Deck 2: Introduction to Cost Behavior and Cost Volume Relationships

Question 1

is the relative proportions or combinations of quantities of products that comprise total sales.

A) Variable- cost ratio
B) Contribution- margin ratio
C) Gross margin
D) Sales mix

Answer 1

D

Question 2

Which value chain function would include the cost of computer- aided design equipment and cost to develop the prototype of a product?

A) The distribution function would include these costs.
B) The production function would include these costs.
C) The marketing function would include these costs.
D) The design of product, services, and processes function would include these costs.

Answer 2

D

Question 3

Assume the following cost information for Zachary Company: $\begin{array}{ll}\text { Selling price per unit } & \$ 144 \\\text { Variable costs per unit } & \$ 80 \\\text { Total fixed costs } & \$ 80,000 \\\text { Tax rate } & 40 \%\end{array}$ must be sold to earn an after- tax net income of $40,800.

A) 3,700 units
B) 1,594 units
C) 1,063 units
D) 2,313 units

Answer 3

2,313 units

Question 4

Meredith Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Meredith's tax rate is 40%. The number of units that must be sold to breakeven is:

A) 19,000 units
B) 21,500 units
C) 14,000 units
D) 17,000 units

Question 5

is not shown in the cost- volume- profit graph.

A) Sales volume in units
B) The break- even point
C) The fixed cost per unit
D) The profit or loss at any rate of activity

Question 6

If total fixed costs are $84,000, contribution margin per unit is $6.00, and targeted after- tax net income is $18,000 with a 40% tax rate, then the number of units which must be sold is:

A) 19,000 units
B) 21,500 units
C) 14,000 units
D) 17,000 units

Question 7

If the proportions in a sales mix change, the:

A) break- even point will remain the same
B) net income will not be altered
C) cost- volume- profit relationship also changes
D) contribution margin per unit increases

Question 8

is the excess of sales over the cost of goods sold.

A) The sales mix
B) Gross margin
C) Contribution- margin ratio
D) Variable- cost ratio

Question 9

Which of the following is not a cost driver of customer services costs?

A) Hours spent servicing products are not a cost driver of customer services costs.
B) Number of service calls is not a cost driver of customer services costs.
C) Travel costs are not a cost driver of customer services costs.
D) All of these answers are correct.

Question 10

If the sales price per unit is $180, variable cost per unit is $96, targeted net income is $52,800, and total fixed costs are $39,600, the number of units that must be sold is:

A) 963
B) 513
C) 1,100
D) 629

Question 11

As the cost- driver activity level increases within the relevant range:

A) fixed costs per unit increases
B) variable costs per unit increases
C) total fixed costs remain unchanged
D) total variable costs decrease

Question 12

If targeted sales volume in units is 62,300, total fixed costs are $31,200, and contribution margin per unit is $1.20, then the targeted net income is:

A) $43,560
B) $74,760
C) $31,200
D) $37,440

Question 13

Muy Mal Company, a producer of salsa, has the following information: $$\begin{array} { l l } \text { Income tax rate } & 30 \% \\\text { Selling pric e per unit } & \$ 5.00 \\\text { Variable cost p er unit } & \$ 3,00 \\\text { Total fixed costs } & \$ 90,000.00\end{array}$$ must be sold to obtain a targeted after- tax income of $14,000.

A) 45,000 units
B) 55,000 units
C) 52,000 units
D) 60,000 units

Question 14

Squeeze Me Company produces Beanie Babies. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If total fixed costs are $435,000, then the break- even point is:

A) 72,500 dolls
B) 51,176 dolls
C) 31,071 dolls
D) 21,750 dolls

Question 15

Which of the following would be a good cost driver for salaries of product and supervisory salaries?

A) Number of hours worked is a good cost driver for salaries of product and supervisory salaries.
B) Number of customers served is a good cost driver for salaries of product and supervisory salaries.
C) Number of department transactions is a good cost driver for salaries of product and supervisory salaries.
D) Number of people supervised is a good cost driver for salaries of product and supervisory salaries.

Question 16

If fixed expenses were the same and contribution margin per unit was cut in half, then the break- even point would:

A) be the same
B) be undeterminable
C) double
D) be cut in half

Question 17

An increase in total variable cost usually indicates:

A) variable costs per unit is increasing
B) the cost- driver activity level is increasing
C) variable costs per unit is decreasing
D) the cost- driver activity level is decreasing

Question 18

If the sales price per unit is $100, the total fixed costs are $75,000, and the break- even volume in dollar sales is $250,000, then the variable cost per unit is:

A) $70
B) $30
C) $100
D) $75,000

Question 19

If the contribution- margin ratio is 0.30, targeted net income is $76,800, and targeted sales volume in dollars is $480,000, then total fixed costs are:

A) $44,160
B) $144,000
C) $67,200
D) $23,000

Question 20

When analyzing cost, think of:

A) variable costs on a per- unit basis
B) variable costs as a total
C) variable costs as a total and fixed costs on a per- unit basis
D) fixed costs on a per- unit basis

Question 21

An accountant may have difficulty classifying costs as fixed or variable because:

A) the decision situation may cause the costs to be fixed in the short term
B) costs may be affected by more than one cost driver
C) costs may behave in a nonlinear way
D) All of these answers are correct.

Question 22

The following information is for Center Corporation: $$\begin{array} { l l } \text { Total fixed costs } & \$ 313,500 \\\text { Variable costs per unit } & \$ 99 \\\text { Selling price p er unit } & \$ 154\end{array}$$ If management has a targeted net income of $59,400 (ignore income taxes), then sales revenue should be:

A) $1,044,120
B) $239,721
C) $580,067
D) $671,220

Question 23

Ankeny Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Ankeny's tax rate is 40%. The number of units that must be sold to earn the targeted net income is:

A) 17,000 units
B) 14,000 units
C) 19,000 units
D) 21,500 units

Question 24

Given a break- even point of 88,000 units and a contribution margin per unit of $9.60, the total number of units that must be sold to reach a net pre- tax profit of $18,096 is:

A) 1,885 units
B) 89,885 units
C) 88,000 units
D) indeterminable

Question 25

As sales exceed the break- even point, a high contribution- margin percentage:

A) increases profits faster than does a low contribution- margin percentage
B) decreases profits at the same rate as a low contribution- margin percentage
C) increases profits slower than does a low contribution- margin percentage
D) increases profits at the same rate as a low contribution- margin percentage

Question 26

Number of engineering hours is a likely cost driver for which value chain function?

A) The production function has number of engineering hours as a likely cost driver.
B) The research and development function has number of engineering hours as a likely cost driver.
C) The marketing function has number of engineering hours as a likely cost driver.
D) The design function has number of engineering hours as a likely cost driver.

Question 27

will decrease a company's break- even point.

A) Decreasing the selling price per unit
B) Increasing variable cost per unit
C) Reducing its total fixed costs
D) Increasing contribution margin per unit

Question 28

An increase in fixed costs usually indicates:

A) relevant range is decreasing
B) cost driver activity is decreasing
C) relevant range is increasing
D) cost driver activity is increasing

Question 29

Cuyahoga County Hospital has overall variable costs of 75% of total revenues and fixed costs of $40 million per year. There are 40,000 patient- days estimated for next year. The average daily revenue per patient necessary to breakeven is:

A) $250
B) $20,000
C) $1,000
D) $4,000

Question 30

Which of the following statements about highly leveraged companies is true?

A) There is a higher possibility of net income or net loss and therefore more risk than a highly leveraged firm.
B) Fixed costs are high and variable costs are low.
C) Large changes in sales volume result in larger changes in net income.
D) All of these answers are correct.

Question 31

If targeted after- tax net income is $67,500 with a 40% tax rate, contribution margin per unit is $2.00, and total fixed costs are $370,000, then the number of units which must be sold is:

A) 241,250 units
B) 218,750 units
C) 167,250 units
D) 160,833 units

Question 32

Output measures of both resources and activities are:

A) stages of production
B) variable activities
C) fixed activities
D) cost drivers

Question 33

Suppose the In & Out Motel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room motel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year. The percent of occupancy for the year needed to breakeven is:

A) 25%
B) 27.4%
C) 100%
D) 3.65%

Question 34

is all variable costs divided by sales.

