Question 1

Under variable costing, only costs that change in total with changes in production levels are included in product costs.

Accepted Answer

A) True 
 B)False

Question 2

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be made, and the profit to be earned is:

Accepted Answer

A)  Target income analysis. 
B)  Cost-volume-profit analysis. 
C)  Least-squares regression analysis. 
D)  Variance analysis. 
E)  Process costing.

Question 3

The contribution margin per unit is the price at which a unit must be sold in order for the company to break even.

Accepted Answer

A) True 
 B)False

Question 4

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation achieves the budgeted level of sales, what will be its margin of safety in dollars?

Accepted Answer

A)  $172,420. 
B)  $150,000. 
C)  $262,500. 
D)  $275,862. 
E)  $310,115.

Question 5

Discuss how CVP analysis can be useful in planning.

Accepted Answer

The answer of Discuss how CVP analysis can be useful...

Question 6

Three important assumptions in cost-volume-profit analysis are that (1) ________ per unit is constant, (2) ________ per unit is constant, and (3) ________ are constant in total.

Accepted Answer

The answer of Three important assumptions in cost-volume-profit analysis are...

Question 7

The margin of safety can be expressed in dollars or as a percent of sales.

Accepted Answer

A) True 
 B)False

Question 8

A term describing a firm's normal range of operating activities is:

Accepted Answer

A)  Relevant range of operations. 
B)  Break-even level of operations. 
C)  Margin of safety of operations. 
D)  Relevant operating analysis. 
E)  High-low level of operations.

Question 9

Which of the following costs are most likely to be classified as fixed?

Accepted Answer

A)  Shipping costs 
B)  Sales commissions 
C)  Direct labor 
D)  Direct materials 
E)  Property taxes

Question 10

Which of the following costs are most likely to be classified as variable?

Accepted Answer

A)  Factory rent 
B)  Manager salaries 
C)  Insurance 
D)  Direct materials 
E)  Straight-line depreciation

Question 11

A ________ cost is one that includes both fixed and variable cost components; a ________ cost is one that reflects a step pattern.

Accepted Answer

The answer of A ________ cost is one that includes...

Question 12

In cost-volume-profit analysis, the unit contribution margin is:

Accepted Answer

A)  Sales price per unit less cost of goods sold per unit. 
B)  Sales price per unit less unit fixed cost per unit. 
C)  Sales price per unit less total variable cost per unit. 
D)  Sales price per unit less unit total cost per unit. 
E)  The same as the contribution margin ratio.

Question 13

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the company wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit)?

Accepted Answer

A)  24,000. 
B)  21,333. 
C)  18,666. 
D)  2,667. 
E)  20,000.

Question 14

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

Accepted Answer

A)  Margin of safety. 
B)  Contribution range. 
C)  Break-even point. 
D)  Relevant range. 
E)  High-low point.

Question 15

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break-even point in composite units.

Accepted Answer

A)  2,092. 
B)  3,805. 
C)  1,350. 
D)  1,395. 
E)  1,550.

Question 16

During its most recent fiscal year, Raphael Enterprises sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

Accepted Answer

A)  $2,400,000. 
B)  $1,600,000. 
C)  $3,000,000. 
D)  $2,000,000. 
E)  $1,000,000.

Question 17

The difference between sales price per unit and variable cost per unit is the:

Accepted Answer

A)  Gross profit from sales. 
B)  Gross margin per unit. 
C)  Fixed cost per unit. 
D)  Margin of safety per unit. 
E)  Contribution margin per unit.

Question 18

A cost that changes in total in proportion to changes in volume of activity is a(n):

Accepted Answer

A)  Differential cost. 
B)  Fixed cost. 
C)  Incremental cost. 
D)  Variable cost. 
E)  Product cost.

Question 19

A method that estimates cost behavior by using just the highest and lowest volume levels is called the:

Accepted Answer

A)  Scatter method. 
B)  High-low method. 
C)  Least-squares method. 
D)  Break-even method. 
E)  Step-wise method.

Question 20

Madison Corporation sells three products (M, N, and O) in the following sales mix: 3:1:2. Unit price and cost data are:  Total fixed costs are $340,000. The break-even point in composite units for the current sales mix (round to the nearest unit) is:

Accepted Answer

A)  17,000 
B)  20,000 
C)  102,000 
D)  51,000 
E)  34,000

Exam 5: Cost Behavior and Cost-Volume-Profit Analysis

Under variable costing, only costs that change in total with changes in production levels are included in product costs.

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be made, and the profit to be earned is:

The contribution margin per unit is the price at which a unit must be sold in order for the company to break even.

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation achieves the budgeted level of sales, what will be its margin of safety in dollars?

Discuss how CVP analysis can be useful in planning.

Three important assumptions in cost-volume-profit analysis are that (1) per unit is constant, (2) per unit is constant, and (3) are constant in total.

The margin of safety can be expressed in dollars or as a percent of sales.

A term describing a firm's normal range of operating activities is:

Which of the following costs are most likely to be classified as fixed?

Which of the following costs are most likely to be classified as variable?

A cost is one that includes both fixed and variable cost components; a cost is one that reflects a step pattern.

In cost-volume-profit analysis, the unit contribution margin is:

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the company wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break-even point in composite units.

The difference between sales price per unit and variable cost per unit is the:

A cost that changes in total in proportion to changes in volume of activity is a(n) :

A method that estimates cost behavior by using just the highest and lowest volume levels is called the:

Madison Corporation sells three products (M, N, and O) in the following sales mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The break-even point in composite units for the current sales mix (round to the nearest unit) is: