Deck 11: Cost-Volume-Profit Analysis

Question 1

Fixed costs are costs that vary in total dollar amount as the level of activity changes.

Answer 1

False

Question 2

A mixed cost has characteristics of both a variable cost and a fixed cost.

Answer 2

True

Question 3

Monthly rent on a factory building is an example of a fixed cost.

Answer 3

True

Question 4

A rental cost of $40,000 plus $0.50 per machine hour of use is an example of a mixed cost.

Question 5

Total fixed costs remain constant as the level of activity changes within the relevant range.

Question 6

Cost behavior refers to the manner in which a cost changes as a related activity changes.

Question 7

Variable costs are costs that vary on a per-unit basis as the level of manufacturing activity changes.

Question 8

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

Question 9

Variable costs are costs that vary in total in direct proportion to changes in the activity level.

Question 10

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.

Question 11

Direct materials cost is an example of a fixed cost of production.

Question 12

The relevant range is useful for analyzing cost behavior for management decision-making purposes.

Question 13

The graph of the variable costs when plotted against the activity level appears as a line parallel to horizontal axis.

Question 14

Variable cost per unit remains the same regardless of activity level.

Question 15

The fixed cost per unit varies with changes in the level of activity.

Question 16

Direct materials and direct labor costs are examples of variable costs of production.

Question 17

Rental charges of $60,000 per year plus $2 for each machine hour over 15,000 hours is an example of a fixed cost.

Question 18

Activities that cause costs to change are called activity bases.

Question 19

The range of activity over which changes in cost are of interest to management is called the relevant range.

Question 20

Variable costs are costs that remain constant in total with changes in the activity level.

Question 21

The point in operations at which revenues and expenses are exactly equal is called the break-even point.

Question 22

If direct materials cost per unit decreases, the break-even point will increase.

Question 23

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

Question 24

A change in fixed costs as a result of increase in yearly insurance premium will decrease the break-even point.

Question 25

If sales total $2,000,000, fixed costs total $600,000, and variable costs are 60% of the sales, the contribution margin ratio is 40%.

Question 26

If fixed costs are $300,000 and variable costs are 70% of break-even sales, profit is zero when sales revenue is $1,000,000.

Question 27

Variable costs as a percentage of sales is equal to 100% minus the contribution margin ratio.

Question 28

For purpose of analysis, mixed costs can generally be separated into their variable and fixed components.

Question 29

If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating income of $30,000 are 10,000 units.

Question 30

If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when 15,000 units are sold.

Question 31

The unit contribution margin is the dollars available from each unit of sales to cover fixed cost and provide operating income.

Question 32

If direct materials cost per unit increases, the break-even point will increase.

Question 33

The break-even point (in units) is calculated by dividing the total estimated fixed costs by the net sales of a period.

Question 34

If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease.

Question 35

Break-even analysis is a type of cost-volume-profit analysis.

Question 36

If sales total $5,000,000, fixed costs total $400,000, and variable costs are 2,750,000, the contribution margin ratio is 45%.

Question 37

The contribution margin ratio is the same as the variable cost ratio.

Question 38

If sales total $1,000,000, fixed costs total $200,000, and variable costs are 55% of the sales, the contribution margin ratio is 55%.

Question 39

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

Question 40

The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed as contribution margin ratio.

Question 41

Which of the following activity bases would be the most appropriate for food costs of a hospital?

A) Number of cooks scheduled to work
B) Number of x-rays taken
C) Number of patients who are admitted in the hospital
D) Number of scheduled surgeries

Question 42

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

Question 43

If a business sells four products, it is not possible to estimate the break-even point.

Question 44

Which of the following graphs illustrates the behavior of a total fixed cost within the specified relevant range? ​ ​

A) Graph 2
B) Graph 3
C) Graph 4
D) Graph 1

Question 45

DeGiaimo Co.has an operating leverage of 5.If next year's sales are expected to increase by 10%, then the company's operating income will increase by 50%.

Question 46

Costs that remain constant on a per-unit level as the level of activity changes are called:

A) fixed costs.
B) mixed costs.
C) opportunity costs.
D) variable costs.

Question 47

If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000, the margin of safety will be 20%.

Question 48

Even if a business sells six products, it is possible to estimate the break-even point.

Question 49

Cost-volume-profit analysis can be presented in both graphically and equation form.

Question 50

If the volume of sales is $6,000,000 and sales at the break-even point amount to $5,000,000, the margin of safety will be 20%.

Question 51

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Question 52

Which of the following costs is an example of a fixed cost?

A) Direct labor cost
B) Insurance cost
C) Commission paid
D) Capital stock

Question 53

Cost behavior refers to the manner in which:

A) a cost changes as the related activity changes.
B) a cost is allocated to products.
C) a cost is used in setting selling prices.
D) a cost is estimated.

Question 54

If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety will be 25%.

Question 55

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

Question 56

If a business sells two products, it is not possible to estimate the break-even point.

Question 57

Which of the following is true of a variable cost?

A) Total variable cost remains constant with changes in the number of goods sold.
B) Unit variable cost decreases with an increase in production.
C) Unit variable cost remains constant with changes in production.
D) Total variable cost decreases with an increase in the number of goods sold.