A) Variable- cost ratio
B) The sales mix
C) Gross margin
D) Contribution- margin ratio

Question 35

Burning Company, a producer of salsa, has the following information: $\begin{array}{ll}\text { Income tax rate } & 30 \% \\\text { Selling price per unit } & \$ 5.00 \\\text { Variable cost per unit } & \$ 3.00 \\\text { Tot al fixed costs } & \$ 90,000.00\end{array}$ The break- even point in dollars is:

A) $180,000
B) $225,000
C) $270,000
D) $150,000

Question 36

If the sales price per unit is $20, the unit contribution margin is $8, and total fixed costs are $24,000, the break- even point in units is:

A) 2,000
B) 1,200
C) 3,000
D) 857

Question 37

Rampart Hospital has total variable costs of 90% of total revenues and fixed costs of $50 million per year. There are 50,000 patient- days estimated for next year. What is the average daily revenue per patient necessary to breakeven?

A) $250 is the average daily revenue per patient necessary to breakeven.
B) $4,000 is the average daily revenue per patient necessary to breakeven.
C) $10,000 is the average daily revenue per patient necessary to breakeven.
D) $1,000 is the average daily revenue per patient necessary to breakeven.

Question 38

If the sales price per unit is $100, the unit variable cost is $75, and total fixed costs are $150,000, then the break- even volume in dollar sales rounded to the nearest whole dollar is:

A) $600,000
B) $150,000
C) $1,500
D) $200,000

Question 39

Four Alarm Company, a producer of salsa, has the following information: $$\begin{array} { l l } \text { Income tax rate } & 30 \% \\\text { Selling pric e per unit } & \$ 5.00 \\\text { Variable cost p er unit } & \$ 3.00 \\\text { Total fixed costs } & \$ 90,000.00\end{array}$$ The contribution- margin ratio is:

A) 30%
B) 100%
C) 60%
D) 40%

Question 40

Assume the following cost information for Donald Company: $\begin{array}{ll}\text { Selling price per unit } & \$ 144 \\\text { Variable costs per unit } & \$ 95 \\\text { Total fixed costs } & \$ 80,000 \\\text { Tax rate } & 40 \%\end{array}$ The break- even point in units is

A) 556 units
B) 1,633 units
C) 500 units
D) 1,000 units

Question 41

Suppose a Comfort Inn motel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room motel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year. The break- even point in number of rooms rented is:

A) 30,000 rooms
B) 120,000 rooms
C) 24,000 rooms
D) None of these answers is correct.

Question 42

Fixed costs:

A) vary on a per- unit basis, but are fixed in total
B) are fixed on a per- unit basis, and fixed in total
C) vary on a per- unit basis, and vary in total
D) are fixed on a per- unit basis, but vary in total

Question 43

is how the activities of an organization affect its costs.

A) Volume- related cost drivers
B) Cost driver
C) Cost behavior
D) None of these answers is correct.

Question 44

is the ratio of fixed costs to variable costs.

A) Operating leverage
B) Contribution margin
C) Break- even point
D) The margin of safety

Question 45

The level of sales at which revenues equal expenses and net income is zero is called the:

A) break- even point
B) margin of safety
C) marginal income point
D) contribution margin

Question 46

Assume the following cost information for Marie Company: $\begin{array}{ll}\text { Selling price per unit } & \$ 144 \\\text { Variable costs per unit } & \$ 80 \\\text { Total fixed costs } & \$ 80,000 \\\text { Tax rate } & 40 \%\end{array}$ If fixed costs increased by 10% and management wanted to maintain the original break- even point, then the selling price per unit would have to be increased to:

A) $155.20
B) $208.00
C) $150.40
D) $158.40

Question 47

Clare Company currently sells 19,000 units. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Clare's tax rate is 40%. The margin of safety in units is:

A) 7,500 units
B) 14,000 units
C) 3,000 units
D) 5,000 units

Question 48

On Fire Company, a producer of salsa, has the following information: $$\begin{array} { l l } \text { Income tax rate } & 30 \% \\\text { Selling pric e per unit } & \$ 5.00 \\\text { Variable cost p er unit } & \$ 3.00 \\\text { Total fixed costs } & \$ 90,000.00\end{array}$$ The contribution margin per unit is:

A) $3.00
B) $8.00
C) $2.00
D) $5.00

Question 49

Hug Me Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If the break- even volume in dollars is $1,446,000, then the total fixed costs for the period must be:

A) $1,446,000
B) $433,800
C) $361,500
D) $516,425

Question 50

Knothole Company sells desks at $480 per desk. The costs associated with each desk are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 195 \\\text { Direct labor } & 126 \\\text { Variable factory overhead } & 51\end{array}$ Total fixed costs for the period are $456,840. The break- even volume in dollars is:

A) $1,573,560
B) $2,030,400
C) $456,840
D) None of these answers is correct.

