Deck 21: Cost-Volume-Profit Analysis

Question 1

During the current year,Albee Company incurred $7,000 of fixed and $16,000 variable costs.If the number of units produced is halved next year,the company will incur $3,500 as fixed and $8,000 as variable costs.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Fixed costs per unit decrease as production levels decrease.

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

Assume that Anna's cellphone service provider charges $6 per month and $0.4 per minute per call.If Anna's current bill is $80,how many calling minutes did Anna use?

A) 220 minutes
B) 200 minutes
C) 185 minutes
D) 170 minutes

Question 8

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

Question 9

Which of the following is a variable cost?

A) rent expense
B) salary of plant manager
C) direct labor costs
D) straight-line depreciation expense

Question 10

A 10% increase in production volume will result in a ________.

A) 10% increase in the variable cost per unit
B) 10% increase in total mixed costs
C) 10% increase in total administration costs
D) 10% increase in total variable costs

Question 11

Miranda was reviewing the water bill for her dog day care and spa and determined that her highest bill,$5,000,occurred in July when she washed 500 dogs and her lowest bill,$3,600,occurred in February when she washed 325 dogs.What was the variable cost per dog associated with Miranda's water bill?

A) $7.20
B) $11.08
C) $10.00
D) $8.00

Question 12

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

Question 13

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 14

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

Question 15

Variable cost per unit is constant throughout various relevant ranges.

Question 16

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

Question 17

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

Question 18

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

Question 19

Miranda was reviewing the water bill for her dog day care and spa and determined that her highest bill,$4,600,occurred in July when she washed 500 dogs and her lowest bill,$3,200,occurred in February when she washed 175 dogs.What was the fixed cost associated with Miranda's water bill?

A) $3,845.75
B) $4,600
C) $2,445
D) $4.31

Question 20

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 21

Franco Company has variable costs of $0.65 per unit of product.In October,the volume of production was 24,000 units and units sold were 23,000.The total production costs incurred were $32,200.What are the fixed costs per month?

A) $16,600
B) $17,250
C) $8,400
D) $15,600

Question 22

Grimes Company incurred fixed costs of $310,000.Total costs,both fixed and variable,are $480,000 when 50,000 units are produced.It sold 40,000 units during the year.Calculate the variable cost per unit.

A) $9.60
B) $4.25
C) $6.20
D) $3.40

Question 23

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 24

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 25

Hooper Business Machines provided the following manufacturing costs for the month of March. $$\begin{array} { | l | r | } \hline \text { Direct labor cost } & \$ 140,000 \\\hline \text { Direct materials cost } & 85,000 \\\hline \text { Equipment depreciation (straight-line) } & 28,000 \\\hline \text { Factory insurance } & 21,000 \\\hline \text { Factory manager's salary } & 13,000 \\\hline \text { Janitor's salary } & 5,100 \\\hline \text { Packaging costs } & 18,800 \\\hline \text { Property taxes } & 16,300 \\\hline\end{array}$$ From the above information,calculate Hooper's total fixed costs.

A) $327,200
B) $57,300
C) $76,100
D) $83,400

Question 26

Haywood Company has fixed costs of $30,000 per month.Highest production volume during the year was in January when 110,000 units were produced,90,000 units were sold,and total costs of $650,000 were incurred.In June,the company produced only 60,000 units.What was the total cost incurred in June?

A) $537,600
B) $368,400
C) $650,000
D) $433,333

Question 27

Mendoza Company's highest point of total cost was $85,000 in June.Their point of lowest cost was $60,000 in January.The company makes a single product.Production volume in June was 14,000 units; production volume in January was 8,000 units.What is the variable cost per unit?

A) $10.63 per unit
B) $2.33 per unit
C) $4.17 per unit
D) $6.07 per unit

Question 28

Dayton Company has fixed costs of $350,000.Total costs,both fixed and variable,are $450,000 when 40,000 units are produced.Calculate the total costs if the volume increases to 65,000 units.Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.

A) $800,000
B) $1,062,500
C) $512,500
D) $450,000

Question 29

Costs that have both variable and fixed components are called ________.

