Question 1

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about the relations among costs, volume, and profits.

Accepted Answer

A) True 
 B)False

Question 2

A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow:
 
-The contribution margin per composite unit is:

Accepted Answer

A)  $12 
B)  $20 
C)  $32 
D)  $44 
E)  $52 
A)  $12 
B)  $20 
C)  $32 
D)  $44 
E)  $52

Question 3

The high-low method is used to derive an estimated line of cost behavior by graphically connecting the two cost amounts identified with the highest and lowest volume levels.

Accepted Answer

A) True 
 B)False

Question 4

A target income refers to:

Accepted Answer

A)  Income at the break-even point. 
B)  Income from the most recent period. 
C)  Income planned for a future period. 
D)  Income only in a multiproduct environment. 
E)  Income at the minimum contribution margin. 
A)  Income at the break-even point. 
B)  Income from the most recent period. 
C)  Income planned for a future period. 
D)  Income only in a multiproduct environment. 
E)  Income at the minimum contribution margin.

Question 5

Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000. Kelley Company's costs consist of $40,000 fixed and $100,000 variable, while Mason Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%?

Accepted Answer

@#IMG-DLM&
Therefore, Mason Co

Question 6

Gabel Industries has collected the following data in order to analyze the behavior of their costs: $\begin{array}{|c|c|c|}
\hline \text { Month } & \text { Units Produced } & \text { Total Cost } \
\hline \text { January } & 8,750 & \$ 40,500 \
\hline \text { February } & 13.750 & \$ 41,500 \
\hline \text { March } & 12,500 & \$ 45,000 \
\hline \text { April } & 17,500 & \$ 41,500 \
\hline \text { May } & 23,750 & \$ 45,500 \
\hline \text { June } & 11,500 & \$ 38,500 \
\hline
\end{array}$
(a) Using the high-low method, calculate the variable cost per unit and the estimated fixed costs.
(b) Using the resulting relationship, predict the costs if they produce 18,500 units in a future period.

Accepted Answer

(a) Variable cost/unit = ($45,500 - 40,5

Question 7

Use the following information to determine the margin of safety in dollars:

Accepted Answer

A)  $88,500 
B)  $108,500 
C)  $173,600 
D)  $326,400 
E)  $500,000 
A)  $88,500 
B)  $108,500 
C)  $173,600 
D)  $326,400 
E)  $500,000

Question 8

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Accepted Answer

A) True 
 B)False

Question 9

Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales. What is the pretax income if sales are $650,000?

Accepted Answer

Pretax Income = $650

Question 10

A _______________ cost is one that remains unchanged in amount when volume of activity varies from period to period within a relevant range. A ______________ cost is one that changes in proportion to changes in volume of activity.

Accepted Answer

The answer of A _______________ cost is one that remains...

Question 11

Beard Enterprises has collected the following data in order to analyze the behavior of their costs:
$$\begin{array} { | c | c | c | } 
\hline \text { Month } & \text { Units Produced } & \text { Total Cost } \
\hline \text { January } & 17,500 & \$ 20,500 \
\hline \text { February } & 27,500 & \$ 21,500 \
\hline \text { March } & 25,000 & \$ 25,000 \
\hline \text { April } & 35,000 & \$ 21,500 \
\hline \text { May } & 47,500 & \$ 25,500 \
\hline \text { June } & 22,500 & \$ 18,500 \
\hline
\end{array}$$
(a) Using the high-low method, calculate the variable cost per unit and the estimated fixed costs.
(b) Using the resulting relationship, predict the costs if they produce 28,000 units in a future period.

Accepted Answer

(a) Variable cost/unit = ($25,500 - 20,5

Question 12

The high-low method of deriving an estimated cost line uses all the data points available.

Accepted Answer

A) True 
 B)False

Question 13

Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

Accepted Answer

A)  6% 
B)  25% 
C)  33% 
D)  50% 
E)  75% 
A)  6% 
B)  25% 
C)  33% 
D)  50% 
E)  75%

Question 14

A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:

Accepted Answer

A)  Least-squares diagram. 
B)  Step-wise diagram. 
C)  Scatter diagram. 
D)  Break-even diagram. 
E)  Composite diagram. 
A)  Least-squares diagram. 
B)  Step-wise diagram. 
C)  Scatter diagram. 
D)  Break-even diagram. 
E)  Composite diagram.

Question 15

A firm provides the following sales data: $$\begin{array} { l r l r } 
\text { Expected unit sales } & 5,000 & \text { Unit variable cost } & \$ 10 \
\text { Unit selling price } & \$ 16 & \text { Total fixed cost } & \$ 12,000
\end{array}$$
Required:
(a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.

Accepted Answer

(a) Contribution margin ratio

Question 16

Unit contribution margin is the amount each unit contributes to both fixed costs and net income.

Accepted Answer

A) True 
 B)False

Question 17

Break-even analysis is a special case of cost-volume-profit analysis.

Accepted Answer

A) True 
 B)False

Question 18

A cost-volume-profit chart is also known as a(n)

Accepted Answer

A)  Operating profit chart. 
B)  Operating leverage chart. 
C)  Break-even chart. 
D)  Margin of safety chart. 
E)  Sales chart. 
A)  Operating profit chart. 
B)  Operating leverage chart. 
C)  Break-even chart. 
D)  Margin of safety chart. 
E)  Sales chart.

Question 19

Unit contribution margin is the amount a product's unit selling price exceeds its total variable cost.

Accepted Answer

A) True 
 B)False

Question 20

Assume Moe's Southwest Grill has a break-even point of 24,000 units. At this point, total sales are $1,800,000 and total variable costs are $1,200,000. Compute total fixed costs at the break-even point.

Accepted Answer

A)  $1,800,000 
B)  $1,200,000 
C)  $3,000,000 
D)  $25 
E)  $600,000 
A)  $1,800,000 
B)  $1,200,000 
C)  $3,000,000 
D)  $25 
E)  $600,000

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

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about the relations among costs, volume, and profits.

A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow: -The contribution margin per composite unit is:

The high-low method is used to derive an estimated line of cost behavior by graphically connecting the two cost amounts identified with the highest and lowest volume levels.

A target income refers to:

Use the following information to determine the margin of safety in dollars:

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales. What is the pretax income if sales are $650,000?

A _______________ cost is one that remains unchanged in amount when volume of activity varies from period to period within a relevant range. A ______________ cost is one that changes in proportion to changes in volume of activity.

The high-low method of deriving an estimated cost line uses all the data points available.

Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:

A firm provides the following sales data: Expected unit sales 5,000 Unit variable cost \ 10 Unit selling price \ 16 Total fixed cost \ 12,000 Required: (a) Calculate the break-even point in dollar sales. (b) Calculate the margin of safety in dollar sales.

Unit contribution margin is the amount each unit contributes to both fixed costs and net income.

Break-even analysis is a special case of cost-volume-profit analysis.

A cost-volume-profit chart is also known as a(n)

Unit contribution margin is the amount a product's unit selling price exceeds its total variable cost.

Assume Moe's Southwest Grill has a break-even point of 24,000 units. At this point, total sales are $1,800,000 and total variable costs are $1,200,000. Compute total fixed costs at the break-even point.

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

A _ cost is one that remains unchanged in amount when volume of activity varies from period to period within a relevant range. A cost is one that changes in proportion to changes in volume of activity.