Question 51

The following information is for Albion Corporation: $\begin{array}{ll}\text { Total fixed costs } & \$ 313,500 \\\text { Variable costs per unit } & \$ 99 \\\text { Selling price per unit } & \$ 154\end{array}$ If management has a targeted net income of $46,200 (ignore income taxes), then the number of units that must be sold is:

A) 6,540 units
B) 5,700 units
C) 2,336 units
D) 2,036 units

Question 52

Suppose a Best Western motel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room motel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year. The amount of net income on rooms that will be generated if the motel is half full throughout the entire year is:

A) $(1,192,500)
B) $1,590,000
C) $990,000
D) $2,737,500

Question 53

If the sales price per unit is $34, the unit variable cost is $19, and the break- even point is 10,000 units, then the total fixed costs are:

A) $150,000
B) $190,000
C) $340,000
D) $530,000

Question 54

The following information is for Allen Corporation: $\begin{array}{ll}\text { Total fixed costs } & \$ 313,500 \\\text { Variable costs per unit } & \$ 101 \\\text { Selling price per unit } & \$ 163\end{array}$ The contribution- margin ratio is:

A) 64.3%
B) 55.6%
C) 38.0%
D) 35.7%

Question 55

As the level of activity decreases within the relevant range:

A) fixed costs per unit decreases
B) total variable costs increase
C) variable costs per unit remain unchanged
D) total fixed costs increase

Question 56

The horizontal axis on the cost- volume- profit graph is the:

A) net income
B) sales volume in units
C) dollars of cost
D) dollars of revenue

Question 57

Babbling Brook Hospital has overall variable costs of 75% of total revenues and fixed costs of $40 million per year. There are 40,000 patient- days estimated for next year. The break- even point expressed in total revenue is:

A) $160 million
B) $10 million
C) $40 million
D) None of these answers is correct.

Question 58

Suppose a Holiday Inn hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room hotel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year. The amount of net income on rooms that will be generated if the hotel is completely full throughout the entire year is:

A) $5,475,000
B) $4,275,000
C) $3,180,000
D) $(1,188,000)

Question 59

Which value chain function would include advertising costs?

A) The production function would include advertising costs.
B) The distribution function would include advertising costs.
C) The customer service function would include advertising costs.
D) The marketing function would include advertising costs.

Question 60

Assume the following cost information for Melissa Company: $\begin{array}{ll}\text { Selling price per unit } & \$ 144 \\\text { Variable cost p per unit } & \$ 80 \\\text { Total fixed costs } & \$ 80,000 \\\text { Tax rate } & 40 \%\end{array}$ of sales dollars is required to earn an after- tax net income of $24,000.

A) $252,000
B) $216,000
C) $270,000
D) $315,000

Question 61

Managers should focus their efforts on managing:

A) products and services
B) activities required to make products or deliver services
C) revenues
D) None of these answers is correct.

Question 62

Like- U Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If total fixed costs are $435,000, then the break- even volume in dollars is:

A) $1,450,000
B) $1,023,529
C) $435,000
D) $621,429

Question 63

The margin of safety:

A) shows how actual sales differ from planned sales
B) is the sales price minus all the fixed expenses
C) is the same as contribution margin
D) equals planned unit sales less break- even unit sales

Question 64

Relevant range applies to:

A) the variable costs
B) both fixed and variable costs
C) cost driver activity levels
D) fixed costs

Question 65

Days of Our Lives Hospital has total variable costs of 90% of total revenues and fixed costs of $50 million per year. There are 50,000 patient- days estimated for next year. What is the break- even point expressed in total revenue?

A) $500 million is the break- even point.
B) $12.5 million is the break- even point.
C) $50 million is the break- even point.
D) None of these answers is correct.

Question 66

Which value chain function would include depreciation on transportation cost?

A) The customer service function would include depreciation on transportation cost.
B) The distribution function would include depreciation on transportation cost.
C) The production function would include depreciation on transportation cost.
D) The marketing function would include depreciation on transportation cost.

