Given the following costs and activity observations for Pike Company's utilities, use the high-low method to calculate Pike's variable utilities costs per machine hour. $\begin{array}{lll} \text { Machine Hours}&\text { Cost }\\ 15,000 & \$ 8,300 & \text { May } \\ 20,000 & 10,400 & \text { June } \\ 12,000 & 7,200 & \text { July } \\ 18,000 & 9,500 & \text { August } \end{array}$

A) $0.55 B) $0.60 C) $0.52 D) $0.40 A) $0.55 B) $0.60 C) $0.52 D) $0.40

Exam 11: Cost Behavior and Cost-Volume-Profit Analysis

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much would operating income change if sales increase by $50,000?

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Question 1

Correct Answer:

Verified

D

Company M had fixed costs of $262,500, variable costs of $625,000, and actual sales amounted to $1,000,000. If the company has a break-even point at $700,000 in sales revenue, determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income.

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Question 2

Correct Answer:

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(a) Break-even point (dollars) $=\$ 1,000,000-\$ 700,000=\$ 300,000$
(b) Margin of s afety $(\%)=\$ 300,000 / \$ 1,000,000=30 \%$
$\$ 1,000,000-\$ 625,000$
$\$ 1,000,000$

Contribution margin ratio $=$
(d) Operating income $=\$ 1,000,000-\$ 625,000-\$ 262,500=\$ 112,500$

If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease.

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Question 3

Correct Answer:

Verified

True

Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable cost is $48. What would be the break-even sales (in units), if the variable cost is increased by $2?

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Question 4

The variable cost per unit remains constant with changes in the level of activity.

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Question 5

For the coming year, Belton Company estimates fixed costs of $60,000, the unit variable cost of $25, and the unit selling price of $50. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $100,000, and (c) the probable operating income if sales total $400,000.

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Question 6

Given the following costs and activity observations for Pike Company's utilities, use the high-low method to calculate Pike's variable utilities costs per machine hour. Machine Hours Cost 15,000 \ 8,300 May 20,000 10,400 June 12,000 7,200 July 18,000 9,500 August

(Multiple Choice)

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Question 7

A low operating leverage is normal for highly automated industries.

(True/False)

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Question 8

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

(True/False)

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Question 9

For the purpose of analysis, mixed costs are generally:

(Multiple Choice)

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Question 10

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed:

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Question 11

Currently, fixed costs are $500,000 and the unit contribution margin is $40. What would be the break-even point in units if fixed costs are reduced by $80,000?

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Question 12

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed as:

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Question 13

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents:

(Multiple Choice)

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Question 14

If a business had a capacity of $10,000,000 of sales, actual sales were $6,000,000, break-even sales was $4,500,000, fixed costs amounted to $1,800,000, and variable costs amounted to 60% of sales, what is the margin of safety expressed as a percentage of sales?

(Multiple Choice)

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Question 15

For the past year, LaPrade Company had fixed costs of $70,000, a unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs except that property taxes are expected to increase by $10,000. Determine the break-even sales (in units) for (a) the past year and (b) the coming year.

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Question 16

Given below are the two independent situations: (a) If Herry Company's budgeted sales are $\$ 800,000$ , fixed costs are $\$ 350,000$ , and variable costs are $\$ 600,000$ , what is the budgeted contitibution margin ratio? (b) If the contribution margin ratio is $30 \%$ for Gray Company, sales are $\$ 900,000$ , and fixed costs are $\$ 180,000$ , what is the operating profit?

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Question 17

The difference between the current sales revenue and the sales at the break-even point is called the:

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Question 18

Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable cost is $48. What would be the break-even sales (in units), if fixed costs are reduced by $51,000?

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Question 19

A change in fixed costs as a result of increase in the property tax rates will increase the break-even point.

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Question 20

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much would operating income change if sales increase by $50,000?

If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease.

Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable cost is $48. What would be the break-even sales (in units), if the variable cost is increased by $2?

The variable cost per unit remains constant with changes in the level of activity.

Given the following costs and activity observations for Pike Company's utilities, use the high-low method to calculate Pike's variable utilities costs per machine hour. Machine Hours Cost 15,000 \ 8,300 May 20,000 10,400 June 12,000 7,200 July 18,000 9,500 August

A low operating leverage is normal for highly automated industries.

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

For the purpose of analysis, mixed costs are generally:

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed:

Currently, fixed costs are $500,000 and the unit contribution margin is $40. What would be the break-even point in units if fixed costs are reduced by $80,000?

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed as:

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents:

If a business had a capacity of $10,000,000 of sales, actual sales were $6,000,000, break-even sales was $4,500,000, fixed costs amounted to $1,800,000, and variable costs amounted to 60% of sales, what is the margin of safety expressed as a percentage of sales?

The difference between the current sales revenue and the sales at the break-even point is called the:

Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable cost is $48. What would be the break-even sales (in units), if fixed costs are reduced by $51,000?

A change in fixed costs as a result of increase in the property tax rates will increase the break-even point.

The Role of Accounting in Business

Basic Accounting Concepts

Accrual Accounting Concepts

Accounting for Merchandising Businesses

Sarbanes-Oxley, Internal Control, and Cash

Receivables and Inventories

Fixed Assets and Intangible Assets

Liabilities and Stockholders Equity

Financial Statement Analysis

Accounting Systems for Manufacturing Businesses

Differential Analysis and Product Pricing

Budgeting and Standard Cost Systems

Performance Evaluation for Decentralized Operations

Capital Investment Analysis

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