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

Question 1

Fixed costs per unit decrease as production levels decrease.

Answer 1

False

Question 2

Least Squares Regression is a method used to combine the variable and fixed portions of mixed costs.

Answer 2

False

Question 3

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

A) Average mixed cost
B) Total fixed cost
C) Average variable cost
D) Total variable cost

Answer 3

Total variable cost

Question 4

Which of the following is a characteristic of a variable cost?

A) Variable costs are variable per unit, and fixed in total.
B) Variable costs vary in total with production and sales.
C) Variable costs do not change in total over the relevant range.
D) All of the above are characteristics of variable costs.

Question 5

Dakota Company provides the following information about its single product:
What is the contribution margin ratio?

A) 0.70
B) 0.44
C) 0.56
D) 0.30

Question 6

If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60.

Question 7

If the sales price per unit is $7, the unit contribution margin is $3, and total fixed expenses are $19,500, what is the breakeven point in units?

A) 2,786
B) 6,500
C) 5,850
D) 4,875

Question 8

If the sale price per unit is $24.50, the variable expense per unit is $17, and total fixed expenses are $324,000, what is the breakeven point in sales dollars?

A) $734,400
B) $466,946
C) $1,058,400
D) $224,808

Question 9

Assuming 10,000 units are sold, what is the contribution margin?

A) $230,000
B) $65,000
C) $150,000
D) $80,000

Question 10

If sales revenue per unit increases to $25 and 10,000 units are sold, what is the contribution margin?

A) $150,000
B) $100,000
C) $1,250,000
D) $135,000

Question 11

If sales revenue per unit decreases to $18 and 15,000 units are sold, what is the operating income?

A) $270,000
B) $30,000
C) $50,000
D) $45,000

Question 12

The Pearson Company has a contribution margin ratio of 25%. Pearson's operating income was $100,000 when sales totaled $1,000,000. What were Pearson's fixed expenses?

A) $250,000
B) $150,000
C) $350,000
D) $225,000

Question 13

If the sales price per unit is $8.50, the variable expenses per unit is $6.75, and the breakeven point in sales dollars is $331,500, what are total fixed costs?

A) $22,286
B) $68,250
C) $39,000
D) $26,325

Question 14

If the sales price per unit is $32, total fixed expenses are $45,000 and the breakeven sales in dollars is $180,000, what is the variable expense per unit?

A) $8.00
B) $4.20
C) $4.00
D) $24.00

Question 15

If the sales price per unit is $35, the unit contribution margin is $7.50, and total fixed expenses are $56,000, what is the breakeven point in units?

A) 1,600
B) 7,467
C) 2,036
D) 3,733

Question 16

If the sales price per unit is $68.50, the variable expense per unit is $45, and total fixed expenses are $1,325,400, what is the breakeven point in units?

A) 56,000
B) 56,400
C) 29,453
D) 19,349

Question 17

If the sales price per unit is $89, total fixed expenses are $456,000, and the breakeven sales in dollars is $760,000, what is the variable cost per unit?

A) $17.80
B) $35.60
C) $44.50
D) $3.42

Question 18

If the sale price per unit is $21.50, the variable expense per unit is $16.75, and the breakeven point in sales is $634,250, what are total fixed costs?

A) $494,125
B) $29,500
C) $140,125
D) $179,864

Question 19

Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change next year. Fixed expenses are $150,000. If fixed costs were to increase 10% next year, and the new sales price goes into effect, what is the breakeven point in units?

A) 9,429 units
B) 22,000 units
C) 7,333 units
D) 7,858 units

Question 20

Dakota Company provides the following information about its single product:


- What is the contribution margin per unit?

A) $1.05
B) $7.00
C) $4.55
D) $2.45

Question 21

Dakota Company provides the following information about its single product:


- What is the breakeven point in units?

A) 85,714
B) 37,235
C) 36,735
D) 25,714

Question 22

Given breakeven sales in units of 22,000 and a unit contribution margin of $2.40, how many units must be sold to reach a target operating income of $4,524?

A) 4,863
B) 11,671
C) 23,885
D) 1,885

Question 23

The Prentice Company has provided the following information:
What is the breakeven point in sales dollars?

A) $250,000
B) $400,000
C) $600,000
D) $900,000

Question 24

The Pearson Corporation has provided the following information pertaining to its most recent year of
Operations:
What was the breakeven point in sales dollars?

A) $125,000
B) $100,000
C) $200,000
D) $500,000

Question 25

Which of the following will result in an increase in the breakeven point, a decrease in the margin of safety, and a decrease in the contribution margin per unit?

A) An increase in the selling price per unit.
B) A decrease in fixed costs.
C) A decrease in the hourly wage paid to direct laborers.
D) An increase in the unit cost of direct materials.

Question 26

The margin of safety is $500,000 when actual sales are $1,200,000 and the breakeven point in sales is $700,000.

Question 27

If total fixed costs are $95,000, contribution margin per unit is $8.00, and targeted operating income is $30,000, how many units must be sold to breakeven?

A) 11,875
B) 8,125
C) 5,625
D) 3,750

Question 28

Dakota Company provides the following information about its single product:
How many units must be sold to earn the targeted operating income?

A) 37,143
B) 123,810
C) 53,062
D) 36,735

Question 29

Given breakeven sales in units of 45,700 and a unit contribution margin of $6, how many units must be sold to reach a target operating income of $25,200?

A) 45,700
B) 49,900
C) 1,813
D) 4,200

Question 30

If the contribution margin ratio is 26%, target operating income is $32,000, and target sales are $200,000, what are total fixed expenses?

A) $52,000
B) $23,077
C) $20,000
D) $8,320

Question 31

If target sales in units are 62,300, total fixed expenses are $7,800, and the unit contribution margin is $.15, what is the target operating income?

A) $3,000
B) $1,545
C) $8,175
D) $9,345

Question 32

The McPherson Company is facing an increase in the variable cost of producing and selling one of its products for the upcoming year. As a result, the sales manager has made a proposal to increase the selling price of the product while increasing the advertising budget at the same time. McPherson has provided the following information regarding the current year results and the proposal made by the sales manager:
Relative to the current year, the sales manager's proposal will:

A) decrease operating income by $90,000.
B) increase contribution margin by $90,000.
C) decrease the unit breakeven point.
D) decrease operating income by $110,000.

Question 33

Hunter Manufacturing has provided the following information:
What is the sales price per unit?

A) $762.50
B) $325.00
C) $517.50
D) $405.00

Question 34

Lisa Manufacturing has provided the following information:
What is the margin of safety in units?

A) 5,000
B) 30,000
C) 35,000
D) 1,857

Question 35

Bolognese Company's contribution margin income statement for January is as follows:


- If Bolognese were to sell 8,200 units during February, how much would operating income be?

A) $99,000
B) $111,900
C) $96,300
D) $107,300

Question 36

Bolognese Company's contribution margin income statement for January is as follows:


- Which of the following statements is NOT correct?

A) The breakeven point in units was 3,250 for the month of January.
B) The margin of safety was $226,000 for the month of January.
C) The contribution margin ratio was 40% for the month of January.
D) A 10% increase in sales would have resulted in a 10% increase in operating income during January.

Question 37

During the most recent year, RDJ Company reported sales of $1,200,000, variable expenses of $720,000, and a margin of safety of $450,000. How much were RDJ's fixed expenses?

A) $30,000
B) $18,000
C) $48,000
D) $27,000

Question 38

Claire Corporation's contribution margin income statement for March is as follows:
Claire's manager has proposed that the unit selling price be increased by 10% for the month of April. The manager believes that the selling price increase will result in a 250 unit decrease in sales during April. Should the manager's proposal be accepted?

A) Yes, because operating income will increase $6,750.
B) No, because contribution margin will decrease $3,375.
C) No, because operating income will decrease $1,875.
D) Yes, because contribution margin will increase $10,125.

Question 39

What impact would an increase in fixed costs have on the contribution margin, the margin of safety,
And the breakeven point?

A)

B)

C)

D)