Exam 2: Introduction to Cost Behavior and Cost Volume Relationships

When changes occur in the sales mix, there is no effect on the cost- volume- profit relationships.

The level of sales at which the contribution margin equals the fixed cost

Gross margin is the same as contribution margin.

The break- even point may be reduced by reducing total fixed costs and holding everything else constant.

Hug Me Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If the break- even volume in dollars is $1,446,000, then the total fixed costs for the period must be:

An increase in total variable cost usually indicates:

Meredith Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Meredith's tax rate is 40%. The number of units that must be sold to breakeven is:

The horizontal axis of the CVP graph

Babbling Brook Hospital has overall variable costs of 75% of total revenues and fixed costs of $40 million per year. There are 40,000 patient- days estimated for next year. The break- even point expressed in total revenue is:

is the relative proportions or combinations of quantities of products that comprise total sales.

Which of the following is not a cost driver of customer services costs?

Number of engineering hours is a likely cost driver for which value chain function?

Renew Tires has been in the tire business for five years. It rents a building but owns its equipment. All employees are paid a fixed salary except for the busy season (April - June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season. Selling prices per tire average $50 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $40. The president of Renew Tires is somewhat displeased with the company's management accounting system because the cost behavior pattern displayed by the monthly break- even charts is inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the break- even point. Required: a. What is wrong with the accountant's computations? b. How can the information be presented in a better format for the president?

A major simplifying assumption of cost- volume- profit analysis is that costs can be classified as either variable or fixed with respect to a single measure of the volume of output activity.

Sales volume of a given product helps guide executives who must decide to emphasize or deemphasize particular products.

Up In Smoke Company, a producer of salsa, has the following information: Income tax rate 30\% Selling price p er unit \ 5.00 Variable cost per unit \ 3.00 Total fixed costs \ 90,000.00 must be sold to obtain a targeted income before taxes of $30,000.

As sales exceed the break- even point, a high contribution- margin percentage:

Cost of goods sold is the cost of the merchandise that a company acquires or produces and then sells.

An increase in fixed costs usually indicates:

Four Alarm Company, a producer of salsa, has the following information: Income tax rate 30\% Selling pric e per unit \ 5.00 Variable cost p er unit \ 3.00 Total fixed costs \ 90,000.00 The contribution- margin ratio is: