Question 1

A cost that contains both fixed and variable elements is referred to as a:

Accepted Answer

A)  mixed cost. 
B)  hybrid cost. 
C)  relevant cost. 
D)  nonvariable cost. 
A)  mixed cost. 
B)  hybrid cost. 
C)  relevant cost. 
D)  nonvariable cost.

Question 2

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

Accepted Answer

A)  $2,775,000 
B)  $1,500,000 
C)  $2,250,000 
D)  $150,000 
A)  $2,775,000 
B)  $1,500,000 
C)  $2,250,000 
D)  $150,000

Question 3

Describe the format of an income statement prepared using the contribution margin approach.

Accepted Answer

An income statement that uses the contri

Question 4

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

Accepted Answer

A)  $75,000 
B)  $50,000 
C)  $83,333 
D)  $125,000 
A)  $75,000 
B)  $50,000 
C)  $83,333 
D)  $125,000

Question 5

Former NFL coach Joe Gibbs is highly sought after as a guest speaker. His fee can run as high as $150,000 for a single two-hour appearance. Recently, he was asked to speak at a seminar offered by the National Sports in Education Foundation (NSEF). Due to the charitable nature of the organization, Mr. Gibbs offered to speak for $100,000. NSEF planned to invite 350 guests who would each make a $500 contribution to the organization. The Foundation's executive director was concerned about committing so much of the organization's cash to this one event. So instead of the $100,000 fee she countered with an offer to pay Mr. Gibbs 50% of the revenue received from the seminar and no other payments.
Required:
(a) Classify the two offers in terms of cost behavior (fixed vs. variable).
Scenario A, NSEF pays Gibbs a $100,000 fee:
Scenario B, NSEF pays Gibbs 50% of revenue:
(b) Compute the budgeted income (assuming there are no other expenses) under each of the following scenarios:
1) NSEF agrees to pay the $100,000 fee, and 350 guests actually attend the seminar; and
2) NSEF pays Mr. Gibbs 50% of revenue, and 350 guests attend the seminar.
(c) For each scenario ($100,000 fee vs. 50% of revenue), compute the percentage increase in profit that would result if the Foundation is able to increase attendance by 20 percent over the original plan (to a total of 420).
(d) For each scenario, compute NSEF's cost per contributor if 350 attend and if 420 contributors attend.
(e) Summarize the impact on risk and profits of shifting the cost structure from fixed to variable costs.

Accepted Answer

(a) Cost behavior of the two offers:
$10

Question 6

The following information is provided for Southall Company: $\begin{array}{|l|r|}
\hline \text { Sales revenue } & \$ 125,000 \
\hline \text { Variable manufacturing costs } & 42,500 \
\hline \text { Fixed manufacturing costs } & 37,500 \
\hline \text { Variable selling and administrative costs } & 15,000 \
\hline \text { Fixed selling and administrative costs } & 12,500\\hline
\end{array}$ What is this company's contribution margin?

Accepted Answer

A)  $30,000 
B)  $17,500 
C)  $45,000 
D)  $67,500 
A)  $30,000 
B)  $17,500 
C)  $45,000 
D)  $67,500

Question 7

At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing costs of $4,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit?

Accepted Answer

A)  $26 
B)  $28 
C)  $44 
D)  $36 
A)  $26 
B)  $28 
C)  $44 
D)  $36

Question 8

Goff Corporation sells products for $75 each that have variable costs of $50 per unit. Goff's fixed cost is $350,000.
Required:
Calculate the contribution margin per unit, then use the per unit contribution margin approach to find the break-even point in units and dollars.

Accepted Answer

Unit contribution margin is $2

Question 9

Select the incorrect statement regarding the contribution margin income statement.

Accepted Answer

A)  The contribution margin approach for the income statement is unacceptable for external reporting. 
B)  Contribution margin represents the amount available to cover product costs and thereafter to provide profit. 
C)  The contribution margin approach requires that all costs be classified as fixed or variable. 
D)  Assuming no change in fixed costs, a $1 increase in contribution margin will result in a $1 increase in profit. 
A)  The contribution margin approach for the income statement is unacceptable for external reporting. 
B)  Contribution margin represents the amount available to cover product costs and thereafter to provide profit. 
C)  The contribution margin approach requires that all costs be classified as fixed or variable. 
D)  Assuming no change in fixed costs, a $1 increase in contribution margin will result in a $1 increase in profit.

Question 10

Operating leverage enables a company to convert small changes in fixed costs into dramatic changes in profitability.

Accepted Answer

A) True 
 B)False

Question 11

What is the break-even point for a company?

Accepted Answer

The break-even point is where

Question 12

Costs that might be incurred by service, merchandising, and manufacturing companies are described below:
Sales commissions paid to sales associates in a department store
Shipping cost for Amazon
Electricity cost to heat and light a law firm
Rent on a storeroom used by Turf Pros to store lawn equipment
Salary of a supervisor in a Best Buy distribution center
Wages paid to production workers in a General Motors plant
Insurance on a Hershey factory
Fuel costs for Southwest Airlines
Depreciation of office equipment by Microsoft Corporation
Dishwashing in an Olive Garden restaurant
Salary of the CEO of Microsoft
Lubricants used to maintain machinery in a textile factory
Cost of metal cans used in a dog food factory
Cost of pizza boxes for Domino's Pizza
Material handling costs for Frito Lay
Required:
Classify each cost as variable (V) or fixed (F) with respect to volume or level of activity.

Accepted Answer

Sales commissions paid to sales associat

Question 13

In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?

