Question 1

Roy's Raingear produces a single product and reports the following data:

If the company reduces its price to $7.75,it believes that the volume will go up to 15,000 units.
How would this change affect operating income?

Accepted Answer

A) It will go up by $10,670. 
B) It will go up by $15,920. 
C) It will go down by $10,670. 
D) It will go down by $15,920.

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

Which of the following costs changes in total in direct proportion to a change in volume?

Accepted Answer

A) fixed cost 
B) variable cost 
C) mixed cost 
D) period cost

Question 4

For the next year,the Drenning Birch Company predicts the sale of 16,000 units of a product with a contribution margin of $7 per unit and 32,000 units of another product with a contribution margin of $10 per unit.The weighted-average contribution margin per unit is $9.

Accepted Answer

A) True 
 B)False

Question 5

When more units are sold than produced,operating income is less under absorption costing.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Lambert Company sells two products-X and Y.Lambert predicts that it will sell 2,500 units of X and 2,000 units of Y during the next period.The unit contribution margins are $4.00 and $5.10,respectively.What is the weighted-average unit contribution margin?

Accepted Answer

A) $4.49 per product 
B) $4.55 per product 
C) $5.10 per product 
D) $4.00 per product

Question 8

Which of the following is true of the traditional format of the income statement?

Accepted Answer

A) It is prepared under the variable costing method. 
B) It shows contribution margin as a line item. 
C) It is not allowed under GAAP. 
D) It is prepared under the absorption method.

Question 9

Missan,Inc.reports the following information:

There are no beginning inventories.What is the ending balance in Finished Goods Inventory using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Accepted Answer

A) $5,597 
B) $2,557 
C) $4,080 
D) $6,637

Question 10

Gross profit is calculated by deducting ________ from sales revenue.

Accepted Answer

A) total fixed costs 
B) cost of goods sold 
C) total variable costs 
D) selling and administrative costs

Question 11

SailFind,Inc.has collected the following data.(There are no beginning inventories. )

What is the operating income using variable costing if 550 units are sold?

Accepted Answer

A) $15,150 
B) $46,750 
C) $55,100 
D) $6,850

Question 12

Lacey sells hand-knit scarves at the flea market.Each scarf sells for $50.Lacey pays $30 to rent a vending space for one day.The variable costs are $15 per scarf.What total revenue amount does she need to earn to break even?

Accepted Answer

A) $45 
B) $43 
C) $100 
D) $93

Question 13

The traditional income statement format is prepared under absorption costing.

Accepted Answer

A) True 
 B)False

Question 14

Variable cost per unit,within the relevant range,will ________.

Accepted Answer

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

Question 15

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 16

Eric 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 $750 and the fixed monthly operating costs are as follows:

Eric's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
What is the amount of revenue Eric should earn each month to break even?

Accepted Answer

A) $10,750 
B) $7,167 
C) $5,167 
D) $6,334

Question 17

An increase in selling price per unit increases the number of units required to break even.

Accepted Answer

A) True 
 B)False

Question 18

Zertrax,Inc.reports the following information for July:

What is the total fixed cost using variable costing?

Accepted Answer

A) $830,000 
B) $510,000 
C) $150,000 
D) $490,000

Question 19

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Accepted Answer

A) True 
 B)False

Question 20

For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.

Accepted Answer

A) True 
 B)False

Exam 21: Cost-Volume-Profit Analysis

Roy's Raingear produces a single product and reports the following data: If the company reduces its price to $7.75,it believes that the volume will go up to 15,000 units. How would this change affect operating income?

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.

Which of the following costs changes in total in direct proportion to a change in volume?

For the next year,the Drenning Birch Company predicts the sale of 16,000 units of a product with a contribution margin of $7 per unit and 32,000 units of another product with a contribution margin of $10 per unit.The weighted-average contribution margin per unit is $9.

When more units are sold than produced,operating income is less under absorption costing.

Which of the following is a period cost?

Lambert Company sells two products-X and Y.Lambert predicts that it will sell 2,500 units of X and 2,000 units of Y during the next period.The unit contribution margins are $4.00 and $5.10,respectively.What is the weighted-average unit contribution margin?

Which of the following is true of the traditional format of the income statement?

Missan,Inc.reports the following information: There are no beginning inventories.What is the ending balance in Finished Goods Inventory using absorption costing? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Gross profit is calculated by deducting ________ from sales revenue.

SailFind,Inc.has collected the following data.(There are no beginning inventories. ) What is the operating income using variable costing if 550 units are sold?

Lacey sells hand-knit scarves at the flea market.Each scarf sells for $50.Lacey pays $30 to rent a vending space for one day.The variable costs are $15 per scarf.What total revenue amount does she need to earn to break even?

The traditional income statement format is prepared under absorption costing.

Variable cost per unit,within the relevant range,will ________.

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.

An increase in selling price per unit increases the number of units required to break even.

Zertrax,Inc.reports the following information for July: What is the total fixed cost using variable costing?

The breakeven point is the point where the sales revenues are equal to the fixed costs.

For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.