. 
B)  Costs can be classified as variable or fixed. 
C)  Relevant range includes all possible levels of activity that a company might experience. 
D)  A constant sales mix in a multiproduct company. 
E)  Sales price and variable costs per unit of output remain constant as volume changes.

Question 8

Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the purchase of the new machine have on Elk's break-even point in units?

Accepted Answer

Current break-even point in units = $96,

Question 9

While the total amount of fixed cost changes with the level of production, fixed cost per unit
remains constant as volume changes.

Accepted Answer

A) True 
 B)False

Question 10

The high-low method can be used to estimate the cost equation using just two points.

Accepted Answer

A) True 
 B)False

Question 11

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

Accepted Answer

A)  $215,000. 
B)  $275,000. 
C)  $90,000. 
D)  $125,000. 
E)  $65,000. 
A)  $215,000. 
B)  $275,000. 
C)  $90,000. 
D)  $125,000. 
E)  $65,000.

Question 12

Dodge Industries incurs the following costs during the current year:
 $$\begin{array} { l | l } 
\text { Depreciation of machinery } & \$ 15,000 \
\hline \text { Direct labor. } & 6,000 \
\hline \text { Direct materials } & 4,000 \
\hline \text { Executive salaries } & 20,000 \
\hline \text { Insuranes } & 2,000 \
\hline \text { Rent on building } & 8,000 \
\hline \text { Sales commistions } & 10,000 \
\hline \text { Vehicle lease cost } & 5,000
\end{array}$$ Sales for the year were $80,000 and Dodge Industries determined that only the direct production
costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Dodge sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Dodge Industries.
(b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.

Accepted Answer

The answer of Dodge Industries incurs the following costs during...

Question 13

A manufacturer reports the following information below for its first three years in operation. $\begin{array} { l r r r } 
& & & \
& \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\text { Income under variable costing } & \$ 76,000 & \$ 109,000 & \$ 115,000 \
\text { Beginning inventory (units) } & 0 & 800 & 500 \
\text { Ending inventory (units) } & 800 & 500 & 0 \
\text { Fixed manufacturing overhead per unit } & \$ 8.00 & \$ 8.00 & \$ 8.00 \
\hline
\end{array}$
- 
Income for year 3 using absorption costing is:

Accepted Answer

A)  $111,000. 
B)  $115,000. 
C)  $109,000. 
D)  $117,000. 
E)  $106,600. 
A)  $111,000. 
B)  $115,000. 
C)  $109,000. 
D)  $117,000. 
E)  $106,600.

Question 14

Margin Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Margin reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

Accepted Answer

The answer of Margin Company has total fixed costs of...

Question 15

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the ________ point. Further analysis emphasizing profitability may be accomplished by measuring the ________ and ________.

Accepted Answer

break-even

Question 16

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. 
-The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's selling price per composite unit.

Accepted Answer

A)  $13,200. 
B)  $7,575. 
C)  $15,150. 
D)  $1,255. 
E)  $1,950. 
A)  $13,200. 
B)  $7,575. 
C)  $15,150. 
D)  $1,255. 
E)  $1,950.

Question 17

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

Accepted Answer

A)  Relevant range. 
B)  High-low point. 
C)  Margin of safety. 
D)  Break-even point. 
E)  Contribution range. 
A)  Relevant range. 
B)  High-low point. 
C)  Margin of safety. 
D)  Break-even point. 
E)  Contribution range.

Question 18

Least-squares regression is a statistical method for identifying cost behavior.

Accepted Answer

A) True 
 B)False

Question 19

There are at least three different methods to separate costs into fixed and variable. These methods are the ________, ________, and ________ methods.

Accepted Answer

scatter diagram; hig

Question 20

Mullis Corp. manufactures DVDs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?

Accepted Answer

A)  9,850 unit decrease. 
B)  4,444 unit increase. 
C)  5,714 unit increase. 
D)  No effect. 
E)  4,444 unit decrease. 
A)  9,850 unit decrease. 
B)  4,444 unit increase. 
C)  5,714 unit increase. 
D)  No effect. 
E)  4,444 unit decrease.

Total variable costs change in proportion to changes in volume of activity.

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

Select cost information for Klondike Corporation is as follows: 1,000 units of output 2,000 units of output Total Cost/Unit Total Cost/Unit Direct materials \ 4,000 \ 4.00 \ 8,000 \ 4.00 Rent expense \ 2,000 \ 2.00 \ 2,000 \ 1.00 Based on this information:

Curvilinear costs always increase:

Describe what happens to the net income of a company under each of the following assumptions: (a) Units sold are less than break-even units. (b) Units sold are greater than break-even units. (c) Units sold are equal to the break-even units.

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

While the total amount of fixed cost changes with the level of production, fixed cost per unit remains constant as volume changes.

The high-low method can be used to estimate the cost equation using just two points.

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the point. Further analysis emphasizing profitability may be accomplished by measuring the and .

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

Least-squares regression is a statistical method for identifying cost behavior.

There are at least three different methods to separate costs into fixed and variable. These methods are the , , and methods.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Exam 21: Cost-Volume-Profit Analysis

Total variable costs change in proportion to changes in volume of activity.

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

Select cost information for Klondike Corporation is as follows: 1,000 units of output 2,000 units of output Total Cost/Unit Total Cost/Unit Direct materials \ 4,000 \ 4.00 \ 8,000 \ 4.00 Rent expense \ 2,000 \ 2.00 \ 2,000 \ 1.00 Based on this information:

Curvilinear costs always increase:

Describe what happens to the net income of a company under each of the following assumptions: (a) Units sold are less than break-even units. (b) Units sold are greater than break-even units. (c) Units sold are equal to the break-even units.

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

While the total amount of fixed cost changes with the level of production, fixed cost per unit remains constant as volume changes.

The high-low method can be used to estimate the cost equation using just two points.

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the ________ point. Further analysis emphasizing profitability may be accomplished by measuring the ________ and ________.

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

Least-squares regression is a statistical method for identifying cost behavior.

There are at least three different methods to separate costs into fixed and variable. These methods are the ________, ________, and ________ methods.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the point. Further analysis emphasizing profitability may be accomplished by measuring the and .

There are at least three different methods to separate costs into fixed and variable. These methods are the , , and methods.