Deck 8: Standard Costs

Question 1

The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin ratio.

Answer 1

True

Question 2

In an absorption costing income statement,costs are grouped according to cost behaviour.

Answer 2

False

Question 3

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Answer 3

True

Question 4

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

Question 5

If fixed expenses increase by $10,000 per year,then the level of sales needed to break even will also increase by $10,000.

Question 6

In a contribution margin income statement,all manufacturing costs are deducted to get to contribution margin.

Question 7

In an absorption costing income statement,all manufacturing costs are deducted to get to gross margin.

Question 8

Once the break-even point has been reached,increases in contribution margin will be reflected dollar for dollar in increased net income.

Question 9

If two companies produce the same product and have the same total sales and same total expenses,operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost structure.

Question 10

The contribution margin income statement format is used by many businesses for external reporting purposes.

Question 11

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

Question 12

A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole.

Question 13

For a given level of sales,a low contribution margin ratio will produce less net income than a high contribution margin ratio.

Question 14

If two companies have the same total sales and total expenses and make the same product,the volatility of net income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

Question 15

A company with a degree of operating leverage of 4 would expect net income to increase by 200% if sales increased from $100,000 to $150,000.

Question 16

The inclusion of fixed manufacturing costs in an absorption costing statement can lead to difficulties is making some decisions based upon product costs.

Question 17

A company with sales of $70,000 and variable expenses of $40,000 should spend $10,000 on increased advertising if the increased advertising will increase sales by $20,000.

Question 18

In two companies making the same product and with the same total sales and total expenses,the contribution margin ratio will tend to be lower in the company with a higher proportion of fixed expenses in its cost structure.

Question 19

The formula for the break-even point is the same as the formula to attain a given target profit for the special case where the target profit is zero.

Question 20

At the break-even point: Sales - Variable expenses = Fixed expenses.

Question 21

Once the break-even point is reached,which of the following statements is true?

A) The total contribution margin changes from negative to positive.
B) Net income will increase by the unit contribution margin for each additional item sold.
C) Variable expenses will remain constant in total.
D) The contribution margin ratio begins to decrease.

Question 22

The total contribution margin decreases if sales volume remains the same and which of the following occurs?

A) Fixed expenses increase.
B) Fixed expenses decrease.
C) Variable expense per unit increases.
D) Variable expense per unit decreases.

Question 23

In determining the selling price of a special order that can be completed using existing capacity,the fixed costs per unit should be included in the consideration of the costs of the special order.

Question 24

The amount by which a company's sales can decline before losses are incurred is called the:

A) contribution margin.
B) degree of operating leverage.
C) margin of safety.
D) break-even point.

Question 25

The contribution margin ratio always increases when the:

A) variable expenses as a percentage of sales increase.
B) variable expenses as a percentage of sales decrease.
C) break-even point increases.
D) break-even point decreases.

Question 26

Break-even analysis assumes which of the following to be true?

A) Total costs are unchanged.
B) Unit variable expenses are unchanged.
C) Variable expenses are nonlinear.
D) Unit fixed expenses are unchanged.

Question 27

The break-even point in unit sales increases when variable expenses:

A) increase and the selling price remains unchanged.
B) decrease and the selling price remains unchanged.
C) decrease and the selling price increases.
D) remain unchanged and the selling price increases.

Question 28

If company A has a higher degree of operating leverage than company B,then:

A) company A's variable expenses are high.
B) company A's profits are more sensitive to percentage changes in sales.
C) company A is more profitable.
D) company A is less risky.

Question 29

In CVP analysis there is an assumption that selling prices of products or services will change as volumes change.

Question 30

The degree of operating leverage can be calculated as:

A) contribution margin divided by sales.
B) gross margin divided by net income.
C) net income divided by sales.
D) contribution margin divided by net income.

Question 31

Last year,Twins Company reported $750,000 in sales (25,000 units)and a net income of $25,000.At the break-even point,the company's total contribution margin equals $500,000.Based on this information,which of the following is true?

