Question 1

A company's sales and production levels are the same.The amount of income presented on a contribution margin format income statement

Accepted Answer

A) will always be greater than that shown on a traditional GAAP income statement. 
B) will always be less than that shown on a traditional GAAP income statement. 
C) will always be the same as that shown on a traditional GAAP income statement. 
D) will not differ from that shown on a traditional GAAP income statement regardless of the level of production and sales. 
A) will always be greater than that shown on a traditional GAAP income statement. 
B) will always be less than that shown on a traditional GAAP income statement. 
C) will always be the same as that shown on a traditional GAAP income statement. 
D) will not differ from that shown on a traditional GAAP income statement regardless of the level of production and sales.

Question 2

If activity level decreases, what happens to the unit variable cost?

Accepted Answer

A) It remains the same. 
B) It decreases. 
C) It increases. 
D) It depends on how much the activity level increases. 
A) It remains the same. 
B) It decreases. 
C) It increases. 
D) It depends on how much the activity level increases.

Question 3

Welk's Weekend Spa charges $75 for a two-hour all-natural facial treatment.It pays a $500 annual charge plus $10 per hour for a facial massage machine used during the treatment.
Required:
a.What is Welk's total annual cost for the facial machine if 30 facials are sold? If 40 are sold? If 50 are sold?
b.What is the company's cost per facial for the machine if 30 facials are sold? If 40 are sold? If 50 are sold?
c.Why does the machine's cost per facial differ at the three levels of activity?

Accepted Answer

a.$500 + ($10 × 2 × 30) = $1,100
$500 +

Question 4

An advantage of using regression analysis over the high-low and scattergraph methods is that regression analysis

Accepted Answer

A) is less costly to implement than high-low or scattergraph methods. 
B) is a more precise approach than the high-low or scattergraph methods. 
C) uses fewer data points. 
D) determines the breakeven point. 
A) is less costly to implement than high-low or scattergraph methods. 
B) is a more precise approach than the high-low or scattergraph methods. 
C) uses fewer data points. 
D) determines the breakeven point.

Question 5

An example of a step cost is the electric bill you receive for heating your apartment.

Accepted Answer

A) True 
 B)False

Question 6

A contribution format income statement just rearranges the individual cost components and produces the same operating income as the traditional functional income statement.

Accepted Answer

A) True 
 B)False

Question 7

An example of a committed fixed cost for a clothing manufacturer is

Accepted Answer

A) an annual contract for television advertising costs. 
B) a 10-year lease on an office building. 
C) yards of fabric used. 
D) thread used. 
A) an annual contract for television advertising costs. 
B) a 10-year lease on an office building. 
C) yards of fabric used. 
D) thread used.

Question 8

Assume sales of $10,000, variable costs of $7,000, and fixed costs of $2,000.Calculate contribution margin and operating income.

Accepted Answer

A) Contribution margin = $3,000; Operating income = $1,000 
B) Contribution margin = $5,000; Operating income =$1,000 
C) Contribution margin = $8,000; Operating income = $1,000 
D) Contribution margin = $6,000; Operating income = $1,000 
A) Contribution margin = $3,000; Operating income = $1,000 
B) Contribution margin = $5,000; Operating income =$1,000 
C) Contribution margin = $8,000; Operating income = $1,000 
D) Contribution margin = $6,000; Operating income = $1,000

Question 9

Mega Bright Window Cleaners' monthly income statement at several levels of activity is as follows:   Required: 
a.Identify each expense as fixed, variable, or mixed.
b.Prepare a contribution margin income statement based on a volume of 5,000 windows.

Accepted Answer

a.Cost of goods sold - variable
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Question 10

Feel Good Massage offers customized sports massages.Feel Good charges $75 for a one-hour massage session that includes a ten-minute session in a therapeutic spa.The spa is leased at a cost of $3,000 per year plus $10 per use.Feel Good pays the massage therapists $20 per session.
Required:
a.What is Feel Good's total annual cost of massages if 60 massages are sold? If 70 are sold? If 80 are sold?
b.What is the company's total cost per massage if 60 massages are sold? If 70 are sold? If 80 are sold?
c.Should Feel Good consider raising the price charged for the sports massage? Why?

Accepted Answer

a.$3,000 + ($10 + $20) × 60)) = $4,800
$

Question 11

The contribution margin is the difference between sales and fixed costs.

Accepted Answer

A) True 
 B)False

Question 12

The contribution margin is calculated as

Accepted Answer

A) sales revenue less cost of goods sold. 
B) sales revenue less discretionary costs. 
C) sales revenue less committed costs. 
D) sales revenue less total variable costs. 
A) sales revenue less cost of goods sold. 
B) sales revenue less discretionary costs. 
C) sales revenue less committed costs. 
D) sales revenue less total variable costs.

Question 13

Walker Boat Company produces bass boats.The following comments were found in the "Management's Discussion and Analysis" section of the annual report.
"Bass boat production includes a significant amount of robotic manufacturing costs, a portion of which do not vary with production rates."
As industry practice, Walker spreads its robotic costs over the estimated number of boats that are expected to be produced for each type of bass boat.At the end of the previous year, the number of boats produced was 2,400 while the expected number of boats to be produced in the current year is 2,700.
Required:
a.What effect would the change in level of boats produced have on the total robotic costs?
b.What effect would the change in level of boats produced have on the unit costs of the boats?

Accepted Answer

a.Robotic costs are classified as fixed

Question 14

A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost behavior?

Accepted Answer

A) Product 
B) Fixed 
C) Variable 
D) Fixed and Variable 
A) Product 
B) Fixed 
C) Variable 
D) Fixed and Variable

Question 15

On a scattergraph, you must "fit" a line to the plotted points.Once the line is drawn,

Accepted Answer

A) calculate the fixed and variable costs using basic algebra. 
B) use a statistical technique to identify the fixed and variable costs. 
C) choose more than one point to calculate the fixed and variable costs. 
D) use regression analysis to calculate the fixed and variable components of the total cost. 
A) calculate the fixed and variable costs using basic algebra. 
B) use a statistical technique to identify the fixed and variable costs. 
C) choose more than one point to calculate the fixed and variable costs. 
D) use regression analysis to calculate the fixed and variable components of the total cost.

Question 16

Some costs have both a fixed and a variable component.These costs are referred to as

Accepted Answer

A) discretionary costs. 
B) committed costs. 
C) mixed costs. 
D) step costs. 
A) discretionary costs. 
B) committed costs. 
C) mixed costs. 
D) step costs.

Question 17

Chocolate Delight sells chocolate-dipped fruit to local restaurants.Chocolate Delight delivered 30,000 chocolate dipped strawberries to customers in May and 24,000 in June.Delivery costs for the two months were $1,500 and $1,200, respectively.Using these two months' data, the delivery cost function is best estimated as

Accepted Answer

A) ($2.00 × number of strawberries) + $800 
B) ($0.02 × number of strawberries) + $900 
C) ($0.05 × number of strawberries) + $0 
D) ($0.05 × number of strawberries) + $600 
A) ($2.00 × number of strawberries) + $800 
B) ($0.02 × number of strawberries) + $900 
C) ($0.05 × number of strawberries) + $0 
D) ($0.05 × number of strawberries) + $600

Question 18

Any cost that varies in proportion to a business activity is a

Accepted Answer

A) fixed cost. 
B) variable cost. 
C) mixed cost. 
D) step cost. 
A) fixed cost. 
B) variable cost. 
C) mixed cost. 
D) step cost.

Question 19

A 10 percent increase in sales volume will result in

Accepted Answer

A) a 10 percent decrease in per unit fixed cost. 
B) a 10 percent increase in total fixed cost. 
C) a 10 percent increase in per unit fixed cost. 
D) no change in total fixed cost. 
A) a 10 percent decrease in per unit fixed cost. 
B) a 10 percent increase in total fixed cost. 
C) a 10 percent increase in per unit fixed cost. 
D) no change in total fixed cost.