A) fixed costs
B) variable costs
C) mixed costs
D) contribution costs

Question 30

The phone bill for Ace Accounting consists of both fixed and variable costs.Refer to the four month data below and apply the high-low method to answer the question.(Round your intermediate calculations to two decimal places.) $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { May } & 480 & \$ 3,400 \\\hline \text { June } & 210 & \$ 2,680 \\\hline \text { July } & 175 & \$ 2,650 \\\hline \text { August } & 330 & \$ 2,875 \\\hline\end{array}$$ What is the fixed portion of the total cost?

A) $976.90
B) $1,788.70
C) $2,219.20
D) $2,650.00

Question 31

Kelley Business Machines provided the following manufacturing costs for the month of March. $$\begin{array} { | l | r | } \hline \text { Direct labor cost } & \$ 140,000 \\\hline \text { Direct materials cost } & 85,000 \\\hline \text { Equipment depreciation (straight-line) } & 25,000 \\\hline \text { Factory insurance } & 20,000 \\\hline \text { Factory manager's salary } & 13,300 \\\hline \text { Janitor's salary } & 5,500 \\\hline \text { Packaging costs } & 18,800 \\\hline \text { Property taxes } & 16,100 \\\hline\end{array}$$ From the above information,calculate Kelley's total variable costs.Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.

A) $323,700
B) $225,000
C) $243,800
D) $230,500

Question 32

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 33

Mendoza Company's highest point of total cost was $80,000 in June.Their point of lowest cost was $65,000 in January.The company makes a single product.Production volume in June and January were 16,000 and 8,000 units,respectively.What is the fixed cost per month?

A) $65,000
B) $64,960
C) $49,920
D) $50,000

Question 34

Pfeiffer Company incurs both fixed and variable production costs.Assuming the production is within the relevant range,if volume goes up by 25%,then the total costs would ________.

A) increase by 25%
B) remain the same
C) increase by an amount less than 25%
D) decrease by 25%

Question 35

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 36

Patel Company incurs both fixed and variable production costs.Assuming the production is within the relevant range,if volume goes up by 15%,then the total fixed costs would ________.

A) increase by 15%
B) remain the same
C) increase by an amount less than 15%
D) decrease by 15%

Question 37

The relevant range of Zhang Company is between 110,000 units and 190,000 units per month.If the company produces beyond 190,000 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 38

The phone bill for Laurel Accounting consists of both fixed and variable costs.Refer to the four month data below and apply the high-low method to answer the question.(Round your calculation to two decimal places.) $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { May } & 480 & \$ 3,000 \\\hline \text { June } & 240 & \$ 2,675 \\\hline \text { July } & 160 & \$ 2,640 \\\hline \text { August } & 320 & \$ 2,880 \\\hline\end{array}$$ What is the variable cost per minute?

A) $1.13
B) $0.38
C) $1.02
D) $0.75

Question 39

The phone bill for a law firm consists of both fixed and variable costs.Refer to the four month data below and apply the high-low method to answer the question. $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { May } & 490 & \$ 3,200 \\\hline \text { June } & 210 & \$ 2,700 \\\hline \text { July } & 160 & \$ 2,650 \\\hline \text { August } & 330 & \$ 2,800 \\\hline\end{array}$$ If the company uses 390 minutes in September,how much will the total bill be? (Round your intermediate calculations to two decimal places.)

A) $2,381.70
B) $2,587.23
C) $3,033.00
D) $3,356.70

Question 40

Patel Company incurs both fixed and variable production costs.Assuming the production is within the relevant range,if volume goes up by 15%,then the total variable costs would ________.

A) increase by 15%
B) remain the same
C) increase by an amount less than 15%
D) decrease by 15%

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

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

Question 43

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 44

The Button-Down Custom Co.sells hand-sewn shirts for $40 per shirt.It incurs monthly fixed costs of $7,000.The contribution margin ratio is calculated to be 30%.What is the variable cost per shirt?

A) $28.00 per shirt
B) $52.00 per shirt
C) $40 per shirt
D) $70.00 per shirt

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 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 47

Which of the following is a period cost?

