Deck 2: Cost Behaviour and Cost-Volume Relationships

Question 1

A fixed cost is fixed per unit.

Answer 1

False

Question 2

The volume of sales at which revenue equals expenses, and net income is zero is known as the break-even point.

Answer 2

True

Question 3

Cost drivers are machines that take the place of labour.

Answer 3

False

Question 4

As the level of activity increases within the relevant range,

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

Question 5

Activities that affect costs are often called

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

Question 6

A variable cost varies per unit.

Question 7

A change in the tax rate will not affect the break-even point.

Question 8

A cost that changes in direct proportion to changes in the cost driver is a

A) fixed cost.
B) joint cost.
C) mixed cost.
D) variable cost.

Question 9

Sales mix is defined as the relative proportions of products that comprise total sales.

Question 10

Gross margin is the same as contribution margin.

Question 11

The variable cost percentage plus the contribution margin percentage must equal 100 percent.

Question 12

If fixed expenses doubled, the break-even point in units would double and the break-even point in dollars would be cut in half.

Question 13

As the level of activity increases within the relevant range,

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

Question 14

The break-even point is located at the intersection of the total revenue line and the total expenses line on a cost-volume-profit graph.

Question 15

In certain situations, gross margin can equal contribution margin.

Question 16

Break-even is the point at which the company achieves its targeted net income.

Question 17

An increase in sales price would cause a decrease in the break-even point.

Question 18

As the level of activity decreases within the relevant range,

A) total fixed costs increases.
B) fixed costs per unit decreases.
C) total variable costs decreases.
D) variable costs per unit decreases.

Question 19

The way in which the activities of an organization affect its costs is called cost behaviour.

Question 20

When changes occur in the sales mix, there is no effect on the cost-volume-profit relationships.

Question 21

Hampton Company, a producer of computer disks, has the following information:

What is the contribution margin per unit?

A) 0.40
B) 0.60
C) 1.00
D) None of the above.

Question 22

Hampton Company, a producer of computer disks, has the following information:

What is the contribution-margin ratio?

A) 40 percent
B) 60 percent
C) 100 percent
D) None of the above.

Question 23

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
If total fixed costs are $213,000, then the break-even volume in sales dollars is

A) $710,000.
B) $304,288.
C) $370,432.
D) $177,500.

Question 24

If the sales price per unit is $10.00, the unit contribution margin is $4.00, and total fixed costs are $20,000, the break-even point in units is

A) 5,000.
B) 1,429.
C) 2,000.
D) 3,333.

Question 25

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
If total fixed costs are $174,000, then the break-even point in units is

A) 31,071.
B) 37,826.
C) 72,500.
D) 21,750.

Question 26

The margin of safety

A) equals break-even unit sales less actual unit sales.
B) shows how far sales can fall below the planned level before losses occur.
C) is the sales price minus all the variable expenses.
D) is the same as break-even point.

Question 27

Hampton Company, a producer of computer disks, has the following information:

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

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

Question 28

If the sales price per unit is $48.00, the total fixed costs are $67,500, and the break-even volume in dollar sales is $270,000, then the unit variable cost is

A) $4.00.
B) $6.33.
C) $12.00.
D) $36.00.

Question 29

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
If total fixed costs are $62,000, contribution margin per unit is $5.00, and targeted after-tax net income is $12,000 with a 40 percent tax rate, how many units must be sold to break even?

A) 16,400
B) 14,800
C) 12,400
D) 11,440

Question 30

If the sales price per unit is $17.00, the unit variable cost is $13.50, and the break-even point is 78,000 units, then the total fixed costs are

A) $105,300.
B) $89,140.
C) $273,000.
D) $156,000.

Question 31

If variable costs are increasing in total,

A) activity is decreasing.
B) activity is increasing.
C) variable costs per unit are decreasing.
D) variable costs per unit are increasing.

Question 32

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
If targeted after-tax net income is $27,000 with a 40 percent tax rate, contribution margin per unit is $0.80, and total fixed costs are $148,000, how many units must be sold to break even?

A) 218,750
B) 241,250
C) 185,000
D) 167,250

Question 33

Contribution margin

A) is not the same as marginal income.
B) can be calculated as a ratio or per unit.
C) equals the sales price minus all the fixed expenses.
D) equals total fixed costs minus total variable costs.

Question 34

If the sales price per unit is $200.00, the unit variable cost is $148.00, and total fixed costs are $164,000, then the break-even volume in dollar sales rounded to the nearest whole dollar is

A) $630,769.
B) $221,622.
C) $1,640,000.
D) $206,308.