A) The contribution margin ratio is 40%.
B) The break-even point is 24,000 units.
C) The variable expense per unit is $10.
D) The variable expenses are 60% of sales.

Question 32

In a CVP graph,the break-even point is determined as the point that the total revenue line intersects with the total fixed expenses line.

Question 33

A company increased the selling price for its product from $1.00 to $1.10 a unit when total fixed expenses increased from $400,000 to $480,000 and variable expense per unit remained unchanged.How would these changes affect the break-even point?

A) The break-even point in units would increase.
B) The break-even point in units would decrease.
C) The break-even point in units would remain unchanged.
D) The effect cannot be determined from the information given.

Question 34

The ratio of fixed expenses to the unit contribution margin is the:

A) break-even point in unit sales.
B) profit margin.
C) contribution margin ratio.
D) margin of safety.

Question 35

A company has provided the following data: If the dollar contribution margin per unit is increased by 10%,total fixed cost is decreased by 20%,and all other factors remain the same,net income will:

A) increase by $61,000.
B) increase by $20,000.
C) increase by $3,500.
D) increase by $11,000.

Question 36

The margin of safety percentage is computed as:

A) Break-even sales/Total sales.
B) Total sales - Break-even sales.
C) (Total sales - Break-even sales)/Break-even sales.
D) (Total sales - Break-even sales)/Total sales.

Question 37

The margin of safety is equal to:

A) Sales - Net income.
B) Sales - (Variable expenses/Contribution margin).
C) Sales - (Fixed expenses/Contribution margin ratio).
D) Sales - (Variable expenses + Fixed expenses).

Question 38

The break-even point in units sold will decrease if there is an increase in which of the following?

A) Unit sales volume.
B) Total fixed expenses.
C) Unit variable expenses.
D) Selling price.

Question 39

The difference between total sales in dollars and total variable expenses is called:

A) the net operating income.
B) the net profit.
C) the gross margin.
D) the contribution margin.

Question 40

A company has provided the following data: If the sales volume decreases by 25%,the variable cost per unit increases by 15%,and all other factors remain the same,net income will:

A) decrease by $31,875.
B) decrease by $15,000.
C) increase by $20,625.
D) decrease by $3,125.

Question 41

Dodero Company produces a single product that sells for $100 per unit.Fixed expenses total $12,000 per month,and variable expenses are $60 per unit.The company's sales average 500 units per month.Which of the following statements is correct?

A) The company's break-even point is $12,000 per month.
B) The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.
C) The company's contribution margin ratio is 40%.
D) All of the answers are correct.

Question 42

Last year,Black Company reported sales of $640,000,a contribution margin of $160,000,and a net loss of $40,000.Based on this information,the break-even point in total sales dollars was:

A) $480,000.
B) $640,000.
C) $800,000.
D) $960,000.

Question 43

Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just break even at this level of sales.The contribution margin ratio is 25%.What are the company's fixed expenses?

A) $100,000.
B) $160,000.
C) $200,000.
D) $300,000.

Question 44

Wallace,Inc.prepared the following budgeted data based on a sales forecast of $6,000,000: What would be the amount of sales dollars at the break-even point?

A) $2,250,000.
B) $3,500,000.
C) $4,000,000.
D) $5,300,000.

Question 45

Green Company's variable expenses are 75% of sales.At a sales level of $400,000,the company's degree of operating leverage is 8.At this sales level,fixed expenses equal?

A) $50,000.
B) $75,000.
C) $87,500.
D) $100,000.

Question 46

Young Company has a margin of safety percentage of 20%.The break-even in sales dollars point is $400,000 and the variable costs are 40% of sales.Given this information,the net income is:

A) $0.
B) $48,000.
C) $60,000.
D) $80,000.

Question 47

The margin of safety in the Flaherty Company is $24,000.If the company's sales are $120,000 and its variable expenses are $80,000,its fixed expenses must be:

A) $8,000.
B) $16,000.
C) $24,000.
D) $32,000.

Question 48

Koby Co.has sales of $200,000 with variable expenses of $150,000,fixed expenses of $60,000,and a net loss of $10,000.How much would Koby have to sell in order to achieve a net income of 10% of sales?

A) $375,000.
B) $400,000.
C) $431,000.
D) $451,000.

Question 49

The following is last month's contribution format income statement: What is the company's margin of safety percentage?

A) 17%.
B) 20%.
C) 40%.
D) 42%.

Question 50

At a break-even point of 400 units sold,variable expenses were $4,000 and fixed expenses were $2,000.What will the 401^st unit sold contribute to profit?

A) $0.
B) $5.
C) $10.
D) $15.

Question 51

North Company sells a single product.The product has a selling price of $30 per unit and variable expenses of 70% of sales.If the company's fixed expenses total $60,000 per year,then it will have a break-even in sales dollars of:

A) $42,000.
B) $60,000.
C) $85,714.
D) $200,000.

Question 52

The break-even point in sales dollars for Rice Company is $360,000 and the company's contribution margin ratio is 30%.If Rice Company desires an income of $84,000,sales would have to total?

A) $280,000.
B) $480,000.
C) $560,000.
D) $640,000.

Question 53

The following information pertains to Rica Company: How much is Rica's break-even point in number of units?

A) 9,848 units.
B) 10,000 units.
C) 18,571 units.
D) 26,000 units.

Question 54

Curtis Company anticipates selling 10,000 units next year.The company wants to earn a net income equal to 10% of sales.If variable expenses are $12 per unit and fixed expenses total $78,000 per year,what selling price must be established to achieve the desired level of net income?

A) $18.00 per unit.
B) $19.80 per unit.
C) $21.78 per unit.
D) $22.00 per unit.

Question 55

Marling Corporation has budgeted the following data: What is the break-even in sales dollars?

A) $400,000.
B) $420,000.
C) $540,000.
D) $660,000.

Question 56

The following information relates to Clyde Corporation,which produced and sold 50,000 units last month. There were no beginning or ending inventories.Production and sales next month are expected to be 40,000 units.The company's unit contribution margin next month should be? (round your final answer to two decimal places. )

A) $3.10.
B) $7.98.
C) $13.30.
D) $16.63.

Question 57

Scott Company's variable expenses are 72% of sales.The company's break-even point in sales is $2,450,000.If sales are $60,000 below the break-even point,the company would report a:

A) $16,800 loss.
B) $43,200 loss.
C) $60,000 loss.
D) cannot be determined from the data given.

Question 58

Carver Company produces a product that sells for $30.Variable manufacturing costs are $15 per unit.Fixed manufacturing costs are $5 per unit based on the current level of activity,and fixed selling and administrative costs are $4 per unit.A selling commission of 10% of the selling price is paid on each unit sold.The contribution margin per unit is?

A) $3.
B) $8.
C) $12.
D) $15.

Question 59

Last year,Perry Company reported profits of $4,200.Its variable expenses totalled $66,000 or $6 per unit.The unit contribution margin was $3.00.The break-even point in units for Perry Company is:

A) 9,600.
B) 11,000.
C) 12,400.
D) 22,000.

Question 60

At a break-even point of 800 units sold,White Company's variable expenses are $8,000 and its fixed expenses are $4,000.What will the Company's net income be at a volume of 801 units?

A) $5.
B) $10.
C) $15.
D) $20.

Question 61

The following is last month's contribution format income statement: What is the company's break-even sales in units?

A) 0 units.
B) 6,000 units.
C) 8,000 units.
D) 12,000 units.

Question 62

A total of 30,000 units were sold last year.The contribution margin per unit was $2,and fixed expenses totalled $20,000 for the year.This year fixed expenses are expected to increase to $26,000,but the contribution margin per unit will remain unchanged at $2.How many units must be sold this year to earn the same net income as was earned last year?

A) 13,000 units.
B) 23,000 units.
C) 30,000 units.
D) 33,000 units.

Question 63

A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.How many units must be sold to yield a profit of $30,000?

A) 12,500 units.
B) 18,750 units.
C) 20,000 units.
D) 25,000 units.

