Question 1

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. B

Question 2

A company requires $1,700,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $300,000. What is the target net income?

Accepted Answer

A)  $510,000 
B)  $390,000 
C)  $700,000 
D)  $210,000 
A)  $510,000 
B)  $390,000 
C)  $700,000 
D)  $210,000 D

Question 3

If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000.

Accepted Answer

A) True 
 B)False  True

Question 4

Oakbrook, Inc. reported actual sales of $2,000,000, and fixed costs of $350,000. The contribution margin ratio is 25%.
Instructions
Compute the margin of safety in dollars and the margin of safety ratio.

Accepted Answer

BEP in dollars: $350,000 ÷ 25%

Question 5

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 6

Erickson, Inc. makes student book bags that sell for $20 each. For the coming year, management expects fixed costs to be $225,000. Variable costs are $14 per unit.
Instructions
(a) Compute break-even sales in dollars using the mathematical equation.
(b) Compute break-even sales using the contribution margin ratio.
(c) Compute margin of safety ratio assuming actual sales are $937,500.
(d) Compute the sales required to earn net income of $150,000, using the mathematical equation.

Accepted Answer

The answer of Erickson, Inc. makes student book bags that...

Question 7

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 8

Fixed costs are $3,000,000 and the unit contribution margin is $150. What is the break-even point?

Accepted Answer

A)  $7,500,000 
B)  $20,000,000 
C)  7,500 units 
D)  20,000 units 
A)  $7,500,000 
B)  $20,000,000 
C)  7,500 units 
D)  20,000 units

Question 9

Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Accepted Answer

A) True 
 B)False

Question 10

Pascal, Inc. is planning to sell 900,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs?

Accepted Answer

A)  $270,000. 
B)  $630,000. 
C)  $900,000. 
D)  $1,020,000. 
A)  $270,000. 
B)  $630,000. 
C)  $900,000. 
D)  $1,020,000.

Question 11

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000. The number of units the company must sell to break even is

Accepted Answer

A)  120,000 units. 
B)  48,000 units. 
C)  480,000 units. 
D)  80,000 units. 
A)  120,000 units. 
B)  48,000 units. 
C)  480,000 units. 
D)  80,000 units.

Question 12

Which of the following costs are variable?

Accepted Answer

A)  1 and 2 
B)  1 and 4 
C)  only 1 
D)  only 2 
A)  1 and 2 
B)  1 and 4 
C)  only 1 
D)  only 2

Question 13

The break-even point is equal to the fixed costs plus net income.

Accepted Answer

A) True 
 B)False

Question 14

Henderson Farms reports the following results for the month of November:   
Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 5% with no change in total variable costs.
2. Reduce variable costs to 66   
% of sales.
3. Reduce fixed costs by $10,000.
Instructions
If maximizing net income is the objective, which is the best course of action?

Accepted Answer

1. Current selling price is: $600,000 ÷

Question 15

Bruno & Court is a nonprofit organization that captures stray deer bewildered within residential communities. Fixed costs are $20,000. The variable cost of capturing each deer is $10 each. Bruno & Court is funded by a local philanthropy in the amount of $64,000 for 2016. How many deer can Bruno & Court capture during 2016?

Accepted Answer

A)  4,400 
B)  6,400 
C)  8,400 
D)  4,000 
A)  4,400 
B)  6,400 
C)  8,400 
D)  4,000

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $600,000 and to earn net income of $500,000. What percent are variable costs of sales?

Accepted Answer

A)  25% 
B)  45% 
C)  30% 
D)  55% 
A)  25% 
B)  45% 
C)  30% 
D)  55%

Question 18

Webber, Inc. 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 50,000 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 $236,250.

Accepted Answer

The answer of Webber, Inc. developed the following information for...

Question 19

Hurly Co. has fixed costs totaling $165,000. Its unit contribution margin is $1.50, and the selling price is $5.50 per unit.
Instructions
Compute the break-even point in units.

Accepted Answer

$1.50X - $

Question 20

O'Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?

Accepted Answer

A)  $600,000. 
B)  $700,000. 
C)  $950,000. 
D)  $1,050,000. 
A)  $600,000. 
B)  $700,000. 
C)  $950,000. 
D)  $1,050,000.

Exam 18: Cost-Volume-Profit

Firms operating at 100% capacity

A company requires $1,700,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $300,000. What is the target net income?

If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000.

Oakbrook, Inc. reported actual sales of $2,000,000, and fixed costs of $350,000. The contribution margin ratio is 25%. Instructions Compute the margin of safety in dollars and the margin of safety ratio.

The high-low method is criticized because it

A variable cost is a cost that

Fixed costs are $3,000,000 and the unit contribution margin is $150. What is the break-even point?

Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Pascal, Inc. is planning to sell 900,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs?

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000. The number of units the company must sell to break even is

Which of the following costs are variable?

The break-even point is equal to the fixed costs plus net income.

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

Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $600,000 and to earn net income of $500,000. What percent are variable costs of sales?

Hurly Co. has fixed costs totaling $165,000. Its unit contribution margin is $1.50, and the selling price is $5.50 per unit. Instructions Compute the break-even point in units.

O'Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations Perpetual Approach

Inventories Periodic Approach

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Stock Transactions, and Stockholders Equity

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Time Value of Money

Investments

Payroll Accounting

Subsidiary Ledgers and Special Journals

Other Significant Liabilities

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