Question 35

As sales volume in units increases and all other relationships remain constant

A) break-even increases.
B) break-even decreases.
C) total contribution margin decreases.
D) total contribution margin increases.

Question 36

Hampton Company, a producer of computer disks, has the following information:

What is the break-even point in units?

A) 36,000
B) 90,000
C) 60,000
D) 54,000

Question 37

Reese, Inc. produces pliers. Each pair of pliers sells for $8.00. Variable costs per unit total $5.60 of which $2.50 is for direct materials and $2.10 is for direct labour.
If the break-even volume in sales dollars is $578,400, then the total fixed costs for the period must be

A) $173,520.
B) $144,600.
C) $206,570.
D) $251,747.

Question 38

As production increases within the relevant range, fixed costs per unit

A) decrease.
B) increase.
C) stay the same.
D) cannot be determined with the information given.

Question 39

Hampton Company, a producer of computer disks, has the following information:

What is the break-even point in dollars?

A) $54,000
B) $36,000
C) $90,000
D) $60,000

Question 40

In defining a cost as fixed, the accountant must consider

A) the variable costs.
B) the contribution margin.
C) the relevant range.
D) projected sales revenue.

Question 41

The variable-cost ratio is

A) all variable costs divided by fixed costs.
B) net income divided by all variable costs.
C) fixed costs divided by all variable costs.
D) all variable costs divided by sales.

Question 42

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

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

Question 43

Assume the following cost information for Quayle Corporation:

If fixed costs increased by 10 percent, and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to

A) $99
B) $130
C) $94
D) $97

Question 44

The following information is for Lyceum, Ltd.:

If management has a targeted net income of $21,000 (ignore income taxes), then the number of units which must be sold is

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

Question 45

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

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

Question 46

Assume the following cost information for Quayle Corporation:

What volume of sales dollars is required to earn an after-tax net income of $15,000?

A) $196,875
B) $157,500
C) $135,000
D) $168,750

Question 47

Assume the following cost information for Quayle Corporation:

What is the number of units that must be sold to earn an after-tax net income of $25,500?

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

Question 48

The following information is for Lyceum, Ltd.:

If total fixed costs increased to $156,750, then break-even volume in dollars would increase by

A) 12.3 percent.
B) 20.0 percent.
C) 34.3 percent.
D) 10.0 percent.

Question 49

If the contribution-margin ratio is .30, targeted net income is $64,000, and targeted sales volume in dollars is $400,000, then total fixed costs are

A) $56,000.
B) $120,000.
C) $36,800.
D) $19,200.

Question 50

If targeted sales volume in units is 124,600, total fixed costs are $15,600, and contribution margin per unit is $0.30, then the targeted net income is

A) $37,380.
B) $32,700.
C) $15,600.
D) $21,780.

Question 51

Hampton Company, a producer of computer disks, has the following information:

The cost-volume-profit graph does NOT show

A) the break-even point.
B) the profit or loss at any rate of activity.
C) the fixed cost per unit.
D) sales volume.

Question 52

The following information is for Lyceum, Ltd.:

The contribution-margin ratio is

A) 64.3 percent.
B) 55.6 percent.
C) 35.7 percent.
D) 44.4 percent.

Question 53

Operating leverage is

A) the ratio of net income to sales.
B) the ability of a firm to pay off its debts.
C) the ratio of fixed costs to variable costs.
D) also referred to as working capital.

Question 54

Hampton Company, a producer of computer disks, has the following information:

Which of the following is NOT an underlying assumption of the cost-volume-profit graph?

A) Expenses are categorized into variable and fixed.
B) Sales mix will not be constant.
C) Revenues and expenses are linear over the relevant range.
D) Efficiency and productivity will be unchanged.

Question 55

If the sales price per unit is $150.00, variable cost per unit is $80.00, targeted net income is $44,000, and total fixed costs are $33,000, the number of units that must be sold is

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

Question 56

Assume the following cost information for Quayle Corporation:

What is the break-even point in units?

A) 1,000
B) 1,250
C) 556
D) 500

Question 57

In a highly leveraged company,

A) fixed costs are low and variable costs are high.
B) large changes in sales volume result in small changes in net income.
C) there is a higher possibility of net income or net loss and therefore more risk than a low leveraged firm.
D) a variation in sales leads to only a small variability in net income.

Question 58

Hampton Company, a producer of computer disks, has the following information:

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

A) be cut in half.
B) double.
C) triple.
D) quadruple.

