Deck 4: Cost-Volume-Profit Analysis

Question 1

The fixed costs per unit will:

A) increase as production decreases.
B) decrease as production decreases.
C) remain the same as production levels change.
D) increase as production increases.

Answer 1

A

Question 2

Fixed costs per unit decrease as production levels decrease.

Answer 2

False

Question 3

The high-low method requires the identification of lowest and highest levels of total costs, not activity, over a period of time.

Answer 3

False

Question 4

Which of the following statements is true of the behavior of total variable costs, within the relevant range?

A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.

Question 5

Nancy was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the fixed cost associated with Nancy's water bill?

A) $2,400
B) $3,800
C) $1,000
D) $1,400

Question 6

A 15% increase in production volume will result in a:

A) 15% increase in the variable cost per unit.
B) 15% increase in total mixed costs.
C) 15% increase in total administration costs.
D) 15% increase in total variable costs.

Question 7

Fixed cost per unit is assumed to be constant within a particular relevant range of activity.

Question 8

Within the relevant range, the total fixed costs and the variable cost per unit remain the same.

Question 9

Variable cost per unit, within the relevant range, will:

A) increase as production decreases.
B) decrease as production decreases.
C) remain the same as production levels change.
D) decrease as production increases.

Question 10

Variable cost per unit is constant throughout various relevant ranges.

Question 11

Which of the following is a variable cost?

A) Property taxes
B) Salary of plant manager
C) Direct materials cost
D) Straight-line depreciation expense

Question 12

Assume that John's cellphone service provider charges $5.00 per month and $0.10 per minute per call. If John's current bill is $50.00, how many calling minutes did John use?

A) 500 minutes
B) 550 minutes
C) 450 minutes
D) 400 minutes

Question 13

If the volume of activity doubles in the relevant range, total variable costs will also double.

Question 14

Which of the following statements is true of the behavior of total fixed costs, within the relevant range?

A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.

Question 15

Total fixed costs can change from one relevant range to another.

Question 16

During the current year, Simpson Inc. incurred $5,000 of fixed and $12,000 variable costs. If the number of units produced is halved next year, the company will incur $2,500 as fixed and $6,000 as variable costs.

Question 17

Total variable costs change in direct proportion to a change in volume.

Question 18

Total variable costs change in direct proportion to changes in the volume of production.

Question 19

Nancy was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the variable cost per dog associated with Nancy's water bill?

A) $6.00
B) $12.00
C) $9.50
D) $7.00

Question 20

Fixed costs per unit is inversely proportional to the volume of units produced.

Question 21

The phone bill for an accounting firm consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. (Round your intermediate calculations to two decimal places) $\begin{array}{|l|r|r|} \hline& \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 3,000 \\\hline \text { February } & 200 & \$ 2,673 \\\hline \text { March } & 160 & \$ 2,625 \\\hline \text { April } & 300 & \$ 2,800 \\\hline\end{array}$

- What is the fixed portion of the total cost?

A) $1,850
B) $2,225
C) $2,425
D) $2,625

Question 22

The high-low method is used to:

A) determine the highest price that can be charged for a product.
B) separate mixed costs into their variable and fixed components.
C) identify the relevant and irrelevant costs of a business.
D) determine the sales level at highest capacity.

Question 23

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total variable costs would:

A) increase by 20%.
B) remain the same.
C) increase by an amount less than 20%.
D) decrease by 20%.

Question 24

Jezebel Company incurred fixed costs of $300,000. Total costs, both fixed and variable, are $450,000 when 50,000 units are produced. It sold 35,000 units during the year. Calculate the variable cost per unit.

A) $9
B) $12
C) $6
D) $3

Question 25

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

A) Fixed cost
B) Variable cost
C) Mixed cost
D) Period cost

Question 26

The relevant range of Orleans Company is between 100,000 units and 180,000 units per month. If the company produces beyond 180,000 units per month:

A) the fixed costs will remain the same, but the variable cost per unit may change.
B) the fixed costs may change, but the variable cost per unit will remain the same.
C) the fixed costs and the variable cost per unit will not change.
D) both the fixed costs and the variable cost per unit may change.

Question 27

The phone bill for an accounting firm consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. $\begin{array}{|l|r|r|} \hline& \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 3,000 \\\hline \text { February } & 200 & \$ 2,673 \\\hline \text { March } & 160 & \$ 2,625 \\\hline \text { April } & 300 & \$ 2,800 \\\hline\end{array}$

-If the company uses 380 minutes in May, how much will the total bill be?

A) $2,425
B) $2,478
C) $2,900
D) $3767

Question 28

Anthony Company's highest point of total cost was $75,000 in June. Their point of lowest cost was $50,000 in December. The company makes a single product. Production volume in June and December were 13,000 and 8,000 units, respectively. What is the fixed cost per month?

