Question 1

What will be the effect on the breakeven point if advertising costs increase?

Accepted Answer

A)  The break-even point will be higher. 
B)  The break-even point will be lower. 
C)  The break-even point will not change. 
D)  It is not possible to calculate the effect without having more information. 
A)  The break-even point will be higher. 
B)  The break-even point will be lower. 
C)  The break-even point will not change. 
D)  It is not possible to calculate the effect without having more information. A

Question 2

Sports Equipment Ltd, a sporting goods manufacturer, has recently created a new department to produce badminton equipment. In the next period the department will manufacture a single product, an aluminium badminton racquet, which has a unit selling price of $18. The variable costs per unit are $6 and the fixed costs per month are $8 000. The department has the capacity to produce 5 000 units per month. Management would like to use the production facilities at full capacity and also yield a monthly profit of $20 000. Assuming demand can be increased by reducing the selling price, calculate the minimum unit price at which both these objectives can be achieved.

Accepted Answer

A)  $10.00 
B)  $11.60 
C)  $12.00 
D)  $18.00 
A)  $10.00 
B)  $11.60 
C)  $12.00 
D)  $18.00 B

Question 3

Davis Ltd has observed that at an activity level of 10 000 units the maintenance cost is $22 000, and at 20 000 units the maintenance cost is $28 000. Using the high-low method, the cost formula for maintenance is:

Accepted Answer

A)  $16 000 + $.60 x units. 
B)  $16 000 + $.1.54 x units. 
C)  $6 000 + $.60 x units. 
D)  $1.40/unit. 
A)  $16 000 + $.60 x units. 
B)  $16 000 + $.1.54 x units. 
C)  $6 000 + $.60 x units. 
D)  $1.40/unit. A

Question 4

Which of the following is not an assumption of cost-volume-profit analysis?

Accepted Answer

A)  Costs can be classified into variable and fixed categories. 
B)  The time value of money is incorporated into the analysis. 
C)  The sales mix will remain constant. 
D)  The behaviour of income and expenses is regarded as linear over the relevant range. 
A)  Costs can be classified into variable and fixed categories. 
B)  The time value of money is incorporated into the analysis. 
C)  The sales mix will remain constant. 
D)  The behaviour of income and expenses is regarded as linear over the relevant range.

Question 5

A small publishing house sold 25 000 copies of 'All about Greyhounds' in paperback at $3 per book. Fixed costs were $18 000 and variable costs were $45 000. What is the break-even point in units?

Accepted Answer

A)  3 000 
B)  5 000 
C)  10 000 
D)  15 000 
A)  3 000 
B)  5 000 
C)  10 000 
D)  15 000

Question 6

Which of the following will not result in a change to the contribution margin?

Accepted Answer

A)  Variation in the number of units sold 
B)  An increase in packaging costs 
C)  An increase in purchase price per unit 
D)  Variation of selling price per unit sold 
A)  Variation in the number of units sold 
B)  An increase in packaging costs 
C)  An increase in purchase price per unit 
D)  Variation of selling price per unit sold

Question 7

As production increases what would you expect to happen to total fixed costs?

Accepted Answer

A)  Decrease 
B)  Increase 
C)  Remain the same 
D)  Either increase or decrease, depending on the variable cost 
A)  Decrease 
B)  Increase 
C)  Remain the same 
D)  Either increase or decrease, depending on the variable cost

Question 8

Costs which, in total, vary directly or nearly directly with the volume of production are known as:

Accepted Answer

A)  direct costs. 
B)  indirect costs. 
C)  variable costs. 
D)  fixed costs. 
A)  direct costs. 
B)  indirect costs. 
C)  variable costs. 
D)  fixed costs.

Question 9

In a cost-volume-profit graph the break-even point will be found:

Accepted Answer

A)  where the total income line crosses the fixed costs line. 
B)  at the point where total income equals total fixed costs. 
C)  at the point where total income equals total fixed plus total variable costs. 
D)  where the predetermined overhead rate equals the contribution margin rate. 
A)  where the total income line crosses the fixed costs line. 
B)  at the point where total income equals total fixed costs. 
C)  at the point where total income equals total fixed plus total variable costs. 
D)  where the predetermined overhead rate equals the contribution margin rate.

Question 10

The Glitter Company has three products - X, Y and Z - having contribution margins of $6, $4 and $2 respectively. The Sales Manager is planning to sell 200 000 units in the next period, consisting of X (40 000), Y (60 000) and Z (100 000). The company's fixed costs for the period were $204 000. What is the total break-even point for the company, assuming that the given sales mix is maintained?

