Exam 18: Cost-Volume-Profit

Which of the following is not a fixed cost?

If the activity index decreases, total variable costs will decrease proportionately.

CVP analysis does not consider

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

A mixed cost has both selling and administrative cost elements.

Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

The CVP income statement

A CVP income statement is frequently prepared for internal use by management. Describe the features of the CVP income statement that make it more useful for management decision-making than the traditional income statement that is prepared for external users.

Match the items in the two columns below by entering the appropriate code letter in the space provided. A. Activity index B. Variable costs C. Fixed costs D. High-low method E. Relevant range F. Mixed costs G. Break-even point H. Contribution margin I. Margin of safety J. Contribution margin ratio ____ 1. The amount of revenue remaining after deducting variable costs. ____ 2. Costs that contain both a variable and a fixed element. ____ 3. The percentage of sales dollars available to cover fixed costs and produce income. ____ 4. Identifies the activity which causes changes in the behavior of costs. ____ 5. The difference between actual or expected sales and sales at the break-even point. ____ 6. Costs that vary in total directly and proportionately with changes in the activity level. ____ 7. The level of activity at which total revenues equal total costs. ____ 8. The range over which the company expects to operate during the year. ____ 9. Costs that remain the same in total regardless of changes in the activity level. ____ 10. A method that uses the total costs incurred at the high and low levels of activity.

Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Michigan. Depreciation on the hotel is $60,000 per year. Jane employs a maintenance person at an annual salary of $41,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night. Instructions (a) Determine the number of rentals and the sales revenue Jane needs to break even using the contribution margin technique. (b) If the current level of rentals is 4,000, by what percentage can rentals decrease before Jane has to worry about having a net loss? (c) Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $68 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

Portman Company's activity for the first three months of 2016 are as follows: Using the high-low method, how much is the cost per machine hour?

Changes in activity have a(n) _________ effect on fixed costs per unit.

Dollywood Corporation accumulates the following data concerning a mixed cost, using miles as the activity level. Instructions Compute the variable and fixed cost elements using the high-low method.

A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

A cost-volume-profit graph is frequently used in business meetings because it presents a picture of cost relationships within a company. Briefly describe the type of information and data that you would need in order to prepare a CVP graph. After a CVP graph is prepared, what are the major points that could be made from the graph that would be of interest to management?

Ponszko Nursery used high-low data from June and July to determine its variable cost of $12 per unit. Additional information follows: If Ponszko's produces 2,300 units in August, how much is its total cost expected to be?

An assumption of CVP analysis is that variable and fixed costs have a _______________ relationship with an activity base.

A CVP graph does not include a

Gribble Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $156,000 in May and $60,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.