Question 1

If the unit selling price is $50, the volume of sales is $450,000, sales at the break-even point amount to $375,000, and the maximum possible sales are $550,000, the margin of safety will be 2,000 units.

Accepted Answer

The margin of safety can be calculated as the difference between actual or projected sales and the sales at the break-even point, divided by actual or projected sales. Using the given numbers:

Margin of safety = (550,000 - 375,000) / 550,000 = 0.318

To convert this to units, we can multiply by the volume of sales:

Margin of safety in units = 0.318 x 450,000 = 143,100

Therefore, the margin of safety is 143,100 units, not 2,000 units.

Question 2

If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety will be 12,500 units.

Accepted Answer

The answer of If the unit selling price is $40,...

Question 3

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

Accepted Answer

The profit-volume chart shows both the total sales revenues and the total costs plotted as separate lines, as well as the resulting profit/loss as a third line.

Question 4

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.

Accepted Answer

A cost-volume-profit (CVP) chart typically includes multiple lines representing various elements such as total sales revenue, total fixed costs, total variable costs, and the total cost line, which is the sum of fixed and variable costs, not just a single line.

Question 5

Cost behavior refers to the manner in which:

Accepted Answer

Cost behavior refers to how a cost changes in response to changes in activity levels. For example, if a cost is variable, it will increase or decrease proportionately as activity levels increase or decrease. If a cost is fixed, it will remain constant regardless of changes in activity levels. Cost behavior is important in understanding how costs will change in response to changes in production or sales levels, which helps in making decisions about pricing, production levels, and budgeting.

Question 6

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Accepted Answer

To earn an operating income of $30,000 with fixed costs of $450,000 and a unit contribution margin of $50, the required sales in units would be calculated as follows: Required sales in units = (Fixed Costs + Desired Operating Income) / Unit Contribution Margin = ($450,000 + $30,000) / $50 = $480,000 / $50 = 9,600 units.

Question 7

Which of the following activity bases would be the most appropriate for food costs of a hospital?

Accepted Answer

The number of patients admitted in the hospital would be the most appropriate activity base to allocate food costs. The food served to patients is an essential component of their healthcare and a significant part of the hospital's operating expenses. Therefore, using the number of patients admitted would provide a more accurate and relevant basis for allocating food costs. The number of cooks scheduled to work or surgeries scheduled would not necessarily reflect the volume of food needed, and the number of x-rays taken has no relation to the hospital's food costs.

Question 8

If the volume of sales is $6,000,000 and sales at the break-even point amount to $5,000,000, the margin of safety will be 20%.

Accepted Answer

The margin of safety is calculated as (Current Sales - Break-even Sales) / Current Sales. So, it would be ($6,000,000 - $5,000,000) / $6,000,000 = 1/6 or approximately 16.67%.

Question 9

If a business sells two products, it is not possible to estimate the break-even point.

Accepted Answer

It is possible to estimate the break-even point for a business selling multiple products. The break-even analysis would take into account the total revenue and total costs for both products combined.

Question 10

Cost-volume-profit analysis can be presented in both graphically and equation form.

Accepted Answer

Cost-volume-profit analysis can be presented graphically through a cost-volume-profit chart or in equation form through the formula Profit = (Sales Revenue - Variable Costs) - Fixed Costs.

Question 11

Which of the following is an example of a cost that remains the same in total as the number of units produced changes?

Accepted Answer

The salary of a factory supervisor remains the same regardless of the number of units produced. Direct labor and direct materials are variable costs that change as the number of units produced changes. Depreciation under units of production method is a variable cost because it is directly related to the number of units produced.

Question 12

Which of the following graphs illustrates the behavior of a total fixed cost within the specified relevant range?

Accepted Answer

Graph 1 shows a horizontal line, indicating that the total fixed cost remains constant regardless of changes in output or activity level within the relevant range. Therefore, Graph 1 best illustrates the behavior of total fixed cost.

Question 13

Which of the following best describes the behavior of the variable cost per unit?

Accepted Answer

The answer of Which of the following best describes the...

Question 14

If a business sells four products, it is not possible to estimate the break-even point.

Accepted Answer

It is possible to estimate the break-even point for a business selling multiple products by calculating the contribution margin for each product and using the weighted average contribution margin to determine the break-even point for the whole business.

Question 15

A low operating leverage is normal for highly automated industries.

Accepted Answer

Highly automated industries typically have high fixed costs due to the expensive equipment and technology required, leading to high operating leverage. Low operating leverage is more characteristic of service-oriented businesses with variable costs.

Question 16

Even if a business sells six products, it is possible to estimate the break-even point.

Accepted Answer

The break-even point can be estimated based on the total costs and revenues of the business, regardless of the number of products sold.

Question 17

Costs that remain constant on a per-unit level as the level of activity changes are called:

Accepted Answer

Variable costs remain constant on a per-unit basis as the level of activity changes, meaning they vary in total but stay the same per unit of production.

Question 18

DeGiaimo Co. has an operating leverage of 5. If next year's sales are expected to increase by 10%, then the company's operating income will increase by 50%.

Accepted Answer

Operating leverage is defined as the percentage change in operating income for a given percentage change in sales. In this case, the operating leverage is 5, which means that for a 10% increase in sales, the operating income will increase by 5 x 10% = 50%. Therefore, the statement is true.

Question 19

If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000, the margin of safety will be 20%.

Accepted Answer

Margin of safety = (Volume of sales - Break-even sales) / Volume of sales
= ($4,000,000 - $3,200,000) / $4,000,000
= $800,000 / $4,000,000
= 0.20 or 20%

Question 20

If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety will be 25%.

Accepted Answer

The margin of safety is calculated as (Current Sales - Break-even Sales) / Current Sales. So, ($6,000,000 - $4,800,000) / $6,000,000 = $1,200,000 / $6,000,000 = 0.2 or 20%.

Quiz 11: Cost Behavior and Cost-Volume-Profit Analysis