Exam 19: Cost-Volume-Profit Analysis

Unit fixed costs vary inversely with activity or volume.

Practical capacity and engineering capacity are synonymous terms.

Cost-volume-profit analysis assumes costs and revenues have a close linear approximation.

a.What is the formula for breakeven units? b.How is knowledge of the contribution margin of a product helpful? In your answer,explain two possible benefits of computing the contribution margin of a product.

"Breakeven" is the point at which a company can begin to earn a profit.

In terms of cost behavior,supervisory salaries and direct labor are classified as

The graph below depicts two different types of costs.Questions related to the graph should be answered in the spaces provided. a.The line H-B represents what type of cost? ______________________ b.Total variable costs for production at point J would be ___________ than at point L. c.Fixed costs per unit at point J would be _________ than at point L. d.What is a possible reason that line G-A increases at point A to a new horizontal line? e.What kind of cost is depicted by the line from point G to point A?

Which of the following is true of the engineering method of separating costs?

Within the relevant range,total fixed cost and variable cost per unit remain constant.

The breakeven point is the level of activity at which only variable costs are recovered.

Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

Gross margin and contribution margin are always equal.

Which of the following equations provides the breakeven point in units? (Here,BE refers to breakeven,SP refers to selling price,VC refers to variable costs,FC refers to fixed costs,and CM refers to contribution margin. )

Edward Cheezer's Inc.makes and sells frozen four-cheese pizzas,New York-style.The expected selling price is $10 per pizza.The projected variable cost per pizza is $6.The estimated fixed costs per month are $10,000. If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000,the overall profit is

A scatter diagram helps to determine if a linear relationship exists between a cost item and its related activity measure.

Briefly explain the use of statistical methods to separate mixed cost components.

If Johnson Inc.sells 400 widgets at $180 per widget and has variable costs of $80 per widget and fixed costs of $30,000,what is the projected profit?

When using the high-low method,the accountant assumes the fixed portion of mixed costs to be the lowest fixed amount incurred during the period under review.

Denapasa Manufacturing leases a vacuum cleaning system for a basic monthly fee plus an additional cost per hour used above a given minimum for each month.Given below is the information for the most recent six-month period on the number of machine hours of use and the total cost under this lease. You are to provide information for planning concerning the variable and fixed cost elements in this lease. Use the high-low method to (a) determine the variable cost per machine hour and (b) compute the fixed and variable costs for months 7 and 8.

Share and Care International is trying to determine how many clients must be serviced in order to cover its monthly service overhead.Using the high-low method,it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. Assuming an average fee of $1,400 per client and a targeted profit of $26,000,the number of clients to be serviced is