Question 1

Contribution margin is selling price minus unit fixed costs.

Accepted Answer

A) True 
 B)False

Question 2

The point at which the total cost line intersects with the total revenue line provides information on the number of units that must be sold to break even.

Accepted Answer

A) True 
 B)False

Question 3

Projected cost information for a new product to be produced by Kolier Manufacturing is as follows:
 $\text { Expected variable unit costs: }$

$\begin{array}{lr}
\text { Direct materials } & \$ 10.90 \
\text { Direct labor } & 7.18 \
\text { Overhead } & 1.92 \
\text { Selling costs } & 4.00
\end{array}$

$\text { Annual fixed costs: }$
$\begin{array}{lr}
\text { Taxes on property used } & \$ 8,870 \
\text { Depreciation on building and equipment } & 18,920 \
\text { Advertising } & 38,840 \
\text { Other } & 2,070
\end{array}$ 
The product is to be sold for $49. 
a. Compute the number of units that must be sold to earn a profit of $80,000.
b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained.
c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.
d. The most in annual sales that could be projected is 20,000 units. Determine the added amount that could be spent on fixed advertising costs if the highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.

Accepted Answer

a.
   avalable that

Question 4

Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

Accepted Answer

A) True 
 B)False

Question 5

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 6

A project breaks even when total revenue less all costs is equal to zero.

Accepted Answer

A) True 
 B)False

Question 7

Using the contribution margin approach,find the breakeven point in units for Consumer Products if the selling price per unit is $12,the variable cost per unit is $6,and the fixed costs are $8,040.

Accepted Answer

A)  670 
B)  1,200 
C)  1,340 
D)  6,000 
A)  670 
B)  1,200 
C)  1,340 
D)  6,000

Question 8

Adding the contribution margin as a component to cost-volume-profit computations will not change the resulting amount of breakeven units in a given situation.

Accepted Answer

A) True 
 B)False

Question 9

Loren,Inc.,sold 30,000 units of its product last year with the following results:
 $\begin{array}{lr}
\text { Sales revenue } & \$ 900,000 \
\text { Variable costs } & 630,000 \
\text { Fixed costs } & \underline{190,000} \
\text { Operating income } &\underline{ \$ 80,000}
\end{array}$
 
The company expects variable costs to increase by $4.00 per unit this year. 
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year.
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales price the company must charge to cover the expected increase in variable costs.

Accepted Answer

a.
b.Desired unit sales = ($190,000 + $8

Question 10

Adding a desired profit level to breakeven computations will lower the number of sales units.

Accepted Answer

A) True 
 B)False

Question 11

Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.

Accepted Answer

Yes.A service organization does not have

Question 12

SHARE is trying to determine how many clients must be serviced in order to cover its monthly service overhead.Using the high-low method,it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. Assuming an average fee of $1,200 per client,the breakeven point per month is

Accepted Answer

A)  35 clients. 
B)  80 clients. 
C)  70 clients. 
D)  55 clients. 
A)  35 clients. 
B)  80 clients. 
C)  70 clients. 
D)  55 clients.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The breakeven formula adjusted for profits may be stated as

Accepted Answer

A)  S = VC - FC + P. 
B)  S = VC - FC - P. 
C)  VC + FC - P = S. 
D)  S = VC + FC + P. 
A)  S = VC - FC + P. 
B)  S = VC - FC - P. 
C)  VC + FC - P = S. 
D)  S = VC + FC + P.

Question 15

Ben & Harry Co.sold 100,000 units last year with the following results:
 $$\begin{array} { l r } 
\text { Sales revenue } & \$ 400,000 \
\text { Variable costs } & 160,000 \
\text { Contribution margin } & \$ 240,000 \
\text { Fixed costs } & 100,000 \
\text { Operating income } & \$ 140,000 \

\end{array}$$ 
a. Management thinks that a 5 percent reduction in the unit sales price and a $31,000 increase in fixed advertising costs will create a 30 percent increase in unit sales. Assess this proposal and make a recommendation on what action should be taken.
b. Assume that the marketing manager thinks that the unit sales price should not be changed. Instead, he recommends a $0.40 per unit increase in sales commissions coupled with some increase in advertising to generate the 30 percent increase in unit sales and a 20 percent increase in operating income. Assess this proposal and determine the maximum amount of money that can be spent on advertising if the targeted profit is to be achieved.

Accepted Answer

a.If the changes are made,the following

Question 16

If a company wants to know how many units of a certain product it must sell to make a desired level of profit,it should add the amount of profit to the numerator in the breakeven analysis.

Accepted Answer

A) True 
 B)False

Question 17

Dick Sports,Inc.'s,income statement data for last year is as follows: $$\begin{array} { l r } 
\text { Sales revenue } & \$ 200,000 \
\text { Variable costs } & 140,000 \
\text { Fixed costs } & 30,000 \
\text { Operating income } & 18,000 \
\end{array}$$ 
What is Dick's breakeven point in dollars?

Accepted Answer

A)  $100,000 
B)  $18,000 
C)  $142,000 
D)  $48,000 
A)  $100,000 
B)  $18,000 
C)  $142,000 
D)  $48,000

Question 18

The relevant range of activity is the range in which actual operations are likely to occur.

Accepted Answer

A) True 
 B)False

Question 19

Contribution margin (CM)is the amount that remains after all fixed costs are subtracted from sales.

Accepted Answer

A) True 
 B)False

Question 20

The typical relationship between variable costs and volume may be described best as follows:

Accepted Answer

A)  Costs increase in an erratic, unpredictable fashion with changes in volume. 
B)  Costs stay fairly constant with changes in volume. 
C)  Costs increase with changes in volume up to a certain point and then remain constant. 
D)  Costs increase in direct proportion to increases in volume. 
A)  Costs increase in an erratic, unpredictable fashion with changes in volume. 
B)  Costs stay fairly constant with changes in volume. 
C)  Costs increase with changes in volume up to a certain point and then remain constant. 
D)  Costs increase in direct proportion to increases in volume.

Exam 20: Cost Behavior Analysis

Contribution margin is selling price minus unit fixed costs.

The point at which the total cost line intersects with the total revenue line provides information on the number of units that must be sold to break even.

Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

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

A project breaks even when total revenue less all costs is equal to zero.

Using the contribution margin approach,find the breakeven point in units for Consumer Products if the selling price per unit is $12,the variable cost per unit is $6,and the fixed costs are $8,040.

Adding the contribution margin as a component to cost-volume-profit computations will not change the resulting amount of breakeven units in a given situation.

Adding a desired profit level to breakeven computations will lower the number of sales units.

Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.

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

The breakeven formula adjusted for profits may be stated as

If a company wants to know how many units of a certain product it must sell to make a desired level of profit,it should add the amount of profit to the numerator in the breakeven analysis.

Dick Sports,Inc.'s,income statement data for last year is as follows: Sales revenue \ 200,000 Variable costs 140,000 Fixed costs 30,000 Operating income 18,000 What is Dick's breakeven point in dollars?

The relevant range of activity is the range in which actual operations are likely to occur.

Contribution margin (CM)is the amount that remains after all fixed costs are subtracted from sales.

The typical relationship between variable costs and volume may be described best as follows:

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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