Question 20

If the activity level increases, what happens to the total fixed cost?

Accepted Answer

A) It decreases. 
B) It increases. 
C) It remains the same. 
D) It depends on how much the activity level increases. 
A) It decreases. 
B) It increases. 
C) It remains the same. 
D) It depends on how much the activity level increases.

A company's sales and production levels are the same.The amount of income presented on a contribution margin format income statement

If activity level decreases, what happens to the unit variable cost?

An advantage of using regression analysis over the high-low and scattergraph methods is that regression analysis

An example of a step cost is the electric bill you receive for heating your apartment.

A contribution format income statement just rearranges the individual cost components and produces the same operating income as the traditional functional income statement.

An example of a committed fixed cost for a clothing manufacturer is

Assume sales of $10,000, variable costs of $7,000, and fixed costs of $2,000.Calculate contribution margin and operating income.

Mega Bright Window Cleaners' monthly income statement at several levels of activity is as follows: Required: a.Identify each expense as fixed, variable, or mixed. b.Prepare a contribution margin income statement based on a volume of 5,000 windows.

The contribution margin is the difference between sales and fixed costs.

The contribution margin is calculated as

A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost behavior?

On a scattergraph, you must "fit" a line to the plotted points.Once the line is drawn,

Some costs have both a fixed and a variable component.These costs are referred to as

Any cost that varies in proportion to a business activity is a

A 10 percent increase in sales volume will result in

If the activity level increases, what happens to the total fixed cost?

Accounting As a Tool for Management

Costvolumeprofit Analysis and Pricing Decisions

Product Costs and Job Order Costing

Planning and Forecasting in a Manufacturing Setting

Performance Evaluation: Variance Analysis

Activity-Based Costing and Activity-Based Management

Using Accounting Information to Make Managerial Decisions

Using Accounting Information to Make Managerial Decisions

Capital Budgeting

Decentralization and Performance Evaluation

Performance Evaluation Revisited: a Balanced Approach

Financial Statement Analysis

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Exam 2: Cost Behavior and Cost Estimation

A company's sales and production levels are the same.The amount of income presented on a contribution margin format income statement

If activity level decreases, what happens to the unit variable cost?

An advantage of using regression analysis over the high-low and scattergraph methods is that regression analysis

An example of a step cost is the electric bill you receive for heating your apartment.

A contribution format income statement just rearranges the individual cost components and produces the same operating income as the traditional functional income statement.

An example of a committed fixed cost for a clothing manufacturer is

Assume sales of $10,000, variable costs of $7,000, and fixed costs of $2,000.Calculate contribution margin and operating income.

Mega Bright Window Cleaners' monthly income statement at several levels of activity is as follows: Required: a.Identify each expense as fixed, variable, or mixed. b.Prepare a contribution margin income statement based on a volume of 5,000 windows.

The contribution margin is the difference between sales and fixed costs.

The contribution margin is calculated as

A traditional GAAP income statement does not help managers predict the financial results of their decisions because the format of the statement is based on cost function rather than cost behavior.Which of the following is not classified as a cost behavior?

On a scattergraph, you must "fit" a line to the plotted points.Once the line is drawn,

Some costs have both a fixed and a variable component.These costs are referred to as

Any cost that varies in proportion to a business activity is a

A 10 percent increase in sales volume will result in

If the activity level increases, what happens to the total fixed cost?

Accounting As a Tool for Management

Costvolumeprofit Analysis and Pricing Decisions

Product Costs and Job Order Costing

Planning and Forecasting in a Manufacturing Setting

Performance Evaluation: Variance Analysis

Activity-Based Costing and Activity-Based Management

Using Accounting Information to Make Managerial Decisions

Using Accounting Information to Make Managerial Decisions

Capital Budgeting

Decentralization and Performance Evaluation

Performance Evaluation Revisited: a Balanced Approach

Financial Statement Analysis

Filters