Question 1

The margin of safety is the difference between contribution margin and fixed costs.

Accepted Answer

A) True 
 B)False

Question 2

Two costs at Bradshaw Company appear below for specific months of operation.   Which type of costs are these?

Accepted Answer

A)  Delivery costs and utilities are both variable. 
B)  Delivery costs and utilities are both mixed. 
C)  Utilities are mixed and delivery costs are variable. 
D)  Delivery costs are mixed and utilities are variable. 
A)  Delivery costs and utilities are both variable. 
B)  Delivery costs and utilities are both mixed. 
C)  Utilities are mixed and delivery costs are variable. 
D)  Delivery costs are mixed and utilities are variable.

Question 3

The following monthly data are available for Fortner Industries which produces only one product which it sells for $18 each. Its unit variable costs are $8, and its total fixed expenses are $17,000. Actual sales for the month of May totaled 2,000 units.
Instructions
Compute the margin of safety in dollars for the company for May.

Accepted Answer

BEP in units: $18X - $8X - $17,000 = 0
B

Question 4

How much sales are required to earn a target net income of $200,000 if total fixed costs are $250,000 and the contribution margin ratio is 40%?

Accepted Answer

A)  $625,000 
B)  $1,012,500 
C)  $1,125,000 
D)  $500,000 
A)  $625,000 
B)  $1,012,500 
C)  $1,125,000 
D)  $500,000

Question 5

Fixed costs normally will not include

Accepted Answer

A)  property taxes. 
B)  direct labor. 
C)  supervisory salaries. 
D)  depreciation on buildings and equipment. 
A)  property taxes. 
B)  direct labor. 
C)  supervisory salaries. 
D)  depreciation on buildings and equipment.

Question 6

Costs will not change in total within the relevant range of activity.

Accepted Answer

A) True 
 B)False

Question 7

Englehart, Inc. reports the following operating results for the month of August: Sales $450,000 (units 5,000); variable costs $280,000; and fixed costs $115,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 10% with no change in total variable costs.
2. Reduce variable costs to 65% of sales.
3. Reduce fixed costs by $15,000.
Instructions
Compute the net income to be earned under each alternative. Which course of action will produce the highest net income?

Accepted Answer

(1) Unit sales price = $450,000/ 5,000 u

Question 8

The equation which reflects a CVP income statement is

Accepted Answer

A)  Sales = Cost of goods sold + Operating expenses + Net income. 
B)  Sales + Fixed costs = Variable costs + Net income. 
C)  Sales - Variable costs + Fixed costs = Net income. 
D)  Sales - Variable costs - Fixed costs = Net income. 
A)  Sales = Cost of goods sold + Operating expenses + Net income. 
B)  Sales + Fixed costs = Variable costs + Net income. 
C)  Sales - Variable costs + Fixed costs = Net income. 
D)  Sales - Variable costs - Fixed costs = Net income.

Question 9

Matt Sampson asks your help in understanding the term "activity index." Explain the meaning and importance of this term for Matt.
(b) State the two ways that variable costs may be defined.

Accepted Answer

(a) The activity index identifies the ac

Question 10

How much sales are required to earn a target income of $240,000 if total fixed costs are $300,000 and the contribution margin ratio is 40%?

Accepted Answer

A)  $900,000 
B)  $600,000 
C)  $1,350,000 
D)  $990,000 
A)  $900,000 
B)  $600,000 
C)  $1,350,000 
D)  $990,000

Question 11

How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification?

Accepted Answer

For CVP analysis, mixed costs

Question 12

Walters Corporation sells radios for $50 per unit. The fixed costs are $525,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price. The new break-even point in units is:

Accepted Answer

A)  26,250 
B)  26,000 
C)  25,750 
D)  21,000 
A)  26,250 
B)  26,000 
C)  25,750 
D)  21,000

Question 13

A company has a unit contribution margin of $120 and a contribution margin ratio of 40%. What is the unit selling price?

Accepted Answer

A)  $200 
B)  $300 
C)  $48 
D)  Cannot be determined. 
A)  $200 
B)  $300 
C)  $48 
D)  Cannot be determined.

Question 14

The amount of revenue remaining after deducting total variable costs is called the _________________________.

Accepted Answer

The answer of The amount of revenue remaining after deducting...

Question 15

Zehms, Inc. has a unit contribution margin of $30 and a contribution margin ratio of 60%. How much is the selling price of each unit?

Accepted Answer

A)  $50 
B)  $75 
C)  $18 
D)  Cannot be determined without more information. 
A)  $50 
B)  $75 
C)  $18 
D)  Cannot be determined without more information.

Question 16

The margin of safety is the difference between sales at breakeven and sales at a determined activity level.

Accepted Answer

A) True 
 B)False

Question 17

Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000.
Instructions
Compute the break-even point in units and in sales dollars.

Accepted Answer

$500X − $300X − $240,000 = 0
B

Question 18

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. How many MP3 players must Cunningham sell to earn net income of $280,000?

Accepted Answer

A)  20,000. 
B)  7,000. 
C)  5,000. 
D)  6,000. 
A)  20,000. 
B)  7,000. 
C)  5,000. 
D)  6,000.

Question 19

Which is the true statement?

Accepted Answer

A)  In a CVP income statement, costs and expenses are classified only by function. 
B)  The CVP income statement is prepared for both internal and external use. 
C)  The CVP income statement shows contribution margin instead of gross profit. 
D)  In a traditional income statement, costs and expenses are classified as either variable or fixed. 
A)  In a CVP income statement, costs and expenses are classified only by function. 
B)  The CVP income statement is prepared for both internal and external use. 
C)  The CVP income statement shows contribution margin instead of gross profit. 
D)  In a traditional income statement, costs and expenses are classified as either variable or fixed.

Question 20

The break-even point is where

Accepted Answer

A)  total sales equal total variable costs. 
B)  contribution margin equals total fixed costs. 
C)  total variable costs equal total fixed costs. 
D)  total sales equal total fixed costs. 
A)  total sales equal total variable costs. 
B)  contribution margin equals total fixed costs. 
C)  total variable costs equal total fixed costs. 
D)  total sales equal total fixed costs.

Exam 18: Cost-Volume-Profit

The margin of safety is the difference between contribution margin and fixed costs.

Two costs at Bradshaw Company appear below for specific months of operation. Which type of costs are these?

How much sales are required to earn a target net income of $200,000 if total fixed costs are $250,000 and the contribution margin ratio is 40%?

Fixed costs normally will not include

Costs will not change in total within the relevant range of activity.

The equation which reflects a CVP income statement is

Matt Sampson asks your help in understanding the term "activity index." Explain the meaning and importance of this term for Matt. (b) State the two ways that variable costs may be defined.

How much sales are required to earn a target income of $240,000 if total fixed costs are $300,000 and the contribution margin ratio is 40%?

How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification?

A company has a unit contribution margin of $120 and a contribution margin ratio of 40%. What is the unit selling price?

The amount of revenue remaining after deducting total variable costs is called the _________________________.

Zehms, Inc. has a unit contribution margin of $30 and a contribution margin ratio of 60%. How much is the selling price of each unit?

The margin of safety is the difference between sales at breakeven and sales at a determined activity level.

Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000. Instructions Compute the break-even point in units and in sales dollars.

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. How many MP3 players must Cunningham sell to earn net income of $280,000?

Which is the true statement?

The break-even point is where

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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