Accepted Answer

A)  Variable cost 
B)  Fixed cost 
C)  Mixed cost 
D)  None of these 
A)  Variable cost 
B)  Fixed cost 
C)  Mixed cost 
D)  None of these

Question 14

Select the incorrect statement regarding fixed and variable costs.

Accepted Answer

A)  Fixed cost per unit remains constant as the number of units increases. 
B)  Total variable cost is represented by a straight line sloping upward from the origin when total variable cost is graphed versus number of units. 
C)  The concept of relevant range applies to both fixed costs and variable costs. 
D)  The terms "fixed" and "variable" refer to the behavior of total cost. 
A)  Fixed cost per unit remains constant as the number of units increases. 
B)  Total variable cost is represented by a straight line sloping upward from the origin when total variable cost is graphed versus number of units. 
C)  The concept of relevant range applies to both fixed costs and variable costs. 
D)  The terms "fixed" and "variable" refer to the behavior of total cost.

Question 15

Which of the following statements regarding Company A is incorrect?

Accepted Answer

A)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even volume in units is 36,000 units. 
B)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit. 
C)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, once it has covered its fixed costs, net income will increase by $30 for each additional unit sold. 
D)  Both if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even volume in units is 36,000 units and if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit are incorrect. 
A)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even volume in units is 36,000 units. 
B)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit. 
C)  If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, once it has covered its fixed costs, net income will increase by $30 for each additional unit sold. 
D)  Both if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even volume in units is 36,000 units and if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit are incorrect.

Question 16

The following information is for Companies M and N for the most recent year: $$\begin{array} { | l | c | c | } 
\hline & \text { Company M } & \text { Company N } \
\hline \text { Sales } & \$ 500,000 & \$ 500,000 \
\hline \text { Variable costs } & \$ 300,000 & \$ 200,000 \
\hline \text { Fixed costs } & \$ 50,000 & \$ 150,000 \
\hline
\end{array}$$ Based on this information, select the incorrect statement:

Accepted Answer

A)  M's magnitude of operating leverage was lower than N's. 
B)  N would suffer more than M from an equal drop in sales revenue. 
C)  M's cost structure carries greater risk and greater potential for profit. 
D)  If N's sales increased by 20%, its net income would increase by 40%. 
A)  M's magnitude of operating leverage was lower than N's. 
B)  N would suffer more than M from an equal drop in sales revenue. 
C)  M's cost structure carries greater risk and greater potential for profit. 
D)  If N's sales increased by 20%, its net income would increase by 40%.

Question 17

If revenues are expected to decline, management should attempt to convert its variable costs into fixed costs.

Accepted Answer

A) True 
 B)False

Question 18

Southern Food Service operates six restaurants in the Atlanta area. The company pays rent of $20,000 per year for each shop. The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost?

Accepted Answer

A)  Mixed cost 
B)  Fixed cost 
C)  Variable cost 
D)  None of these 
A)  Mixed cost 
B)  Fixed cost 
C)  Variable cost 
D)  None of these

Question 19

Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time.

Accepted Answer

A) True 
 B)False

Question 20

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

Accepted Answer

A) True 
 B)False

A cost that contains both fixed and variable elements is referred to as a:

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

Describe the format of an income statement prepared using the contribution margin approach.

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

The following information is provided for Southall Company: Sales revenue \ 125,000 Variable manufacturing costs 42,500 Fixed manufacturing costs 37,500 Variable selling and administrative costs 15,000 Fixed selling and administrative costs 12,500 What is this company's contribution margin?

At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing costs of $4,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit?

Goff Corporation sells products for $75 each that have variable costs of $50 per unit. Goff's fixed cost is $350,000. Required: Calculate the contribution margin per unit, then use the per unit contribution margin approach to find the break-even point in units and dollars.

Select the incorrect statement regarding the contribution margin income statement.

Operating leverage enables a company to convert small changes in fixed costs into dramatic changes in profitability.

What is the break-even point for a company?

In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?

Select the incorrect statement regarding fixed and variable costs.

Which of the following statements regarding Company A is incorrect?

The following information is for Companies M and N for the most recent year: Company M Company N Sales \ 500,000 \ 500,000 Variable costs \ 300,000 \ 200,000 Fixed costs \ 50,000 \ 150,000 Based on this information, select the incorrect statement:

If revenues are expected to decline, management should attempt to convert its variable costs into fixed costs.

Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time.

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 11: Cost Behavior, Operating Leverage, and Profitability Analysis

A cost that contains both fixed and variable elements is referred to as a:

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

Describe the format of an income statement prepared using the contribution margin approach.

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

The following information is provided for Southall Company: Sales revenue \ 125,000 Variable manufacturing costs 42,500 Fixed manufacturing costs 37,500 Variable selling and administrative costs 15,000 Fixed selling and administrative costs 12,500 What is this company's contribution margin?

At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing costs of $4,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit?

Goff Corporation sells products for $75 each that have variable costs of $50 per unit. Goff's fixed cost is $350,000. Required: Calculate the contribution margin per unit, then use the per unit contribution margin approach to find the break-even point in units and dollars.

Select the incorrect statement regarding the contribution margin income statement.

Operating leverage enables a company to convert small changes in fixed costs into dramatic changes in profitability.

What is the break-even point for a company?

In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?

Select the incorrect statement regarding fixed and variable costs.

Which of the following statements regarding Company A is incorrect?

The following information is for Companies M and N for the most recent year: Company M Company N Sales \ 500,000 \ 500,000 Variable costs \ 300,000 \ 200,000 Fixed costs \ 50,000 \ 150,000 Based on this information, select the incorrect statement:

If revenues are expected to decline, management should attempt to convert its variable costs into fixed costs.

Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time.

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters