Question 1

Cost behavior refers to the manner in which a cost changes as the related activity changes.

Accepted Answer

A) True 
 B)False

Question 2

A low operating leverage is normal for highly automated industries.

Accepted Answer

A) True 
 B)False

Question 3

Garmo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%.

Accepted Answer

A) True 
 B)False

Question 4

If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?

Accepted Answer

A)  $1,250,000 
B)  $450,000 
C)  $1,875,000 
D)  $300,000 
A)  $1,250,000 
B)  $450,000 
C)  $1,875,000 
D)  $300,000

Question 5

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 is 25%.

Accepted Answer

A) True 
 B)False

Question 6

A cost that has characteristics of both a variable cost and a fixed cost is called a

Accepted Answer

A)  variable/fixed cost 
B)  mixed cost 
C)  discretionary cost 
D)  sunk cost 
A)  variable/fixed cost 
B)  mixed cost 
C)  discretionary cost 
D)  sunk cost

Question 7

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.

Accepted Answer

A) True 
 B)False

Question 8

If fixed costs are $850,000 and the unit contribution margin is $50, profit is $0 when 15,000 units are sold.

Accepted Answer

A) True 
 B)False

Question 9

The contribution margin ratio is the

Accepted Answer

A)  same as the variable cost ratio 
B)  same as profit 
C)  portion of equity contributed by stockholders 
D)  same as the profit-volume ratio 
A)  same as the variable cost ratio 
B)  same as profit 
C)  portion of equity contributed by stockholders 
D)  same as the profit-volume ratio

Question 10

Which of the following conditions would cause the break-even point to increase?

Accepted Answer

A)  total fixed costs increase 
B)  unit selling price increases 
C)  unit variable cost decreases 
D)  total fixed costs decrease 
A)  total fixed costs increase 
B)  unit selling price increases 
C)  unit variable cost decreases 
D)  total fixed costs decrease

Question 11

Which of the following statements is true regarding fixed and variable costs?

Accepted Answer

A)  Both costs are constant when considered on a per-unit basis. 
B)  Both costs are constant when considered on a total basis. 
C)  Fixed costs are constant in total, and variable costs are constant per unit. 
D)  Variable costs are constant in total, and fixed costs vary in total. 
A)  Both costs are constant when considered on a per-unit basis. 
B)  Both costs are constant when considered on a total basis. 
C)  Fixed costs are constant in total, and variable costs are constant per unit. 
D)  Variable costs are constant in total, and fixed costs vary in total.

Question 12

Absorption costing is required for financial reporting under generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 13

Tom Company reports the following data:Sales$600,000Variable costs400,000Fixed costs100,000Determine Tom Company's operating leverage. If required, round answer to nearest whole number.

Accepted Answer

($600,000 - $400,000

Question 14

In a cost-volume-profit chart, the

Accepted Answer

A)  total cost line begins at zero 
B)  slope of the total cost line is dependent on the fixed cost per unit 
C)  total cost line begins at the total fixed cost value on the vertical axis 
D)  total cost line normally ends at the highest sales value 
A)  total cost line begins at zero 
B)  slope of the total cost line is dependent on the fixed cost per unit 
C)  total cost line begins at the total fixed cost value on the vertical axis 
D)  total cost line normally ends at the highest sales value

Question 15

If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Accepted Answer

A) True 
 B)False

Question 16

The cost graphs below show various types of cost behaviors.For each of the following costs, identify the cost graph that best describes its cost behavior as the number of units produced and sold increases:   (a)Sales commissions of $6,000 plus $0.05 for each item sold
(b)Rent on warehouse of $12,000 per month
(c)Insurance costs of $2,500 per month
(d)Per-unit cost of direct labor
(e)Total salaries of quality control supervisors 
(One supervisor must be added for each additional work shift.)
(f)Total employer pension costs of $0.35 per direct labor hour
(g)Per-unit straight-line depreciation costs
(h)Per-unit cost of direct materials
(i)Total direct materials cost
(j)Electricity costs of $5,000 per month plus $0.0004 per kilowatt-hour
(k)Per-unit cost of plant superintendent's salary
(l)Salary of the night-time security guard of $3,800 per month
(m)Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine usage
(n)Total direct labor cost
(o)Straight-line depreciation on factory equipment

Accepted Answer

The answer of The cost graphs below show various types...

Question 17

The three most common cost behavior classifications are

Accepted Answer

A)  variable costs, product costs, and sunk costs 
B)  fixed costs, variable costs, and mixed costs 
C)  variable costs, period costs, and differential costs 
D)  variable costs, sunk costs, and opportunity costs 
A)  variable costs, product costs, and sunk costs 
B)  fixed costs, variable costs, and mixed costs 
C)  variable costs, period costs, and differential costs 
D)  variable costs, sunk costs, and opportunity costs

Question 18

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what are the break-even sales in units (rounded to a whole number)?

Accepted Answer

A)  3,425 units 
B)  2,381 units 
C)  2,000 units 
D)  4,808 units 
A)  3,425 units 
B)  2,381 units 
C)  2,000 units 
D)  4,808 units

Question 19

The point where the profit line intersects the horizontal axis on the profit-volume chart represents the

Accepted Answer

A)  maximum possible operating loss 
B)  maximum possible operating income 
C)  total fixed costs 
D)  break-even point 
A)  maximum possible operating loss 
B)  maximum possible operating income 
C)  total fixed costs 
D)  break-even point

Question 20

If fixed costs increased and variable costs per unit decreased, the break-even point

Accepted Answer

A)  would increase 
B)  would decrease 
C)  would remain the same 
D)  cannot be determined from the data provided 
A)  would increase 
B)  would decrease 
C)  would remain the same 
D)  cannot be determined from the data provided

Exam 21: Cost-Volume-Profit Analysis

Cost behavior refers to the manner in which a cost changes as the related activity changes.

A low operating leverage is normal for highly automated industries.

Garmo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%.

If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?

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 is 25%.

A cost that has characteristics of both a variable cost and a fixed cost is called a

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.

If fixed costs are $850,000 and the unit contribution margin is $50, profit is $0 when 15,000 units are sold.

The contribution margin ratio is the

Which of the following conditions would cause the break-even point to increase?

Which of the following statements is true regarding fixed and variable costs?

Absorption costing is required for financial reporting under generally accepted accounting principles.

Tom Company reports the following data:Sales$600,000Variable costs400,000Fixed costs100,000Determine Tom Company's operating leverage. If required, round answer to nearest whole number.

In a cost-volume-profit chart, the

If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units.

The three most common cost behavior classifications are

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what are the break-even sales in units (rounded to a whole number)?

The point where the profit line intersects the horizontal axis on the profit-volume chart represents the

If fixed costs increased and variable costs per unit decreased, the break-even point

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Evaluating Variances From Standard Costs

Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

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