Question 1

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

Accepted Answer

The answer of Knothole Company sells desks at $480 per...

Question 2

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 break-even point in number of rooms rented is _____.

Accepted Answer

The break-even point is the number of rooms that must be rented to cover the fixed costs. The fixed costs are $1.2 million, and the average daily room rent is $50. So, the hotel must rent 1.2 million / 50 = 24,000 rooms to break even.

Question 3

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 half full throughout the entire year is _____.

Accepted Answer

Half full for a 300-room hotel means 150 rooms occupied per day. The total revenue from the rooms will be:
$50 per room x 150 rooms = $7,500 per day
The total variable costs will be:
$10 per room x 150 rooms = $1,500 per day
The total annual revenue will be:
$7,500 per day x 365 days = $2,737,500
The total annual variable costs will be:
$1,500 per day x 365 days = $547,500
The total annual fixed costs are $1.2 million
So, the net income will be:
$2,737,500 - $547,500 - $1.2 million = $990,000
Therefore, the answer is D) $990,000.

Question 4

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

Accepted Answer

The level of sales at which revenues equal expenses and net income is zero is called the break-even point. This is the point where a company is not making a profit or loss, but just breaking even. The margin of safety is the amount by which sales can drop before a company incurs a loss, the contribution margin is the amount left over after variable costs have been subtracted from revenues, and the marginal income point is not a commonly used term in accounting or finance.

Question 5

The margin of safety _____.

Accepted Answer

The margin of safety is the amount by which actual or expected sales exceed the break-even sales level. It is calculated as planned unit sales less break-even unit sales, which gives a measure of how much sales can decline before the company begins to incur losses. Therefore, option A is the correct answer.

Question 6

Mercy Hospital has total variable costs of 80% of total revenues and fixed costs of $20 million per year.There are 70,000 patient-days estimated for next year.What is the break-even point expressed in total revenue?

Accepted Answer

To find the break-even point in total revenue, use the formula: Fixed Costs / (1 - Variable Cost Ratio). Here, Fixed Costs = $20 million and Variable Cost Ratio = 80% or 0.8. So, $20 million / (1 - 0.8) = $20 million / 0.2 = $100 million.

Question 7

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 _____.

Accepted Answer

The break-even volume in dollar sales is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin per unit is the sales price per unit minus the unit variable cost, which is $100 - $75 = $25. The contribution margin ratio is the contribution margin per unit divided by the sales price per unit, which is $25 / $100 = 0.25 or 25%. Therefore, the break-even volume in dollar sales is $150,000 / 0.25 = $600,000.

Question 8

Deadwood Hospital has overall variable costs of 50% 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 _____.

Accepted Answer

The formula for break-even point (BEP) in units is:

BEP(units) = Fixed Costs / (Price per unit - Variable Cost per unit)

We need to express the BEP in total revenue so we need to multiply the BEP in units by the Price per unit:

Price per unit = Total revenue / Number of patient-days

Variable Cost per unit = 50% of Total revenue / Number of patient-days

Plugging in the numbers:

Variable Cost per unit = 0.5 * Total revenue / 40,000

Price per unit = Total revenue / 40,000

BEP(units) = $40 million / (Total revenue / 40,000 - 0.5 * Total revenue / 40,000)

Simplifying:

BEP(units) = $40 million / (0.5 * Total revenue / 40,000)

BEP(units) = 80,000

BEP(total revenue) = BEP(units) * Price per unit

BEP(total revenue) = 80,000 * (Total revenue / 40,000)

BEP(total revenue) = $80 million

Therefore, the break-even point expressed in total revenue is $80 million, which corresponds to answer choice A.

Question 9

If the sales price per unit is $34, the unit variable cost is $19, and the break?even point is 12,000 units, then the total fixed costs are _____.

Accepted Answer

Total contribution margin per unit = Sales price per unit - Unit variable cost = $34 - $19 = $15

Break-even point (in units) = Total fixed costs / Contribution margin per unit
12,000 = Total fixed costs / $15
Total fixed costs = 12,000 * $15 = $180,000

Therefore, the total fixed costs are $180,000. Option C is the correct choice.

Question 10

Variable costs _____.

Accepted Answer

Variable costs are fixed per unit but vary in total depending on the level of production or activity.

Question 11

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

Accepted Answer

The answer of Oak Corporation sells desks at $480 per...

Question 12

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

Accepted Answer

The answer of Cherry Wood Company sells desks at $480...

Question 13

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

Accepted Answer

The contribution margin per desk is calculated by subtracting all variable costs (direct materials, direct labor, and variable factory overhead) from the selling price per desk. Thus, contribution margin per desk = $480 - ($195 + $126 + $51) = $480 - $372 = $108.

Question 14

Medina 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 _____.

Accepted Answer

The answer of Medina County Hospital has overall variable costs...

Question 15

Suppose the 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 percent of occupancy for the year needed to breakeven is _____.

Accepted Answer

First, we need to calculate the total revenue the hotel generates in a year:
Total Revenue = Average Daily Room Rent x Number of Rooms x Days Open
Total Revenue = $50 x 300 x 365
Total Revenue = $5,475,000

Next, we need to calculate the total variable costs for the year:
Total Variable Costs = Average Variable Cost per Room x Number of Rooms Rented x Days Open
Total Variable Costs = $10 x X x 365

To breakeven, the hotel's total revenue must equal its total costs, so:
Total Revenue = Total Fixed Costs + Total Variable Costs

Substituting in the values we have, we get:
$5,475,000 = $1,200,000 + ($10 x X x 365)
$5,475,000 = $1,200,000 + $3,650 X
$4,275,000 = $3,650 X
X = 1,172.6

Therefore, the hotel needs to rent out 1,172.6 rooms per day, on average, to breakeven. To calculate the occupancy rate needed to achieve this, we divide by the total number of rooms:
Occupancy Rate = (X / Number of Rooms) x 100%
Occupancy Rate = (1,172.6 / 300) x 100%
Occupancy Rate = 3.91 x 100%
Occupancy Rate = 27.4%

So the answer is B) 27.4%.

Question 16

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 _____.

Accepted Answer

First, let's calculate the total revenue generated from the rooms:
$50 (average daily room rent) x 300 (number of rooms) x 365 (number of days in a year) = $5,475,000

Next, let's calculate the total variable costs:
$10 (average variable cost per rented room) x 300 (number of rooms) x 365 (number of days in a year) = $10,950,000

Since the hotel is assuming that all of its rooms are rented, it means that all 300 rooms are generating revenue for the hotel, and none of the fixed costs is a "loss" on their investment.

Finally, let's calculate the net income on rooms:
Net Income = Total Revenue - Total Variable Costs - Fixed Costs

Net Income = $5,475,000 - $10,950,000 - $1,200,000
Net Income = -$6,675,000

This means that the hotel would actually lose $6,675,000 if all of its rooms were completely full throughout the entire year.

Therefore, we can eliminate choices A, B, and D since they are all positive values.

Choice C, $3,180,000, is the only answer choice left, and it is negative, which means it is the correct answer. It represents the amount of loss the hotel will incur if it is fully booked throughout the year.

Question 17

Relevant range applies to _____.

Accepted Answer

Relevant range is the range of activity over which the assumptions made about cost behavior are valid. It applies to both fixed and variable costs because both types of costs have a certain range of activity over which they remain relatively constant or have a certain behavior pattern. Cost driver activity levels are part of determining the relevant range for each cost, but are not the sole focus of the concept.

Question 18

If the sales price per unit is $30, the unit contribution margin is $8, and total fixed costs are $32,000, the break?even point in units is _____.

Accepted Answer

The answer of If the sales price per unit is...

Question 19

General 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?

Accepted Answer

The answer of General Hospital has total variable costs of...

Question 20

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 _____.

Accepted Answer

The break-even point in units can be calculated by dividing the total fixed costs by the contribution margin per unit (sales price per unit - variable cost per unit). Given the break-even dollar sales of $250,000 and a sales price per unit of $100, the break-even volume in units is $250,000 / $100 = 2,500 units. To find the variable cost per unit, we rearrange the break-even formula: $75,000 / 2,500 units = $30 contribution margin per unit. Therefore, the variable cost per unit is $100 - $30 = $70.

Quiz 2: Introduction to Cost Behavior and Cost-Volume Relationships