Question 1

Break-even analysis is one type of cost-volume-profit analysis.

Accepted Answer

A) True 
 B)False

Question 2

The Rocky Company reports the following data.   Rocky Company's operating leverage is:

Accepted Answer

A)  6.7 
B)  2.7 
C)  1.0 
D)  1.3 
A)  6.7 
B)  2.7 
C)  1.0 
D)  1.3

Question 3

If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Accepted Answer

A) True 
 B)False

Question 4

Total fixed costs change as the level of activity changes.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

Accepted Answer

A)  Direct labor 
B)  Salary of a factory supervisor 
C)  Units of production depreciation on factory equipment 
D)  Direct materials 
A)  Direct labor 
B)  Salary of a factory supervisor 
C)  Units of production depreciation on factory equipment 
D)  Direct materials

Question 6

The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management.

Accepted Answer

A) True 
 B)False

Question 7

Given the following cost and activity observations for Taco Company's utilities, use the high-low method to calculate Taco's variable utilities costs per machine hour.

Accepted Answer

A)  $10.00 
B)  $.60 
C)  $.40 
D)  $.52 
A)  $10.00 
B)  $.60 
C)  $.40 
D)  $.52

Question 8

Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?

Accepted Answer

A)  Electricity per KWH to operate factory equipment 
B)  Direct materials cost 
C)  Straight-line depreciation on factory equipment 
D)  Wages of assembly worker 
A)  Electricity per KWH to operate factory equipment 
B)  Direct materials cost 
C)  Straight-line depreciation on factory equipment 
D)  Wages of assembly worker

Question 9

Define operating leverage. Explain the relationship between a company's operating leverage and how a change in sales is expected to impact profits.

Accepted Answer

Operating leverage is the relationship b

Question 10

If a business sells four products, it is not possible to estimate the break-even point.

Accepted Answer

A) True 
 B)False

Question 11

In cost-volume-profit analysis, all costs are classified into the following two categories:

Accepted Answer

A)  mixed costs and variable costs 
B)  sunk costs and fixed costs 
C)  discretionary costs and sunk costs 
D)  variable costs and fixed costs 
A)  mixed costs and variable costs 
B)  sunk costs and fixed costs 
C)  discretionary costs and sunk costs 
D)  variable costs and fixed costs

Question 12

If the volume of sales is $7,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 45.8%.

Accepted Answer

A) True 
 B)False

Question 13

If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%.

Accepted Answer

A) True 
 B)False

Question 14

When units manufactured exceed units sold:

Accepted Answer

A)  variable costing income equals absorption costing income 
B)  variable costing income is less than absorption costing income 
C)  variable costing income is greater than absorption costing income 
D)  variable costing income is greater by the number of units produced multiplied by the variable cost ratio. 
A)  variable costing income equals absorption costing income 
B)  variable costing income is less than absorption costing income 
C)  variable costing income is greater than absorption costing income 
D)  variable costing income is greater by the number of units produced multiplied by the variable cost ratio.

Question 15

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)?

Accepted Answer

A)  3,425 units 
B)  2,381 units 
C)  2,000 units 
D)  4,808 units 
A)  3,425 units 
B)  2,381 units 
C)  2,000 units 
D)  4,808 units

Question 16

Gladstorm Enterprises sells a product for $60 per unit. The variable cost is $20 per unit, while fixed costs are $85,000. Determine the (a) break-even point in sales units, and (b) break-even point in sales units if the selling price increased to $80 per unit. Round your answer to the nearest whole number.

Accepted Answer

a. SP $60 - VC $20 = CM $40
$8

Question 17

If a business sells two products, it is not possible to estimate the break-even point.

Accepted Answer

A) True 
 B)False

Question 18

Variable costs are costs that remain constant on a per-unit basis as the level of activity changes.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true regarding fixed and variable costs?

Accepted Answer

A)  Both costs are constant when considered on a per unit basis. 
B)  Both costs are constant when considered on a total basis. 
C)  Fixed costs are constant in total, and variable costs are constant per unit. 
D)  Variable costs are constant in total, and fixed costs vary in total. 
A)  Both costs are constant when considered on a per unit basis. 
B)  Both costs are constant when considered on a total basis. 
C)  Fixed costs are constant in total, and variable costs are constant per unit. 
D)  Variable costs are constant in total, and fixed costs vary in total.

Question 20

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  
 Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units?

Accepted Answer

A)  40,000 units 
B)  12,000 units 
C)  35,000 units 
D)  28,000 units 
A)  40,000 units 
B)  12,000 units 
C)  35,000 units 
D)  28,000 units

Exam 19: Cost Behavior and Cost-Volume-Profit Analysis

Break-even analysis is one type of cost-volume-profit analysis.

The Rocky Company reports the following data. Rocky Company's operating leverage is:

If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Total fixed costs change as the level of activity changes.

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management.

Given the following cost and activity observations for Taco Company's utilities, use the high-low method to calculate Taco's variable utilities costs per machine hour.

Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?

Define operating leverage. Explain the relationship between a company's operating leverage and how a change in sales is expected to impact profits.

If a business sells four products, it is not possible to estimate the break-even point.

In cost-volume-profit analysis, all costs are classified into the following two categories:

If the volume of sales is $7,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 45.8%.

If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%.

When units manufactured exceed units sold:

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)?

If a business sells two products, it is not possible to estimate the break-even point.

Variable costs are costs that remain constant on a per-unit basis as the level of activity changes.

Which of the following statements is true regarding fixed and variable costs?

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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