A) $50,000
B) $20,000
C) $10,000
D) $8,000

Question 29

First Buy Company provided the following manufacturing costs for the month of June. $$\begin{array} { | l | r | } \hline \text { Direct labor cost } & \$ 136,000 \\\hline \text { Direct materials cost } & 80,000 \\\hline \text { Equipment depreciation (straight-line) } & 24,000 \\\hline \text { Factory insurance } & 19,000 \\\hline \text { Factory manager's salary } & 12,800 \\\hline \text { Tanitor's salary } & 5,000 \\\hline \text { Packaging costs } & 18,800 \\\hline \text { Property taxes } & 16,000 \\\hline\end{array}$$

-From the above information, calculate First Buy's total variable costs.

A) $311,600
B) $62,300
C) $234,800
D) $38,400

Question 30

Which of the following costs does not change in total despite changes in volume?

A) Fixed cost
B) Variable cost
C) Mixed cost
D) Total production cost

Question 31

Costs that have both variable and fixed components are called:

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

Question 32

Venus Inc. has fixed costs of $300,000. Total costs, both fixed and variable, are $450,000 when 30,000 units are produced. Calculate the total costs if the volume increases to 60,000 units.

A) $750,000
B) $1,200,000
C) $600,000
D) $450,000

Question 33

First Buy Company provided the following manufacturing costs for the month of June. $$\begin{array} { | l | r | } \hline \text { Direct labor cost } & \$ 136,000 \\\hline \text { Direct materials cost } & 80,000 \\\hline \text { Equipment depreciation (straight-line) } & 24,000 \\\hline \text { Factory insurance } & 19,000 \\\hline \text { Factory manager's salary } & 12,800 \\\hline \text { Tanitor's salary } & 5,000 \\\hline \text { Packaging costs } & 18,800 \\\hline \text { Property taxes } & 16,000 \\\hline\end{array}$$

-From the above information, calculate First Buy's total fixed costs.

A) $311,600
B) $52,800
C) $71,600
D) $76,800

Question 34

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total costs would:

A) increase by 20%.
B) remain the same.
C) increase by an amount less than 20%.
D) decrease by 20%.

Question 35

The phone bill for an accounting firm consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. $\begin{array}{|l|r|r|} \hline& \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 3,000 \\\hline \text { February } & 200 & \$ 2,673 \\\hline \text { March } & 160 & \$ 2,625 \\\hline \text { April } & 300 & \$ 2,800 \\\hline\end{array}$

- What is the variable cost per minute?

A) $1.25
B) $0.67
C) $1.08
D) $0.58

Question 36

Williams Company has variable costs of $0.60 per unit of product. In August, the volume of production was 24,000 units and units sold were 20,000. The total production costs incurred were $31,900. What are the fixed costs per month?

A) $17,500
B) $19,900
C) $9,600
D) $14,400

Question 37

Anthony Company's highest point of total cost was $75,000 in June. Their point of lowest cost was $50,000 in December. The company makes a single product. Production volume in June was 13,000 units; production volume in December was 8,000 units. What is the variable cost per unit?

A) $9.38 per unit
B) $6.25 per unit
C) $5.00 per unit
D) $5.77 per unit

Question 38

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would:

A) increase by 20%.
B) remain the same.
C) increase by an amount less than 20%.
D) decrease by 20%.

Question 39

Which of the following costs remains the same irrespective of the changes in production?

A) Total mixed costs
B) Total operating costs
C) Total variable costs
D) Total fixed costs

Question 40

Anthony Company has fixed costs of $30,000 per month. Highest production volume during the year was in January when 100,000 units were produced, 75,000 units were sold, and total costs of $630,000 were incurred. In June, the company produced only 55,000 units. What was the total cost incurred in June?

A) $480,000
B) $360,000
C) $630,000
D) $830,000

Question 41

Contribution margin ratio is equal to:

A) fixed costs divided by contribution margin per unit.
B) net sales revenue per unit minus variable costs per unit.
C) net sales revenue minus variable costs.
D) contribution margin divided by net sales revenue.

Question 42

Which of the following is the right formula for calculating total mixed cost?

A) Total mixed cost = (Variable cost per unit ÷ Number of units) + Total fixed cost
B) Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost
C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost
D) Total mixed cost = (Variable cost per unit ÷ Number of units) - Total fixed cost

Question 43

Which of the following is a period cost?

A) Manufacturing overhead
B) Direct labor cost
C) Direct materials cost
D) Administrative cost

Question 44

Contribution margin ratio is the ratio of contribution margin to:

A) net sales revenue.
B) cost of goods sold.
C) total variable costs.
D) total fixed costs.

Question 45

A(n) ________ groups cost by behavior; that is, costs are classified as either variable costs or fixed costs.

A) balance sheet
B) contribution margin income statement
C) traditional income statement
D) absorption costing income statement

Question 46

Which of the following appears as a line item in a contribution margin income statement?

A) Gross profit
B) Cost of goods sold
C) Operating income
D) Selling and administrative expenses

Question 47

In the graph below, the area between the lines AC and OB after point 'E' represents:

A) fixed costs.
B) breakeven point.
C) operating loss.
D) operating income.

