Question 1

Practical capacity and normal capacity are synonymous terms.

Accepted Answer

A) True 
 B)False

Question 2

Normal capacity is the average annual level of operating capacity needed to meet expected sales demand.

Accepted Answer

A) True 
 B)False

Question 3

Contribution Margin Income Statement divides costs into product and period costs.

Accepted Answer

A) True 
 B)False

Question 4

The breakeven point is the level of activity at which fixed costs are recovered.

Accepted Answer

A) True 
 B)False

Question 5

In a graph of cost-volume-profit analysis,the

Accepted Answer

A)  total revenue line typically begins at a required minimum level. 
B)  slope of the total cost line is dependent on the variable cost per unit. 
C)  total cost line normally begins at zero. 
D)  sales level at which total cost and total revenue lines intersect is also equal to fixed costs. 
A)  total revenue line typically begins at a required minimum level. 
B)  slope of the total cost line is dependent on the variable cost per unit. 
C)  total cost line normally begins at zero. 
D)  sales level at which total cost and total revenue lines intersect is also equal to fixed costs.

Question 6

Linear approximation is a method of converting nonlinear variable costs into linear fixed costs.

Accepted Answer

A) True 
 B)False

Question 7

Breakeven analysis adjusted for a profit factor

Accepted Answer

A)  is a difficult computation that is not normally employed. 
B)  will not necessarily increase the number of required units. 
C)  is often adapted for different sales levels to aid in determining the possible levels of potential profit. 
D)  is a poor basis for evaluating the profitability of a venture. 
A)  is a difficult computation that is not normally employed. 
B)  will not necessarily increase the number of required units. 
C)  is often adapted for different sales levels to aid in determining the possible levels of potential profit. 
D)  is a poor basis for evaluating the profitability of a venture.

Question 8

Plunda Co.is planning production for the coming year.The information to be used is based on a projection of cost information for the current year.Projections of the following costs are as follows:
 $\begin{array}{lr}
\text { Variable costs per unit: }\
\text { Direct materials } & \$ 15.80 \
\text { Direct labor } & 11.60 \
\text { Overhead } & 18.40 \
\text { Selling costs } & 8.20\
\
\text { Fixed cost estimates: }\
\text { Production costs } & \$ 212,400 \
\text { Selling and administrative costs } & 417,600
\end{array}$ Plunda Co.sells its product for $90.00 per unit.Compute the following,showing your calculations: 
a. The breakeven point in sales units
b. The breakeven point in sales dollars
c. The sales level in both sales units and dollars if a profit of $122,400 is projected

Accepted Answer

a.
 \[\begin{array} { l } 
\mathrm { S P

Question 9

Which of the following would not require the use of cost behavior analysis?

Accepted Answer

A)  Transferring production costs from one department to another 
B)  Projecting anticipated costs of a new project 
C)  Buying an existing business 
D)  Changing an existing product or service 
A)  Transferring production costs from one department to another 
B)  Projecting anticipated costs of a new project 
C)  Buying an existing business 
D)  Changing an existing product or service

Question 10

Listed below are selected costs of sports car manufacturer at a production level of 4,000 cars.(a)Identify three variable costs.(b)Support your answer by illustrating the cost behavior pattern per unit and in total as the annual volume of motorcycles produced increases from 4,000 cars to 8,000 cars for one variable cost.
 $\begin{array}{lr}
\text { Monthly machine rental charge } & \$ 8,000 \
\text { Monthly insurance premiums on the plant } & 800 \
\text { Sports car tire cost (per tire) } & 100\
\text { Salaried employees' weekly payroll cost }&51,000\
\text { Manufacturing hourly employees' weekly payroll}&88,000\
\text { Depreciation on the equipment for the month}&6,000\
\text {  Car battery (one battery)}&70
\end{array}$

Accepted Answer

a.Sports car tire cost (per tire)($100),

Question 11

Edward Cheezer's makes and sells frozen four-cheese pizzas,New York-style.The expected selling price is $10 per pizza.The projected variable cost per pizza is $6.The estimated fixed costs per month are $10,000. The number of pizzas that must be sold to obtain a monthly profit of $20,000 is

Accepted Answer

A)  2,000 pizzas. 
B)  5,000 pizzas. 
C)  2,500 pizzas. 
D)  7,500 pizzas. 
A)  2,000 pizzas. 
B)  5,000 pizzas. 
C)  2,500 pizzas. 
D)  7,500 pizzas.

Question 12

Given the following cost and activity observations for Notwen Company's maintenance costs,use the high-low method to calculate Notwen's monthly fixed costs for maintenance. $$\begin{array} {  c c r } 
& \text { Cost } & \text { Units Produced } \
\text { January } & \$ 130,000 & 25,000 \
\text { February } & 180,500 & 35,000 \
\text { March } & 151,100 & 28,000 \

\end{array}$$

Accepted Answer

A)  $11,250 
B)  $4,550 
C)  $3,750 
D)  $2,650 
A)  $11,250 
B)  $4,550 
C)  $3,750 
D)  $2,650

Question 13

If fixed costs are $180,000,variable costs are $38 per unit,and the product sells for $70,the breakeven point in sales dollars is $393,750.