A) manufacturing overhead
B) direct labor cost
C) direct materials cost
D) administrative cost

Question 48

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 49

Johar Company provides the following information about its product: $$\begin{array} { | l | r | } \hline \text { Targeted operating income } & \$ 65,000 \\\hline \text { Selling price per unit } & 12.00 \\\hline \text { Variable cost per unit } & 1.80 \\\hline \text { Total fixed costs } & 130,000 \\\hline\end{array}$$
What is the contribution margin ratio?

A) 85%
B) 100%
C) 118%
D) 15%

Question 50

Herrera Company's Model A generator sells for $569 and Model B sells for $499.The variable cost of Model A is $514 and of Model B is $416.If Herrera 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 51

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

Question 52

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 53

Both the traditional income statement approach and the contribution margin approach will yield the same answer for net income.

Question 54

Ito Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 48 \\\hline \text { Variable cost per unit } & 18 \\\hline \text { Fixed costs per month } & \$ 20,000 \\\hline\end{array}$$ What is the contribution margin ratio?

A) 18%
B) 38%
C) 48%
D) 63%

Question 55

Morrell Company's Model A generator sells for $569,and Model B sells for $499.The variable cost of Model A is $514 and of Model B is $416.If Morrell sells more of Model B than Model A,it will generate lower revenues,but higher net income.

Question 56

Neptune Company sold 2,200 units in November at a price of $45 per unit.The variable cost is $20 per unit.Calculate the total contribution margin.

A) $99,000
B) $55,000
C) $44,000
D) $143,000

Question 57

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

Question 58

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 59

Ito Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 42 \\\hline \text { Variable cost per unit } & 16 \\\hline \text { Fixed costs per month } & \$ 25,000 \\\hline\end{array}$$ Calculate the contribution margin per unit.

A) $26
B) $42
C) $58
D) $10

Question 60

If the selling price of Product A1 is $10.50 per unit and unit fixed cost is $5.50,its contribution margin per unit is $5.00.

Question 61

Which of the following the correct 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

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

Question 63

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

Question 64

Paulson Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 50 \\\hline \text { Variable cost per unit } & 15 \\\hline \text { Fixed costs per month } & \$ 16,000 \\\hline\end{array}$$ What is the amount of sales in dollars required for Paulson to break even?

A) $4,800
B) $22,857
C) $53,333
D) $16,000

Question 65

Lori sells hand-knit scarves at a flea market.Each scarf sells for $35.Lori pays $70 to rent a vending space for one day.The variable costs are $20 per scarf.How many scarves should she sell each day in order to break even?

A) 35 scarves
B) 5 scarves
C) 7 scarves
D) 4 scarves

Question 66

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

Question 67

Tanaka Company has fixed costs of $14,000.Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%.What is the breakeven point in sales dollars?

A) $70,000
B) $35,000
C) $5,600
D) $2,800

Question 68

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

Question 69

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 70

Iversen Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Price per unit } & \$ 42 \\\hline \text { Variable cost per unit } & 15 \\\hline \text { Fixed costs per month } & \$ 16,000 \\\hline\end{array}$$ What are the required sales in units for Iversen to break even?

A) 381 units
B) 1,067 units
C) 281 units
D) 593 units

Question 71

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

Question 72

A cost-volume-profit (CVP)graph shows how changes in the level of sales will affect profits.

Question 73

Clausen Company sells a product for $70 per unit.Variable costs are $25 per unit and fixed costs are $8,000 per month.Clausen sold 1,000 units in April,2017.Prepare an income statement for April using the contribution margin format.

Question 74

Lacey sells hand-knit scarves at the flea market.Each scarf sells for $50.Lacey 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) $45
B) $43
C) $100
D) $93

Question 75

Neptune Company sold 4,000 units in November at a price of $35 per unit.The variable cost is $22 per unit.The monthly fixed costs are $10,000.What is the operating income earned in November?

A) $52,000
B) $140,000
C) $42,000
D) $88,000

Question 76

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

Question 77

Cost-volume-profit (CVP)analysis assumes that the selling price per unit does not change as volume changes.

Question 78

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

Question 79

Caty Couture sells designer shirts for $43 per shirt.It incurs monthly fixed costs of $7,000.The contribution margin ratio is calculated to be 20%.What is the breakeven point in units?

A) 163 units
B) 131 units
C) 5,600 units
D) 814 units

Question 80

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