Question 1

Reeds Paper Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

Accepted Answer

The answer of Reeds Paper Company sells a product for...

Question 2

When the variable cost per unit decreases,the contribution margin on each unit sold also decreases.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Alvarez Company is facing an $8 increase in the variable costs of producing one of its products for the upcoming year.As a result,the sales manager has made a proposal to increase the sales price of the product while increasing the advertising budget at the same time.The sales price increase will lower sales volume,but the other changes may help the company maintain its profit margin.Alvarez has provided the following information regarding the current year results and the proposal made by the sales manager: $$\begin{array} { | l | r | r | } 
\hline & \text { Current Year } & \text { Proposal } \
\hline \text { Unit sales } & 27,000 & 18,000 \
\hline \text { Sales price per unit } & \$ 48 & \$ 54 \
\hline \text { Variable cost per unit } & \$ 32 & \$ 40 \
\hline \text { Fixed cost } & \$ 80,000 & \$ 96,000 \
\hline
\end{array}$$ Relative to the current year,the sales manager's proposal will ________.

Accepted Answer

A)  decrease operating income by $324,000 
B)  increase contribution margin by $196,000 
C)  decrease the unit breakeven point 
D)  decrease operating income by $196,000

Question 5

When production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning and ending inventories.Which of the following gives the correct reason for the above statement?

Accepted Answer

A)  All costs incurred have been recorded as expenses. 
B)  A portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account under absorption costing. 
C)  All selling and administrative expenses have been recorded as period costs. 
D)  Fixed manufacturing costs have not been considered when calculating the operating profits.

Question 6

McFarlane,Inc.reports the following information: $$\begin{array} { | l | r | c | } 
\hline \text { Units produced } & 590 & \text { units } \
\hline \text { Units sold } & 490 & \text { units } \
\hline \text { Sales price } & \$ 120 & \text { per unit } \
\hline \text { Direct materials } & \$ 26 & \text { per unit } \
\hline \text { Direct labor } & \$ 9 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 14 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 16,500 & \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 6 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,200 & \text { per year } \
\hline
\end{array}$$ There are no beginning inventories.What is the ending balance in Finished Goods Inventory using variable costing?

Accepted Answer

A)  $4900 
B)  $3500 
C)  $5500 
D)  $7697

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Accepted Answer

A) True 
 B)False

Question 9

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

Accepted Answer

A) True 
 B)False

Question 10

The fixed costs per unit will ________.

Accepted Answer

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

Question 11

If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.

Accepted Answer

A) True 
 B)False

Question 12

Absorption costing considers ________ as product costs.

Accepted Answer

A)  variable manufacturing overhead 
B)  sales salaries and commissions 
C)  administrative office salaries 
D)  advertising costs

Question 13

In absorption costing,fixed manufacturing overhead is expensed ________.

Accepted Answer

A)  when all the other non-manufacturing fixed costs are expensed 
B)  when the product is sold 
C)  at the end of the period in which it is paid 
D)  when the units are produced

Question 14

The phone bill for a company consists of both fixed and variable costs.Refer to the four-month data below and apply the high-low method to answer the question. $$\begin{array} { | l | r | r | } 
\hline & \text { Minutes } & \text { Total Bill } \
\hline \text { January } & 480 & \$ 4000 \
\hline \text { February } & 200 & \$ 2700 \
\hline \text { March } & 170 & \$ 2640 \
\hline \text { April } & 320 & \$ 2855 \
\hline
\end{array}$$ What is the fixed portion of the total cost? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

Accepted Answer

A)  $2107.20 
B)  $1360 
C)  $1893 
D)  $2640

Question 15

In absorption costing,all product costs are recorded first as assets in the inventory accounts.

Accepted Answer

A) True 
 B)False

Question 16

Complete the statement,using the following terms: increase,decrease,or have no effect on.
Decreases in variable costs per unit ________ contribution margin per unit and ________ the breakeven point.

Accepted Answer

The answer of Complete the statement,using the following terms: increase,decrease,or...

Question 17

Betsy's Pies,Inc.has provided the following financial information for the year: $$\begin{array} { | l | r | } 
\hline \text { Finished Goods Inventory: } & \
\hline \text { Beginning balance, in units } & 640 \
\hline \text { Units produced } & 2100 \
\hline \text { Units sold } & 2200 \
\hline \text { Ending balance, in units } & 540 \
\hline \text { Production Costs: } & \ 
\hline \text { Variable manufacturing costs per unit } & \$ 60 \
\hline \text { Total fixed manufacturing costs } & \$ 33,600 \
\hline
\end{array}$$ What is the unit product cost for the year using variable costing?

Accepted Answer

A)  $76 
B)  $15 
C)  $60 
D)  $62

Question 18

Contribution margin ratio is equal to ________.

Accepted Answer

A)  fixed costs divided by contribution margin per unit 
B)  net sales revenue per unit minus variable costs per unit 
C)  net sales revenue minus variable costs 
D)  contribution margin divided by net sales revenue

Question 19

Contribution margin is calculated by deducting ________ from sales revenue.

Accepted Answer

A)  total product costs 
B)  total selling and administrative costs 
C)  total fixed costs 
D)  total variable costs

Question 20

Which of the following is an example of a cost that does NOT change in total over wide ranges of volume or activity?

Accepted Answer

A)  the company president's salary 
B)  cloth used to make shirts 
C)  bottles used in a beverage company 
D)  hourly wages for production line workers

Exam 21: Cost-Volume-Profit Analysis

Reeds Paper Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

When the variable cost per unit decreases,the contribution margin on each unit sold also decreases.

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

When production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning and ending inventories.Which of the following gives the correct reason for the above statement?

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

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

The fixed costs per unit will ________.

If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.

Absorption costing considers ________ as product costs.

In absorption costing,fixed manufacturing overhead is expensed ________.

In absorption costing,all product costs are recorded first as assets in the inventory accounts.

Complete the statement,using the following terms: increase,decrease,or have no effect on. Decreases in variable costs per unit contribution margin per unit and the breakeven point.

Contribution margin ratio is equal to ________.

Contribution margin is calculated by deducting ________ from sales revenue.

Which of the following is an example of a cost that does NOT change in total over wide ranges of volume or activity?

Exam 21: Cost-Volume-Profit Analysis

Reeds Paper Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

When the variable cost per unit decreases,the contribution margin on each unit sold also decreases.

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

When production is greater than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning and ending inventories.Which of the following gives the correct reason for the above statement?

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

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

The fixed costs per unit will ________.

If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.

Absorption costing considers ________ as product costs.

In absorption costing,fixed manufacturing overhead is expensed ________.

In absorption costing,all product costs are recorded first as assets in the inventory accounts.

Complete the statement,using the following terms: increase,decrease,or have no effect on. Decreases in variable costs per unit ________ contribution margin per unit and ________ the breakeven point.

Contribution margin ratio is equal to ________.

Contribution margin is calculated by deducting ________ from sales revenue.

Which of the following is an example of a cost that does NOT change in total over wide ranges of volume or activity?

Complete the statement,using the following terms: increase,decrease,or have no effect on. Decreases in variable costs per unit contribution margin per unit and the breakeven point.