Question 1

The most complex of the cost estimation methods is the high-low method.

Accepted Answer

A) True 
 B)False  False

Question 2

Define the break-even point of a company.

Accepted Answer

The break-even point of a company is the sales level at which the company neither earns a profit nor incurs a loss for the planning period. Alternatively stated, the company's sales level equals the total of variable and fixed costs.

Question 3

Cost-volume-profit analysis is based on three basic assumptions. Which of the following is not one of these assumptions?

Accepted Answer

A)  Total fixed costs remain constant over changes in volume. 
B)  Curvilinear costs change proportionately with changes in volume throughout the relevant range. 
C)  Variable costs per unit of output remain constant as volume changes. 
D)  Sales price per unit remains constant as volume changes. 
E)  The relationship between volume, costs and profits do not necessarily hold outside the relevant range. 
A)  Total fixed costs remain constant over changes in volume. 
B)  Curvilinear costs change proportionately with changes in volume throughout the relevant range. 
C)  Variable costs per unit of output remain constant as volume changes. 
D)  Sales price per unit remains constant as volume changes. 
E)  The relationship between volume, costs and profits do not necessarily hold outside the relevant range. B

Question 4

A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. The company's break-even point in units is:

Accepted Answer

A)  7,412 
B)  34,389 
C)  9,448 
D)  13,026 
E)  66 
A)  7,412 
B)  34,389 
C)  9,448 
D)  13,026 
E)  66

Question 5

A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. What is the company's break-even point in dollars? (Round all calculations to 2 decimal places.)

Accepted Answer

A)  $627,592.68 
B)  $1,177,693.15 
C)  $622,982.60 
D)  $1,091,839.30 
E)  $66.00 
A)  $627,592.68 
B)  $1,177,693.15 
C)  $622,982.60 
D)  $1,091,839.30 
E)  $66.00

Question 6

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.

Accepted Answer

A) True 
 B)False

Question 7

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

Accepted Answer

A)  $7.50 
B)  $16.25 
C)  $23.75 
D)  $60,000 
E)  $1.25 
A)  $7.50 
B)  $16.25 
C)  $23.75 
D)  $60,000 
E)  $1.25

Question 8

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

Accepted Answer

A)  Target income analysis. 
B)  Cost-volume-profit analysis. 
C)  Least-squares regression of costs. 
D)  Variance analysis. 
E)  Process costing. 
A)  Target income analysis. 
B)  Cost-volume-profit analysis. 
C)  Least-squares regression of costs. 
D)  Variance analysis. 
E)  Process costing.

Question 9

A CVP graph presents data on:

Accepted Answer

A)  Profit and loss on a unit basis. 
B)  Profit, loss, and break-even on a total basis. 
C)  Profit, loss, and break-even on a unit basis. 
D)  Only profit and loss on a total basis. 
E)  Profit and loss on a budget and actual basis. 
A)  Profit and loss on a unit basis. 
B)  Profit, loss, and break-even on a total basis. 
C)  Profit, loss, and break-even on a unit basis. 
D)  Only profit and loss on a total basis. 
E)  Profit and loss on a budget and actual basis.

Question 10

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

Accepted Answer

A) True 
 B)False

Question 11

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

Accepted Answer

A) True 
 B)False

Question 12

What-if analysis of cost, revenue, and volume changes is called _______________________. Further analysis of this nature may be achieved by measuring the degree of ______________________.

Accepted Answer

Sensitivit

Question 13

A statistical method for deriving an estimated line of cost behavior is the:

Accepted Answer

A)  Scatter diagram method. 
B)  High-low method. 
C)  Composite method. 
D)  CVP charting method. 
E)  Least-squares regression method. 
A)  Scatter diagram method. 
B)  High-low method. 
C)  Composite method. 
D)  CVP charting method. 
E)  Least-squares regression method.

Question 14

Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%.
(a) Calculate the company's break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?

Accepted Answer

The answer of Wilson Co. is preparing next period's forecasts....

Question 15

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).
3

Accepted Answer

Variable costs per unit are co

Question 16

The margin of safety is the amount that sales can drop before the company incurs a loss.

Accepted Answer

A) True 
 B)False

Question 17

Duxbury Co. reports the following data for the current year: $$\begin{array} { l r } 
\text { Units Sold } & 1,200 \
\text { Unit Sales Price } & \$ 30 \
\text { Unit Variable Cost } & \$ 10 \
\text { Total Fixed Cost } & \$ 18,000
\end{array}$$
Required:
(a) Calculate the breakeven point in units.
(b) Calculate Duxbury's pretax income.
(c) Calculate Duxbury's degree of operating leverage.
(d) Calculate the margin of safety in units.

Accepted Answer

(a) BE units = $18,000/(30 - 1

Question 18

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

Accepted Answer

Targeted dollar sale

Question 19

The high-low method can be used to derive an estimated line of cost behavior.

Accepted Answer

A) True 
 B)False

Question 20

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Accepted Answer

A)  Increase by 20,000. 
B)  Equal 6,000. 
C)  Increase by 6,000. 
D)  Decrease by 20,000. 
E)  Not change. 
A)  Increase by 20,000. 
B)  Equal 6,000. 
C)  Increase by 6,000. 
D)  Decrease by 20,000. 
E)  Not change.

Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

The most complex of the cost estimation methods is the high-low method.

Define the break-even point of a company.

Cost-volume-profit analysis is based on three basic assumptions. Which of the following is not one of these assumptions?

A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. The company's break-even point in units is:

A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. What is the company's break-even point in dollars? (Round all calculations to 2 decimal places.)

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

A CVP graph presents data on:

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

What-if analysis of cost, revenue, and volume changes is called _______________________. Further analysis of this nature may be achieved by measuring the degree of ______________________.

A statistical method for deriving an estimated line of cost behavior is the:

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product). 3

The margin of safety is the amount that sales can drop before the company incurs a loss.

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

The high-low method can be used to derive an estimated line of cost behavior.

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters

What-if analysis of cost, revenue, and volume changes is called _. Further analysis of this nature may be achieved by measuring the degree of .