Question 67

As the cost- driver activity level increases within the relevant range:

A) fixed costs per unit decrease
B) variable costs per unit decrease
C) total variable costs decrease
D) total fixed costs increase

Question 68

Up In Smoke Company, a producer of salsa, has the following information: $\begin{array}{ll}\text { Income tax rate } & 30 \% \\\text { Selling price p er unit } & \$ 5.00 \\\text { Variable cost per unit } & \$ 3.00 \\\text { Total fixed costs } & \$ 90,000.00\end{array}$ must be sold to obtain a targeted income before taxes of $30,000.

A) 27,000 units
B) 60,000 units
C) 45,000 units
D) 10,000 units

Question 69

Executive Ambience Company sells desks at $480 per desk. The costs associated with each desk are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 195 \\\text { Direct labor } & 126 \\\text { Variable factory overhead } & 51\end{array}$ Total fixed costs for the period are $456,840. The contribution- margin ratio is:

A) 77.5%
B) 40.6%
C) 22.5%
D) 29.0%

Question 70

If total fixed costs are $350,000, contribution margin per unit is $7.50, the tax rate is 30%, and the number of units to be sold is 100,000, then the after- tax net income will be:

A) $400,000
B) $280,000
C) $350,000
D) $877,500

Question 71

Which value chain function would include depreciation of plant and machinery?

A) The marketing function would include depreciation of plant and machinery.
B) The production function would include depreciation of plant and machinery.
C) The distribution function would include depreciation of plant and machinery.
D) The customer service function would include depreciation of plant and machinery.

Question 72

Assuming a constant mix of 3 units of Alpha for every 1 unit of Beta, a selling price of $21.60 for Alpha and $28.80 for Beta, variable costs per unit of $14.40 for Alpha and $16.80 for Beta, and total fixed costs of $53,760, the break- even point in units would be:

A) 4,800 units of Alpha and 1,600 units of Beta
B) 40,320 units of Alpha and 13,440 units of Beta
C) 1,600 units of Alpha and 4,800 units of Beta
D) 1,200 units of Alpha and 400 units of Beta

Question 73

Andrew Company has the following information: $\begin{array}{ll}\text { Income tax rate } & 40 \% \\\text { Selling price per unit } & \$ 7.50 \\\text { Variable cost per unit } & \$ 2.50 \\\text { Total fixed costs } & \$ 100,000\end{array}$ If the tax rate decreases to 30%, _ fewer units can be sold to retain the same net income of $42,000.

A) 1,000 units
B) 32,000 units
C) 34,000 units
D) 2,000 units

Question 74

is not an underlying assumption of the cost- volume- profit graph.

A) Revenues and expenses are nonlinear over the relevant range
B) Efficiency and productivity will be unchanged
C) Sales mix will be constant
D) Expenses are categorized into variable and fixed costs

Question 75

The following information is for Joshua Corporation: $\begin{array}{ll}\text { Tot al fixed costs } & \$ 333,500 \\\text { Variable costs per unit } & \$ 99 \\\text { Selling price per unit } & \$ 154\end{array}$ If total fixed costs increased to $394,850, then break- even volume in dollars would increase by:

A) 34.3%
B) 12.3%
C) 18.4%
D) 10.0%

Question 76

Oak N' More Corporation sells desks at $480 per desk. The costs associated with each desk are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 195 \\\text { Direct labor } & 126 \\\text { Variable factory overhead } & 51\end{array}$ Total fixed costs for the period are $456,840. The contribution margin per desk is:

A) $108
B) $195
C) $51
D) $126

Question 77

Variable costs:

A) vary per unit
B) are fixed per unit and vary in total
C) decrease in total as the cost- driver activity level increases
D) are fixed in total

Question 78

Desks R' Us Corporation sells desks at $480 per desk. The costs associated with each desk are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 195 \\\text { Direct labor } & 126 \\\text { Variable factory overhead } & 51\end{array}$ Total fixed costs for the period are $456,840. The break- even point in desks is:

A) 952 desks
B) 4,230 desks
C) 5,458 desks
D) 1,228 desks

Question 79

As the cost driver activity level decreases within the relevant range:

A) variable costs per unit decreases
B) total fixed costs increase
C) total variable costs decrease
D) fixed costs per unit decreases

Question 80

The is the change in total results under a new condition, in comparison with some given or known condition.

A) detrimental effect
B) conditional effect
C) comparability effect
D) incremental effect