Question 48

Contribution margin is the difference between net sales revenue and variable costs.

Question 49

From the graph given below, identify the sales revenue line.

A) OB
B) AC
C) AD
D) AE

Question 50

From the graph given below, identify the fixed costs line.

A) OB
B) AC
C) AD
D) AE

Question 51

Arturo Company's Model A generator sells for $456, and Model B sells for $390. The variable cost of Model A is $404 and of Model B is $320. If Arturo sells more of Model B than Model A, it will generate lower revenues, but higher net income.

Question 52

Arturo Company's Model A generator sells for $456 and Model B sells for $390. The variable cost of Model A is $404 and of Model B is $320. If Arturo Company's sales incentives reward sales of the goods with the highest contribution margin, the sales force will be motivated to push sales of Model A more aggressively than Model B.

Question 53

The dollar amount that provides for covering fixed costs and then provides for operating income is called:

A) variable cost.
B) total cost.
C) contribution margin.
D) margin of safety.

Question 54

A contribution margin income statement classifies costs by function; that is, costs are classified as either product costs or period costs.

Question 55

Identify the breakeven point in the graph given below.

A) O
B) E
C) D
D) B

Question 56

When the total variable costs are deducted from total mixed costs, we obtain:

A) mixed cost per unit.
B) variable cost per unit.
C) total high-low costs.
D) total fixed costs.

Question 57

If the selling price of Product X is $15.50 per unit and unit fixed cost is $5.50, its contribution margin per unit is $10.00.

Question 58

Contribution margin is the amount that contributes to covering variable costs.

Question 59

Young Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 40 \\\hline \text { Variable cost per unit } & 12 \\\hline \text { Fixed costs per month } & \$ 10,000 \\\hline\end{array}$$

- Calculate the contribution margin per unit.

A) $28
B) $40
C) $52
D) $16

Question 60

Both the traditional income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.

Question 61

Which of the following formulae is the right formula for calculating contribution margin ratio?

A) Contribution margin ratio = Contribution margin + Net sales revenue
B) Contribution margin ratio = Contribution margin ÷ Net sales revenue
C) Contribution margin ratio = Contribution margin × Net sales revenue
D) Contribution margin ratio = Contribution margin - Net sales revenue

Question 62

A CVP graph shows how changes in the level of sales will affect profits.

Question 63

The fundamental assumption of cost-volume-profit (CVP) analysis is that in the long-run fixed costs become variable costs.

Question 64

Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $5,000. The contribution margin ratio is calculated to be 20%. What is the variable cost per shirt?

A) $32 per shirt
B) $48 per shirt
C) $40 per shirt
D) $38 per shirt

Question 65

One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in the:

A) accounts payable.
B) cash balance.
C) inventory levels.
D) accounts receivables.

Question 66

Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per unit. Calculate the total contribution margin.

A) $70,000
B) $30,000
C) $40,000
D) $20,000

Question 67

Margaret sells hand-knit scarves at the flea market. Each scarf sells for $25. Margaret pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. What total revenue amount does she need to earn to break even?

A) $85
B) $75
C) $50
D) $100

Question 68

Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per unit. The monthly fixed costs are $10,000. What is the operating income earned in October?

A) $30,000
B) $70,000
C) $20,000
D) $40,000

Question 69

The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.

Question 70

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Question 71

If all other factors remain constant, an increase in fixed costs will increase the breakeven point.

Question 72

Young Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 40 \\\hline \text { Variable cost per unit } & 12 \\\hline \text { Fixed costs per month } & \$ 10,000 \\\hline\end{array}$$

- What is the contribution margin ratio?

A) 12%
B) 60%
C) 40%
D) 70%

Question 73

Pluto Company sells a product for $80 per unit. Variable costs are $25 per unit and fixed costs are $4,000 per month. Pluto sold 2,000 units in October, 2014. Prepare an income statement for October using the contribution margin format.

Question 74

The sales level at which operating income is zero is called breakeven point.

Question 75

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Question 76

Fixed costs divided by contribution margin per unit equals breakeven point in unit sales.

Question 77

Margaret sells hand-knit scarves at a flea market. Each scarf sells for $25. Margaret pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. How many scarves should she sell each day in order to break even?

A) 4 scarves
B) 3 scarves
C) 5 scarves
D) 2 scarves

Question 78

CVP analysis assumes that the selling price per unit does not change as volume changes.

Question 79

Garcia Company provides the following information about its product: $$\begin{array} { | l | r | } \hline \text { Targeted operating income } & \$ 50,000 \\\hline \text { Selling price per unit } & 6.00 \\\hline \text { Variable cost per unit } & 1.50 \\\hline \text { Total fixed costs } & 125,000 \\\hline\end{array}$$ What is the contribution margin ratio?

A) 75%
B) 100%
C) 125%
D) 25%

Question 80

The breakeven point represents the sales volume at which the company's net income is zero.