Question 1

The trend in most companies is to have more variable costs and fewer fixed costs.

Accepted Answer

A) True 
 B)False

Question 2

Knowledge of cost behavior is important in ______________________ analysis.

Accepted Answer

cost-volum

Question 3

A CVP income statement shows contribution margin instead of gross profit.

Accepted Answer

A) True 
 B)False

Question 4

Hayduke Corporation reported the following results from the sale of 5,000 units in May: sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000. Assume that Hayduke increases the selling price by 5% on June 1. How many units will have to be sold in June to maintain the same level of net income?

Accepted Answer

A)  4,444. 
B)  4,600. 
C)  4,750. 
D)  5,000. 
A)  4,444. 
B)  4,600. 
C)  4,750. 
D)  5,000.

Question 5

Within the relevant range, the variable cost per unit

Accepted Answer

A)  differs at each activity level. 
B)  remains constant at each activity level. 
C)  increases as production increases. 
D)  decreases as production increases. 
A)  differs at each activity level. 
B)  remains constant at each activity level. 
C)  increases as production increases. 
D)  decreases as production increases.

Question 6

For analysis purposes, the high-low method usually produces a(n)

Accepted Answer

A)  reasonable estimate. 
B)  precise estimate. 
C)  overstated estimate. 
D)  understated estimate. 
A)  reasonable estimate. 
B)  precise estimate. 
C)  overstated estimate. 
D)  understated estimate.

Question 7

A company desires to sell a sufficient quantity of products to earn a profit of $400,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $800,000, how many units must be sold to earn net income of $400,000?

Accepted Answer

A)  225,000 units 
B)  150,000 units 
C)  120,000 units 
D)  90,000 units 
A)  225,000 units 
B)  150,000 units 
C)  120,000 units 
D)  90,000 units

Question 8

The Bradshaw Law Office has the following monthly telephone records and costs:   
Instructions
Identify the fixed and variable cost elements using the high-low method.

Accepted Answer

High calls minus low calls: 2,

Question 9

Select the correct statement concerning the cost-volume-profit graph at right:

Accepted Answer

A)  The point identified by "B" is the break-even point. 
B)  Line F is the variable cost line. 
C)  At point B, profits equal total costs. 
D)  Line E is the total cost line. 
A)  The point identified by "B" is the break-even point. 
B)  Line F is the variable cost line. 
C)  At point B, profits equal total costs. 
D)  Line E is the total cost line.

Question 10

Sandel Company makes 2 products, footballs and baseballs. Additional information follows:   
Instructions
Sandel has unlimited demand for both products. Therefore, which product should Sandel tell his sales people to emphasize?

Accepted Answer

Unit contribution margin:
Footballs: [$6

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?

Accepted Answer

A)  25% 
B)  35% 
C)  65% 
D)  75% 
A)  25% 
B)  35% 
C)  65% 
D)  75%

Question 13

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Accepted Answer

A) True 
 B)False

Question 14

Target net income is the income objective for an individual product line.

Accepted Answer

A) True 
 B)False

Question 15

Kreter, Inc. earned net income of $300,000 last year. This year it wants to earn net income of $450,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 70% of sales.
Instructions
(a) Determine the required sales to meet the target net income of $450,000 using the mathematical equation.
(b) Using a CVP income statement format, prove your answer.

Accepted Answer

The answer of Kreter, Inc. earned net income of $300,000...

Question 16

The break-even point cannot be determined by

Accepted Answer

A)  computing it from a mathematical equation. 
B)  computing it using contribution margin. 
C)  reading the prior year's financial statements. 
D)  deriving it from a CVP graph. 
A)  computing it from a mathematical equation. 
B)  computing it using contribution margin. 
C)  reading the prior year's financial statements. 
D)  deriving it from a CVP graph.

Question 17

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. What sales are needed by Cunningham to break even?

Accepted Answer

A)  $160,000. 
B)  $300,000. 
C)  $360,000. 
D)  $480,000. 
A)  $160,000. 
B)  $300,000. 
C)  $360,000. 
D)  $480,000.

Question 18

Danny's Lawn Equipment has actual sales of $800,000 and a break-even point of $520,000. How much is its margin of safety ratio?

Accepted Answer

A)  35% 
B)  46% 
C)  54% 
D)  65% 
A)  35% 
B)  46% 
C)  54% 
D)  65%

Question 19

The following information is available for Wade Corp.:   A CVP income statement would report

Accepted Answer

A)  gross profit of $190,000. 
B)  contribution margin of $430,000. 
C)  gross profit of $220,000. 
D)  contribution margin of $220,000. 
A)  gross profit of $190,000. 
B)  contribution margin of $430,000. 
C)  gross profit of $220,000. 
D)  contribution margin of $220,000.

Question 20

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.

Exam 18: Cost-Volume-Profit

The trend in most companies is to have more variable costs and fewer fixed costs.

Knowledge of cost behavior is important in ______________________ analysis.

A CVP income statement shows contribution margin instead of gross profit.

Within the relevant range, the variable cost per unit

For analysis purposes, the high-low method usually produces a(n)

A company desires to sell a sufficient quantity of products to earn a profit of $400,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $800,000, how many units must be sold to earn net income of $400,000?

The Bradshaw Law Office has the following monthly telephone records and costs: Instructions Identify the fixed and variable cost elements using the high-low method.

Select the correct statement concerning the cost-volume-profit graph at right:

Sandel Company makes 2 products, footballs and baseballs. Additional information follows: Instructions Sandel has unlimited demand for both products. Therefore, which product should Sandel tell his sales people to emphasize?

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

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Target net income is the income objective for an individual product line.

The break-even point cannot be determined by

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. What sales are needed by Cunningham to break even?

Danny's Lawn Equipment has actual sales of $800,000 and a break-even point of $520,000. How much is its margin of safety ratio?

The following information is available for Wade Corp.: A CVP income statement would report

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

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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