Accepted Answer

A) True 
 B)False

Question 14

If fixed costs are $24,000,variable costs are $25 per unit,and the product sells for $45,the total contribution margin at the breakeven point is $1,200.

Accepted Answer

A) True 
 B)False

Question 15

The following are monthly totals taken from the log of a color photocopying machine used by the Kinlo's Printing Company.Cost was based on a flat fee plus a declining cost per copy made after a minimum number of copies had been made each month.
 $$\begin{array} { l r r  } 
& \text { Number of Copies } & \
\text { Month } & \text { Made } & \text { Total Cost } \
\text { January } & 35,200 & 110,800 \
\text { February } & 30,400 & 9,600 \
\text { March } & 32,900 & 10,225 \
\text { April } & 40,300 & 12,075 \
\text { May } & 38,400 & 11,600 \
\text { June } & 48,900 & 14,225
\end{array}$$ To differentiate the variable and fixed costs in the use of this machine for future planning,use the high-low method to (a)determine the variable cost per copy and (b)compute the fixed and variable costs for the months of February and June.

Accepted Answer

None

Question 16

If the contribution margin on a new product line is $15,fixed costs are $165,000,and the total market for the product is 22,000 units,then the breakeven analysis would recommend that the company

Accepted Answer

A)  abandon the new product line. 
B)  decrease the sales price per unit. 
C)  increase fixed costs (such as advertising) to lower the breakeven units. 
D)  adopt the new product line. 
A)  abandon the new product line. 
B)  decrease the sales price per unit. 
C)  increase fixed costs (such as advertising) to lower the breakeven units. 
D)  adopt the new product line.

Question 17

The graph below depicts two different types of costs.Questions related to the graph should be answered in the spaces provided.   
a. The line H-B represents what type of cost? ______________________
b. Production at point J versus point L would __________ total variable costs.
c. Production at point J versus point L would __________ per unit fixed costs.
d. What is a possible reason that line G-A increases at point A to a new horizontal line?
e. What kind of cost is depicted by the line from point G to point A?

Accepted Answer

a.variable costs
b.decrease
c.

Question 18

An increase in the unit sales price will cause the breakeven point to increase.

Accepted Answer

A) True 
 B)False

Question 19

At production levels beyond the breakeven point,

Accepted Answer

A)  fixed costs are not recovered. 
B)  profit is negative. 
C)  variable costs are zero. 
D)  profit is positive. 
A)  fixed costs are not recovered. 
B)  profit is negative. 
C)  variable costs are zero. 
D)  profit is positive.

Question 20

The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $31,680. The breakeven point in watches per month is

Accepted Answer

A)  1,535 watches. 
B)  2,010 watches. 
C)  1,760 watches. 
D)  2,200 watches. 
A)  1,535 watches. 
B)  2,010 watches. 
C)  1,760 watches. 
D)  2,200 watches.

Exam 20: Cost Behavior Analysis

Practical capacity and normal capacity are synonymous terms.

Normal capacity is the average annual level of operating capacity needed to meet expected sales demand.

Contribution Margin Income Statement divides costs into product and period costs.

The breakeven point is the level of activity at which fixed costs are recovered.

In a graph of cost-volume-profit analysis,the

Linear approximation is a method of converting nonlinear variable costs into linear fixed costs.

Breakeven analysis adjusted for a profit factor

Which of the following would not require the use of cost behavior analysis?

Edward Cheezer's makes and sells frozen four-cheese pizzas,New York-style.The expected selling price is $10 per pizza.The projected variable cost per pizza is $6.The estimated fixed costs per month are $10,000. The number of pizzas that must be sold to obtain a monthly profit of $20,000 is

Given the following cost and activity observations for Notwen Company's maintenance costs,use the high-low method to calculate Notwen's monthly fixed costs for maintenance. Cost Units Produced January \ 130,000 25,000 February 180,500 35,000 March 151,100 28,000

If fixed costs are $180,000,variable costs are $38 per unit,and the product sells for $70,the breakeven point in sales dollars is $393,750.

If fixed costs are $24,000,variable costs are $25 per unit,and the product sells for $45,the total contribution margin at the breakeven point is $1,200.

If the contribution margin on a new product line is $15,fixed costs are $165,000,and the total market for the product is 22,000 units,then the breakeven analysis would recommend that the company

An increase in the unit sales price will cause the breakeven point to increase.

At production levels beyond the breakeven point,

The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $31,680. The breakeven point in watches per month is

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Contributed Capital

Investments

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

The Changing Business Environment - a Managers Perspective

Cost Concepts and Cost Allocation

Costing Systems- Job Order Costing

Costing Systems- Process Costing

Value-Based Systems- Abm and Lean

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Pricing Decisions,incltarget Costing and Transfer Pricing

Quality Management and Measurement

Financial Analysis of Performance

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