Question 1

A cost that has both variable and fixed elements is referred to as a _________________ cost.

Accepted Answer

The answer of A cost that has both variable and...

Question 2

Sam Hummel is considering opening a Kwik Oil Change Center. He estimates that the following costs will be incurred during his first year of operations: Rent $6,000, Depreciation on equipment $7,000, Wages $16,400, Motor oil $1.80 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Kwik Corporation a franchise fee of $1.40 per oil change, since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows:   
Mr. Hummel anticipates that he can provide the oil change service with a filter at $20.00 each.
Instructions
(a) Using the high-low method, determine variable costs per unit and total fixed costs.
(b) Determine the break-even point in number of oil changes and sales dollars.
(c) Without regard to your answers in parts (a) and (b), determine the oil changes required to earn net income of $20,000, assuming fixed costs are $32,000 and the contribution margin per unit is $8.

Accepted Answer

The answer of Sam Hummel is considering opening a Kwik...

Question 3

Which of the following is not a fixed cost?

Accepted Answer

A)  Direct materials 
B)  Depreciation 
C)  Lease charge 
D)  Property taxes 
A)  Direct materials 
B)  Depreciation 
C)  Lease charge 
D)  Property taxes

Question 4

Which one of the following is not an assumption of CVP analysis?

Accepted Answer

A)  All units produced are sold. 
B)  All costs are variable costs. 
C)  Sales mix remains constant. 
D)  The behavior of costs and revenues are linear within the relevant range. 
A)  All units produced are sold. 
B)  All costs are variable costs. 
C)  Sales mix remains constant. 
D)  The behavior of costs and revenues are linear within the relevant range.

Question 5

Polk Company developed the following information for its product:   
Instructions
Answer the following independent questions and show computations using the contribution margin technique to support your answers.
1. How many units must be sold to break even?
2. What is the total sales that must be generated for the company to earn a profit of $60,000?
3. If the company is presently selling 45,000 units, but plans to spend an additional $108,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making?
4. Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $135,000.

Accepted Answer

The answer of Polk Company developed the following information for...

Question 6

The difference between actual or expected sales and break-even sales is called the __________________________.

Accepted Answer

The answer of The difference between actual or expected sales...

Question 7

A cost which remains constant per unit at various levels of activity is a

Accepted Answer

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

Question 8

A variable cost is a cost that

Accepted Answer

A)  varies per unit at every level of activity. 
B)  occurs at various times during the year. 
C)  varies in total in proportion to changes in the level of activity. 
D)  may or may not be incurred, depending on management's discretion. 
A)  varies per unit at every level of activity. 
B)  occurs at various times during the year. 
C)  varies in total in proportion to changes in the level of activity. 
D)  may or may not be incurred, depending on management's discretion.

Question 9

Gibbs Company has a contribution margin of $150,000 and a contribution margin ratio of 30%. How much are total variable costs?

Accepted Answer

A)  $45,000 
B)  $350,000 
C)  $105,000 
D)  $500,000 
A)  $45,000 
B)  $350,000 
C)  $105,000 
D)  $500,000

Question 10

In CVP analysis, the term "cost"

Accepted Answer

A)  includes only manufacturing costs. 
B)  means cost of goods sold. 
C)  includes manufacturing costs plus selling and administrative expenses. 
D)  excludes all fixed manufacturing costs. 
A)  includes only manufacturing costs. 
B)  means cost of goods sold. 
C)  includes manufacturing costs plus selling and administrative expenses. 
D)  excludes all fixed manufacturing costs.

Question 11

Lagerfield Company reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. Assume that Lagerfield increases the selling price of hammers by 10% on June 1. How many hammers will have to be sold in June to maintain the same level of net income?

Accepted Answer

A)  4,000 
B)  4,300 
C)  4,500 
D)  5,000 
A)  4,000 
B)  4,300 
C)  4,500 
D)  5,000

Question 12

An income statement which emphasizes cost behavior is prepared using the _________________________ format.

Accepted Answer

The answer of An income statement which emphasizes cost behavior...

