Question 1

Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 2

Hughes Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for the production of 2,000 units. The Utilities and Maintenance are mixed costs. The fixed portions of these costs are $200 and $400, respectively.   
Instructions
Calculate the expected costs to be incurred when production is 4,000 units. Use your knowledge of cost behavior to determine which of the other costs are fixed or variable.

Accepted Answer

@#IMG-DLM& a. Variable $4,000 ÷ 2,000 = $2.00 per

Question 3

For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

Accepted Answer

A) True 
 B)False

Question 4

Newton, Inc. earned net income of $100,000 during 2010. The company wants to earn net income of $40,000 more during 2011. The company's fixed costs are expected to be $84,000, and variable costs are expected to be 30% of sales.
Instructions
(a) Determine the required sales to meet the target net income during 2011.
(b) Fill in the dollar amounts for the summary income statement for 2011 below, based on your answer to part (a).

Accepted Answer

(a) 70%X - $84,000 = $140,000
Required s

Question 5

A target net income is calculated by taking actual sales minus the margin of safety.

Accepted Answer

A) True 
 B)False

Question 6

The relevant range of activity is the activity level where the firm will earn income.

Accepted Answer

A) True 
 B)False

Question 7

How much sales are required to earn a target income of $80,000 if total fixed costs are $100,000 and the contribution margin ratio is 40%?

Accepted Answer

A)  $300,000 
B)  $200,000 
C)  $450,000 
D)  $330,000 
A)  $300,000 
B)  $200,000 
C)  $450,000 
D)  $330,000

Question 8

In evaluating the margin of safety, the

Accepted Answer

A)  break-even point is not relevant. 
B)  higher the margin of safety ratio, the greater the margin of safety. 
C)  higher the dollar amount, the lower the margin of safety. 
D)  higher the margin of safety ratio, the lower the fixed costs. 
A)  break-even point is not relevant. 
B)  higher the margin of safety ratio, the greater the margin of safety. 
C)  higher the dollar amount, the lower the margin of safety. 
D)  higher the margin of safety ratio, the lower the fixed costs.

Question 9

A company has contribution margin per unit of $45 and a contribution margin ratio of 40%. What is the unit selling price?

Accepted Answer

A)  $75.00 
B)  $112.50 
C)  $18.00 
D)  Cannot be determined. 
A)  $75.00 
B)  $112.50 
C)  $18.00 
D)  Cannot be determined.

Question 10

Kohler Corporation sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units?

Accepted Answer

A)  It will remain unchanged. 
B)  It will decrease. 
C)  It will increase. 
D)  It cannot be determined from the information provided. 
A)  It will remain unchanged. 
B)  It will decrease. 
C)  It will increase. 
D)  It cannot be determined from the information provided.

Question 11

Required sales in dollars to meet a target net income is computed by dividing

Accepted Answer

A)  fixed costs plus target net income by contribution margin per unit. 
B)  variable costs plus target net income by contribution margin per unit. 
C)  fixed costs plus target net income by contribution margin ratio. 
D)  total costs plus target net income by contribution margin ratio. 
A)  fixed costs plus target net income by contribution margin per unit. 
B)  variable costs plus target net income by contribution margin per unit. 
C)  fixed costs plus target net income by contribution margin ratio. 
D)  total costs plus target net income by contribution margin ratio.

Question 12

Starr Company has the following data:
Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The contribution margin per unit is $500.
The fixed costs are $400,000.
Which of the following does not express the break-even point?

Accepted Answer

A)  $400,000 + .60X = X 
B)  $400,000 + .40X = X 
C)  $400,000 ÷ $500 = X 
D)  $400,000 ÷ .40 = X 
A)  $400,000 + .60X = X 
B)  $400,000 + .40X = X 
C)  $400,000 ÷ $500 = X 
D)  $400,000 ÷ .40 = X

Question 13

Sales are $500,000 and variable costs are $350,000. What is the contribution margin ratio?

Accepted Answer

A)  43% 
B)  30% 
C)  70% 
D)  Cannot be determined because amounts are not expressed per unit. 
A)  43% 
B)  30% 
C)  70% 
D)  Cannot be determined because amounts are not expressed per unit.

Question 14

Cost-volume-profit analysis includes all of the following assumptions except

Accepted Answer

A)  the behavior of costs is curvilinear throughout the relevant range. 
B)  costs can be classified accurately as either variable or fixed. 
C)  changes in activity are the only factors that affect costs. 
D)  all units produced are sold. 
A)  the behavior of costs is curvilinear throughout the relevant range. 
B)  costs can be classified accurately as either variable or fixed. 
C)  changes in activity are the only factors that affect costs. 
D)  all units produced are sold.

Question 15

The _______________ point is when total revenues equal total costs.

Accepted Answer

The answer of The _______________ point is when total revenues...

Question 16

Sutton Company produces flash drives for computers, which it sells for $20 each. The variable cost to make each flash drive is $6. During April, 700 drives were sold. Fixed costs for April were $2 per unit for a total of $1,400 for the month. How much is the monthly break-even level of sales in dollars for Sutton Company?

Accepted Answer

A)  $100 
B)  $2,000 
C)  $7,000 
D)  $4,200 
A)  $100 
B)  $2,000 
C)  $7,000 
D)  $4,200

Question 17

An activity index might be referred to as a cost

Accepted Answer

A)  driver. 
B)  multiplier. 
C)  element. 
D)  correlation. 
A)  driver. 
B)  multiplier. 
C)  element. 
D)  correlation.

Question 18

The CVP income statement

Accepted Answer

A)  is distributed internally and externally. 
B)  classifies costs by functions. 
C)  discloses contribution margin in the body of the statement. 
D)  will reflect a different net income than the traditional income statement. 
A)  is distributed internally and externally. 
B)  classifies costs by functions. 
C)  discloses contribution margin in the body of the statement. 
D)  will reflect a different net income than the traditional income statement.

Question 19

A variable cost remains constant per unit at various levels of activity.

Accepted Answer

A) True 
 B)False

Question 20

The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Accepted Answer

A) True 
 B)False

Exam 22: Cost-Volume-Profit

Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

A target net income is calculated by taking actual sales minus the margin of safety.

The relevant range of activity is the activity level where the firm will earn income.

How much sales are required to earn a target income of $80,000 if total fixed costs are $100,000 and the contribution margin ratio is 40%?

In evaluating the margin of safety, the

A company has contribution margin per unit of $45 and a contribution margin ratio of 40%. What is the unit selling price?

Required sales in dollars to meet a target net income is computed by dividing

Starr Company has the following data: Variable costs are 60% of the unit selling price. The contribution margin ratio is 40%. The contribution margin per unit is $500. The fixed costs are $400,000. Which of the following does not express the break-even point?

Sales are $500,000 and variable costs are $350,000. What is the contribution margin ratio?

Cost-volume-profit analysis includes all of the following assumptions except

The _______________ point is when total revenues equal total costs.

An activity index might be referred to as a cost

The CVP income statement

A variable cost remains constant per unit at various levels of activity.

The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

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