Question 58

A low operating leverage is normal for highly automated industries.

Question 59

If the unit selling price is $50, the volume of sales is $450,000, sales at the break-even point amount to $375,000, and the maximum possible sales are $550,000, the margin of safety will be 2,000 units.

Question 60

If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety will be 12,500 units.

Question 61

Based on the following information, calculate fixed costs per month using the high-low method. ? $$\begin{array} { l c c } & \text { Cost } & \text { Machine Hours } \\\text { May } & \$ 56,000 & 22,000 \\\text { June } & 76,000 & 32,000 \\\text { July } & 58,000 & 26,000 \\\text { August } & 66,000 & 24,000\end{array}$$

A) $12,000
B) $11,000
C) $10,000
D) $9,000

Question 62

Under direct costing, only _____ manufacturing costs are included in the product cost.

A) variable
B) fixed
C) capitalized
D) notional

Question 63

Which of the following is true about the changes in fixed cost?

A) An increase in production will result in an increase in per unit fixed cost.
B) A decrease in fixed cost will result in an increase in variable cost.
C) An increase in production will result in a decrease in per unit fixed cost.
D) A decrease in production will result in an increase in total fixed cost.

Question 64

The graph of a variable cost per unit when plotted against its related activity base appears as a:

A) circle.
B) rectangle.
C) straight line.
D) curved line.

Question 65

Which of the following graphs illustrates the nature of a mixed cost? ​
​ ​

A) ​Graph 2
B) ​Graph 3
C) ​Graph 4
D) ​Graph 1

Question 66

Tucker Co.manufactures office furniture.During the most productive month of the year, 3,600 desks were manufactured at a total cost of $192,000.In its slowest month, the company made 1,200 desks at a cost of $72,000.Using the high-low method of cost estimation, total fixed costs per month are:

A) $120,000.
B) $12,000.
C) $72,000.
D) $11,600.

Question 67

Knowing how costs behave to change in the level of activity is useful to management for all the following reasons except for:

A) predicting customer demand.
B) predicting profits as sales and production volumes change.
C) estimating costs.
D) changing an existing product production.

Question 68

Which of the following statements is true if the number of units produced decreases?

A) The total variable cost remains constant.
B) The total variable cost decreases.
C) The variable cost per unit decreases.
D) The variable cost per unit increases.

Question 69

ABC Co.manufactures pens.During the most productive month of the year, 3,650 pens were manufactured at a total cost of $84,550.During its slowest month, the company made 1,250 pens at a cost of $46,150.Calculate the total fixed cost using the high-low method of cost estimation.

A) $25,650
B) $28,300
C) $26,150
D) $27,800

Question 70

Which of the following is an example of a mixed cost?

A) Depreciation on factory machinery
B) Direct material cost
C) Maintenance expense
D) Property tax

Question 71

_____ per unit increases or decreases in inverse proportion to its activity level.

A) Variable cost
B) Opportunity cost
C) Contribution cost
D) Fixed cost

Question 72

Using the high-low method, calculate variable utilities costs per machine hour. ? $$\begin{array} { l c c } & \text { Cost } & \text { Machine Hours } \\\text { January } & \$ 8,200 & 14,900 \\\text { February } & 13,600 & 21,200 \\\text { March } & 5,600 & 5,200 \\\text { April } & 9,400 & 17,900\end{array}$$ ?

A) $0.33
B) $0.64
C) $0.50
D) $0.25

Question 73

Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service such as UPS?

A) Number of trucks employed
B) Number of miles driven
C) Number of trucks in service
D) Number of packages delivered

Question 74

Which of the following graphs illustrates the behavior of a total variable cost? ​ ​

A) ​Graph 2
B) ​Graph 3
C) ​Graph 4
D) ​Graph 1

Question 75

The electricity expense in a production plant is an example of a:

A) variable cost.
B) margin cost.
C) fixed cost.
D) distribution cost.

Question 76

The following information is given for the maintenance department of Goldenrod Co.Calculate the variable costs per unit using the high-low method. ? $$\begin{array} { l c c } & \text { Cost } & \text { Production in units } \\\text { July } & \$ 2,100 & 14,000 \\\text { August } & 1,000 & 9,000 \\\text { September } & 1,800 & 10,000 \\\text { October } & 4,000 & 21,000\end{array}$$

A) $0.17
B) $0.11
C) $0.25
D) $0.08

Question 77

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

A) contribution margin analysis.
B) cost-volume-profit analysis.
C) budgetary analysis.
D) gross profit analysis.

Question 78

For the purpose of analysis, mixed costs are generally:

A) classified as fixed costs.
B) classified as variable costs.
C) classified as period costs.
D) separated into their variable and fixed cost components.

Question 79

Which of the following statements is true regarding fixed and variable costs?

A) Both costs are constant when considered on a per-unit basis.
B) Both costs are constant when considered on a total basis.
C) Fixed costs are fixed in total, and variable costs are fixed per unit.
D) Variable costs are fixed in total, and fixed costs vary in total.

Question 80

Which of the following is an example of a cost that varies in proportion to changes in the activity base?

A) Depreciation on machinery
B) Packaging cost
C) Factory rent
D) Insurance cost