Question 13

Nielsen Company gathered the following information on power costs and factory machine usage for the last six months:   
Instructions
Using the high-low method of analyzing costs, answer the following questions and show computations to support your answers.
(a) What is the estimated variable portion of power costs per factory machine hour?
(b) What is the estimated fixed power cost each month?
(c) If it is estimated that 10,000 factory machine hours will be run in July, what is the expected total power cost for July?

Accepted Answer

The answer of Nielsen Company gathered the following information on...

Question 14

The high-low method is criticized because it

Accepted Answer

A)  is not a graphical method. 
B)  is a mathematical method. 
C)  ignores much of the available data by concentrating on only the extreme points. 
D)  doesn't provide reasonable estimates. 
A)  is not a graphical method. 
B)  is a mathematical method. 
C)  ignores much of the available data by concentrating on only the extreme points. 
D)  doesn't provide reasonable estimates.

Question 15

Dolce Company is planning to sell 400,000 hammers for $1.50 per unit. The contribution margin ratio is 20%. If Dolce will break even at this level of sales, what are the fixed costs?

Accepted Answer

A)  $120,000 
B)  $280,000 
C)  $400,000 
D)  $480,000 
A)  $120,000 
B)  $280,000 
C)  $400,000 
D)  $480,000

Question 16

Isakson Company has a contribution margin per unit of $15 and a contribution margin ratio of 60%. How much is the selling price of each unit?

Accepted Answer

A)  $25.00 
B)  $37.50 
C)  $9.00 
D)  Cannot be determined without more information. 
A)  $25.00 
B)  $37.50 
C)  $9.00 
D)  Cannot be determined without more information.

Question 17

In the Gabbana Company, maintenance costs are a mixed cost. At the low level of activity (80 direct labor hours), maintenance costs are $600. At the high level of activity (200 direct labor hours), maintenance costs are $1,100. Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost?

Accepted Answer

The answer of In the Gabbana Company, maintenance costs are...

Question 18

How much sales are required to earn a target net income of $128,000 if total fixed costs are $160,000 and the contribution margin ratio is 40%?

Accepted Answer

A)  $400,000 
B)  $648,000 
C)  $720,000 
D)  $320,000 
A)  $400,000 
B)  $648,000 
C)  $720,000 
D)  $320,000

Question 19

Firms operating at 100% capacity

Accepted Answer

A)  are common. 
B)  are the exception rather than the rule. 
C)  have no fixed costs. 
D)  have no variable costs. 
A)  are common. 
B)  are the exception rather than the rule. 
C)  have no fixed costs. 
D)  have no variable costs.

Question 20

If the activity level increases 10%, total variable costs will

Accepted Answer

A)  remain the same. 
B)  increase by more than 10%. 
C)  decrease by less than 10%. 
D)  increase 10%. 
A)  remain the same. 
B)  increase by more than 10%. 
C)  decrease by less than 10%. 
D)  increase 10%.

Exam 22: Cost-Volume-Profit

A cost that has both variable and fixed elements is referred to as a _________________ cost.

Which of the following is not a fixed cost?

Which one of the following is not an assumption of CVP analysis?

The difference between actual or expected sales and break-even sales is called the __________________________.

A cost which remains constant per unit at various levels of activity is a

A variable cost is a cost that

Gibbs Company has a contribution margin of $150,000 and a contribution margin ratio of 30%. How much are total variable costs?

In CVP analysis, the term "cost"

An income statement which emphasizes cost behavior is prepared using the _________________________ format.

The high-low method is criticized because it

Dolce Company is planning to sell 400,000 hammers for $1.50 per unit. The contribution margin ratio is 20%. If Dolce will break even at this level of sales, what are the fixed costs?

Isakson Company has a contribution margin per unit of $15 and a contribution margin ratio of 60%. How much is the selling price of each unit?

How much sales are required to earn a target net income of $128,000 if total fixed costs are $160,000 and the contribution margin ratio is 40%?

Firms operating at 100% capacity

If the activity level increases 10%, total variable costs will

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