Accepted Answer

A)  17 000 
B)  60 000 
C)  10 200 
D)  51 000 
A)  17 000 
B)  60 000 
C)  10 200 
D)  51 000

Question 11

Using the high-low method, if the highest maintenance cost and machine hours are $40 000 and 12 000 hours respectively and the lowest maintenance cost and machine hours are $20 000 and 8 000 hours respectively, the variable maintenance costs per machine hour are:

Accepted Answer

A)  $3.33 
B)  $5.00 
C)  $2.50 
D)  $3.00 
A)  $3.33 
B)  $5.00 
C)  $2.50 
D)  $3.00

Question 12

Jackman Ltd sells its product for $50 per unit. The contribution margin per unit for Jackman Ltd is $20. Total monthly fixed costs are estimated to be $60 000. The monthly break-even units for this product will be:

Accepted Answer

A)  3 000 
B)  6 500 
C)  12 000 
D)  18 000 
A)  3 000 
B)  6 500 
C)  12 000 
D)  18 000

Question 13

Suppose the break-even point for revenue for Woolly Jumpers Inc. is $500 000. Fixed costs are $300 000. The contribution margin percentage is:

Accepted Answer

A)  0.25 
B)  0.40 
C)  0.60 
D)  0.75 
A)  0.25 
B)  0.40 
C)  0.60 
D)  0.75

Question 14

The high-low method is:

Accepted Answer

A)  a technique for determining the margin of safety. 
B)  a quote of the current price of the company's shares. 
C)  a quantitative technique that can be used to estimate a mixed cost function. 
D)  the range of activity when there are changes in productive output. 
A)  a technique for determining the margin of safety. 
B)  a quote of the current price of the company's shares. 
C)  a quantitative technique that can be used to estimate a mixed cost function. 
D)  the range of activity when there are changes in productive output.

Question 15

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

Accepted Answer

A)  usually overestimates the total cost. 
B)  is based on a very small portion of the available data. 
C)  focuses on fixed costs only and ignores variable costs. 
D)  can only be used if contribution margin income statements are also being used. 
A)  usually overestimates the total cost. 
B)  is based on a very small portion of the available data. 
C)  focuses on fixed costs only and ignores variable costs. 
D)  can only be used if contribution margin income statements are also being used.

Question 16

A change in which of the following items would not affect the break-even point?

Accepted Answer

A)  Number of units sold 
B)  Total fixed costs 
C)  Sales price per unit 
D)  Contribution margin per unit 
A)  Number of units sold 
B)  Total fixed costs 
C)  Sales price per unit 
D)  Contribution margin per unit

Question 17

Product G sells for $25 per unit and has a contribution margin rate of 20 percent. Fixed expenses total $120 000 annually. How many units of Product G must be sold to yield a profit of $60 000?

Accepted Answer

A)  24 000 
B)  36 000 
C)  12 000 
D)  9 000 
A)  24 000 
B)  36 000 
C)  12 000 
D)  9 000

Question 18

Contribution margin is:

Accepted Answer

A)  sales less cost of sales. 
B)  sales less variable costs. 
C)  equivalent to gross profit. 
D)  sales less fixed costs. 
A)  sales less cost of sales. 
B)  sales less variable costs. 
C)  equivalent to gross profit. 
D)  sales less fixed costs.

Question 19

The term 'a' in the cost equation, y = a + bx, represents:

Accepted Answer

A)  total costs. 
B)  total output. 
C)  fixed costs. 
D)  variable costs. 
A)  total costs. 
B)  total output. 
C)  fixed costs. 
D)  variable costs.

Question 20

On a per unit basis, a variable cost will:

Accepted Answer

A)  vary from unit to unit. 
B)  remain constant. 
C)  decrease. 
D)  increase. 
A)  vary from unit to unit. 
B)  remain constant. 
C)  decrease. 
D)  increase.

Exam 22: Cost-Volume-Profit Analysis for Decision Making

What will be the effect on the breakeven point if advertising costs increase?

Davis Ltd has observed that at an activity level of 10 000 units the maintenance cost is $22 000, and at 20 000 units the maintenance cost is $28 000. Using the high-low method, the cost formula for maintenance is:

Which of the following is not an assumption of cost-volume-profit analysis?

A small publishing house sold 25 000 copies of 'All about Greyhounds' in paperback at $3 per book. Fixed costs were $18 000 and variable costs were $45 000. What is the break-even point in units?

Which of the following will not result in a change to the contribution margin?

As production increases what would you expect to happen to total fixed costs?

Costs which, in total, vary directly or nearly directly with the volume of production are known as:

In a cost-volume-profit graph the break-even point will be found:

Using the high-low method, if the highest maintenance cost and machine hours are $40 000 and 12 000 hours respectively and the lowest maintenance cost and machine hours are $20 000 and 8 000 hours respectively, the variable maintenance costs per machine hour are:

Jackman Ltd sells its product for $50 per unit. The contribution margin per unit for Jackman Ltd is $20. Total monthly fixed costs are estimated to be $60 000. The monthly break-even units for this product will be:

Suppose the break-even point for revenue for Woolly Jumpers Inc. is $500 000. Fixed costs are $300 000. The contribution margin percentage is:

The high-low method is:

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

A change in which of the following items would not affect the break-even point?

Product G sells for $25 per unit and has a contribution margin rate of 20 percent. Fixed expenses total $120 000 annually. How many units of Product G must be sold to yield a profit of $60 000?

Contribution margin is:

The term 'a' in the cost equation, y = a + bx, represents:

On a per unit basis, a variable cost will:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

Filters