Question 59

The following information is for Lyceum, Ltd.:

If management has a targeted net income of $27,000 (ignore income taxes), then sales revenue should be

A) $263,667.
B) $474,600.
C) $108,964.
D) $169,500.

Question 60

Given a break-even point of 44,000 units and a contribution margin per unit of $4.80, the total number of units that must be sold to reach a net profit of $9,048 is

A) 45,885 units.
B) 44,000 units.
C) 1,885 units.
D) cannot be determined with the above information.

Question 61

Hampton Company, a producer of computer disks, has the following information:

How many units must be sold to obtain a targeted after-tax income of $6,000?

A) 115,000
B) 42,000
C) 90,000
D) 105,000

Question 62

Assuming a constant mix of 3 units of X for every 1 unit of Y, a selling price of $18 for X and $24 for Y, variable costs per unit of $12 for X and $14 for Y, and total fixed costs of $89,600, the break-even point in units would be

A) 9,600 units of X and 3,200 units of Y.
B) 2,400 units of X and 800 units of Y.
C) 3,200 units of X and 9,600 units of Y.
D) 1,867 units of X and 622 units of Y.

Question 63

Hampton Company, a producer of computer disks, has the following information:

The limiting assumptions of CVP analysis include all of the following EXCEPT

A) a nonlinear revenue function and a nonlinear cost function.
B) that the inventory levels at the beginning of the period are close to the inventory levels at the end of a period.
C) selling prices and costs are known with certainty.
D) costs can be separated into fixed and variable components.

Question 64

Use the following information to answer the next question(s).

If the firm wants to earn $70,000 in before-tax profit, sales revenue must equal

A) $60,500.
B) $110,000.
C) $200,000.
D) $244,444.

Question 65

Activities that affect costs.

Question 66

Use the following information to answer the next question(s).

If the firm wants to earn $70,000 in before-tax profit, contribution margin must equal

A) $98,000.
B) $110,000.
C) $125,000.
D) $155,000.

Question 67

Gross margin is

A) the excess of gross profit over operating expenses.
B) the excess of sales over the cost of goods sold.
C) also referred to as net profit.
D) the same as contribution margin.

Question 68

Use the following information to answer the next question(s).

Breakeven for the product (rounded to the nearest whole unit) is

A) 727 units.
B) 888 units.
C) 1,000 units.
D) 1,500.

Question 69

Hampton Company, a producer of computer disks, has the following information:

How many units must be sold to obtain a targeted income before taxes of $6,000?

A) 36,000
B) 42,000
C) 90,000
D) 105,000

Question 70

Use the following information to answer the next question(s).

If the tax rate is 40 percent, how many units must be sold to earn an after-tax profit of $60,000?

A) 4,000
B) 1,500
C) 2,640
D) 2,546

Question 71

If targeted after-tax net income is $27,000 with a 40 percent tax rate, contribution margin per unit is $0.80, and total fixed costs are $148,000, then the number of units that must be sold is

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

Question 72

If total fixed costs are $62,000, contribution margin per unit is $5.00, and targeted after-tax net income is $12,000 with a 40 percent tax rate, then the number of units that must be sold is

A) 16,400.
B) 14,800.
C) 24,667.
D) 11,440.

Question 73

If the proportions in a sales mix change, the

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

Question 74

The manner in which the activities of an organization affect its costs.

Question 75

Use the following information to answer the next question(s).

Contribution margin per unit is

A) $15.
B) $50.
C) $55.
D) $80.

Question 76

Hampton Company, a producer of computer disks, has the following information:

The contribution margin ratio equals

A) revenue minus variable costs.
B) variable costs divided by revenue.
C) contribution margin divided by revenue.
D) variable costs divided by contribution margin.

Question 77

Hampton Company, a producer of computer disks, has the following information:

Barrell Company, a producer of computer disks, has the following information: What sales volume in dollars is needed to obtain a targeted after-tax income of $12,000?

A) $84,000
B) $180,000
C) $210,000
D) $230,000

Question 78

If total fixed costs are $420,000, contribution margin per unit is $6.75, the tax rate is 40 percent, and the number of units to be sold is 130,000, then the after-tax net income will be

A) $457,500.
B) $877,500.
C) $420,000.
D) $274,500.

Question 79

Use the following information to answer the next question(s).

The contribution margin ratio is

A) 15%.
B) 45%.
C) 50%.
D) 55%.

Question 80

The relative proportions or combinations of quantities of products that comprise total sales is called

A) sales mix.
B) gross margin.
C) proportional sales.
D) product ratio.