Question 1

Elliott 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 $1,000 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 1,240 \
\hline \text { Wages and benefits to luthier } & 2,600 \
\hline \text { Other expenses } & 800 \
\hline
\end{array}$$ Elliott's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.90 went to cover his fixed costs,and that anything past that point was pure profit.
Elliott wishes to earn $5,500 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.

Accepted Answer

A)  $4,640 
B)  $5,500 
C)  $11,267 
D)  $6,112

Question 2

Neptune Company sold 2,200 units in November at a price of $45 per unit.The variable cost is $20 per unit.Calculate the total contribution margin.

Accepted Answer

A)  $99,000 
B)  $55,000 
C)  $44,000 
D)  $143,000

Question 3

Contribution margin ratio is the ratio of contribution margin to ________.

Accepted Answer

A)  net sales revenue 
B)  cost of goods sold 
C)  total variable costs 
D)  total fixed costs

Question 4

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

Question 5

Sequoah Company sells its product for $60 and has variable costs of $31 per unit.The total fixed costs are $35,000.What will be the effect on the breakeven point in units if variable costs increase by $6 due to an increase in the cost of direct materials?

Accepted Answer

A)  It will increase by 315 units. 
B)  It will decrease by 315 units. 
C)  It will decrease by 207 units. 
D)  It will increase by 207 units.

Question 6

Which of the following statements is true of absorption and variable costing methods?

Accepted Answer

A)  Both costing methods consider selling and administrative costs to be period costs. 
B)  Variable costing considers variable selling and administrative costs to be product costs. 
C)  Absorption costing considers fixed manufacturing overhead to be period costs. 
D)  Both costing methods consider fixed manufacturing overhead to be product costs.

Question 7

The fundamental assumption of cost-volume-profit (CVP)analysis is that in the long-run fixed costs become variable costs.

Accepted Answer

A) True 
 B)False

Question 8

Ito Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 42 \
\hline \text { Variable cost per unit } & 16 \
\hline \text { Fixed costs per month } & \$ 25,000 \
\hline
\end{array}$$ Calculate the contribution margin per unit.

Accepted Answer

A)  $26 
B)  $42 
C)  $58 
D)  $10

Question 9

Which of the following statements is true of the behavior of total fixed costs,within the relevant range?

Accepted Answer

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

Question 10

Variable costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Accepted Answer

A) True 
 B)False

Question 11

Aspen Manufacturers produces flooring material.The monthly fixed costs are $12,000 per month.The unit selling price is $85 and variable cost per unit is $45.How many units should Aspen sell in order to earn $10,000 as operating income?

Accepted Answer

The answer of Aspen Manufacturers produces flooring material.The monthly fixed...

Question 12

Fixed cost per unit is inversely proportional to the volume of units produced.

Accepted Answer

A) True 
 B)False

Question 13

Costs that have both variable and fixed components are called ________.

Accepted Answer

A)  fixed costs 
B)  variable costs 
C)  mixed costs 
D)  contribution costs

Question 14

Variable costing considers only ________ costs when determining product costs.

Accepted Answer

A)  fixed manufacturing 
B)  variable manufacturing 
C)  variable selling and administrative 
D)  fixed selling and administrative

Question 15

Lori sells hand-knit scarves at a flea market.Each scarf sells for $35.Lori pays $70 to rent a vending space for one day.The variable costs are $20 per scarf.How many scarves should she sell each day in order to break even?

Accepted Answer

A)  35 scarves 
B)  5 scarves 
C)  7 scarves 
D)  4 scarves

Question 16

Which of the following is a period cost?

Accepted Answer

A)  manufacturing overhead 
B)  direct labor cost 
C)  direct materials cost 
D)  administrative cost

Question 17

The sales level at which operating income is zero is called the breakeven point.

Accepted Answer

A) True 
 B)False

Question 18

The traditional income statement format is prepared under absorption costing.

Accepted Answer

A) True 
 B)False

Exam 21: Cost-Volume-Profit Analysis

Neptune Company sold 2,200 units in November at a price of $45 per unit.The variable cost is $20 per unit.Calculate the total contribution margin.

Contribution margin ratio is the ratio of contribution margin to ________.

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

Sequoah Company sells its product for $60 and has variable costs of $31 per unit.The total fixed costs are $35,000.What will be the effect on the breakeven point in units if variable costs increase by $6 due to an increase in the cost of direct materials?

Which of the following statements is true of absorption and variable costing methods?

The fundamental assumption of cost-volume-profit (CVP)analysis is that in the long-run fixed costs become variable costs.

Ito Company has provided the following information: $\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 42 \\\hline \text { Variable cost per unit } & 16 \\\hline \text { Fixed costs per month } & \$ 25,000 \\\hline\end{array}$ Calculate the contribution margin per unit.

Which of the following statements is true of the behavior of total fixed costs,within the relevant range?

Variable costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.

Aspen Manufacturers produces flooring material.The monthly fixed costs are $12,000 per month.The unit selling price is $85 and variable cost per unit is $45.How many units should Aspen sell in order to earn $10,000 as operating income?

Fixed cost per unit is inversely proportional to the volume of units produced.

Costs that have both variable and fixed components are called ________.

Variable costing considers only ________ costs when determining product costs.

Lori sells hand-knit scarves at a flea market.Each scarf sells for $35.Lori pays $70 to rent a vending space for one day.The variable costs are $20 per scarf.How many scarves should she sell each day in order to break even?

Which of the following is a period cost?

The sales level at which operating income is zero is called the breakeven point.

The traditional income statement format is prepared under absorption costing.