Question 64

The following data pertain to last month's operations: The break-even point in dollars is:

A) $6,000.
B) $7,500.
C) $11,250.
D) $18,000.

Question 65

The following is last month's contribution format income statement: What is the company's margin of safety in dollars?

A) $100,000.
B) $250,000.
C) $600,000.
D) $1,500,000.

Question 66

The following monthly data are available for the Eager Company and its only product: The margin of safety for the company for March was:

A) $135,000.
B) $225,000.
C) $315,000.
D) $495,000.

Question 67

The following monthly data are available for the Phelps Company: The break-even sales for the month for the company are:

A) $91,667.
B) $137,500.
C) $148,000.
D) $203,000.

Question 68

The following is last month's contribution format income statement: What is the company's break-even in sales dollars?

A) $0.
B) $1,200,000.
C) $1,600,000.
D) $1,800,000.

Question 69

If sales increase from $80,000 per year to $120,000 per year,and if the operating leverage is 5,then net income should increase by?

A) 100%.
B) 167%.
C) 250%.
D) 334%.

Question 70

Kern Company prepared the following tentative budget for next year: The sales manager argues that the unit selling price could be increased by 20%,with an expected volume decrease of only 10%.If Kern incorporates these changes in its budget,what should be the budgeted net income?

A) $66,000.
B) $90,000.
C) $120,000.
D) $145,000.

Question 71

Lindsay Company reported the following results from sales of 5,000 units for the month of June: Assume that Lindsay increases the selling price of the product by 10% on July 1.How many units would have to be sold in July in order to generate a profit of $20,000?

A) 4,000 units.
B) 4,300 units.
C) 4,500 units.
D) 5,000 units.

Question 72

Wilson Company prepared the following preliminary budget assuming no advertising expenditures: Based on a market study,the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising.Assuming that these changes are incorporated in its budget,what should be the budgeted net income?

A) $175,000.
B) $190,000.
C) $205,000.
D) $365,000.

Question 73

Loren Company's single product has a selling price of $15 per unit.Last year the company reported total variable expenses of $180,000,fixed expenses of $90,000,and a net income of $30,000.A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%.If her proposal is adopted,net income would increase by:

A) $7,500.
B) $28,500.
C) $37,500.
D) $45,000.

Question 74

Ostler Company's net income last year was $10,000 and its contribution margin was $50,000.Using the operating leverage concept,if the company's sales increase next year by 8%,net income can be expected to increase by:

A) 16%.
B) 20%.
C) 40%.
D) 160%.

Question 75

The following is last month's contribution format income statement: What is the company's degree of operating leverage?

A) 0.125.
B) 0.333.
C) 3.000.
D) 8.000.

Question 76

The following data pertain to Wistron Company's two products: If fixed expenses for the company as a whole are $60,000 and the product mix is constant,the overall break-even point for the company would be:

A) $100,000.
B) $132,000.
C) $150,000.
D) $153,846.

Question 77

A product sells for $20 per unit and has a contribution margin ratio of 40%.Fixed expenses total $240,000 annually.How many units of the product must be sold to yield a profit of $60,000?

A) 30,000 units.
B) 37,500 units.
C) 40,000 units.
D) 65,000 units.

Question 78

Austin Manufacturing had the following operating data for the year just ended. Management plans to improve the quality of its only product by: (1)replacing a component that costs $3.50 with a higher-grade component that costs $5.50 and (2)renting a packing machine for $18,000 a year.If the desired target profit is $288,000,how many units must the company sell?

A) 19,300 units.
B) 20,842 units.
C) 21,316 units.
D) 22,500 units.

Question 79

The following data pertain to last month's operations: The break-even point in dollars is:

A) $160,000.
B) $200,000.
C) $240,000.
D) $300,000.

Question 80

Roberts Company sells a single product at a selling price of $55 per unit.Variable costs are $30.25 per unit and fixed costs are $113,850.Roberts Company's break-even point is?

A) $207,000.
B) 2,070 units.
C) $253,000.
D) 3,764 units.