Deck 21: Cost Behavior and Decisions Using C-V-P Analysis

Question 1

The two components of a mixed cost are:

A) Relevant costs and fixed costs
B) Variable costs and opportunity costs
C) Variable costs and relevant costs
D) Variable costs and fixed costs

Answer 1

D

Question 2

Which of the following costs would LEAST likely be a fixed cost?

A) Plant depreciation
B) Rent
C) Utilities expense
D) Executives' salaries

Answer 2

C

Question 3

Within the relevant range, variable costs are considered to be:

A) Curvilinear
B) Linear
C) Mixed
D) Stepped

Answer 3

B

Question 4

Which of the following is NOT a cost behavior pattern?

A) Variable costs
B) Relevant costs
C) Mixed costs
D) Stepped costs

Question 5

All the following are common cost behavior patterns EXCEPT:

A) Fixed costs
B) Variable costs
C) Manufacturing costs
D) Mixed costs

Question 6

C-V-P analysis, while useful for several purposes, is primarily useful in:

A) Planning
B) Controlling decisions
C) Evaluating decisions
D) Financing decisions

Question 7

The type of cost that remains constant (in total) over the relevant range is a:

A) Variable cost
B) Fixed cost
C) Mixed cost
D) Semi-variable cost

Question 8

Which of the following types of costs always change in total in proportion to changes in the level of activity of a firm?

A) Opportunity costs
B) Relevant costs
C) Fixed costs
D) Variable costs

Question 9

Which of the following types of costs remain constant per unit within a certain relevant range?

A) Opportunity costs
B) Sunk costs
C) Fixed costs
D) Variable costs

Question 10

The relevant range refers to the activity range over which:

A) Fixed and variable cost relationships remain the same
B) Variable costs per unit decrease
C) Fixed costs per unit remain the same
D) Total variable costs do not change

Question 11

An example of a stepped fixed cost is:

A) Factory supervisors' salaries
B) Depreciation
C) Direct materials
D) Commissions

Question 12

Which of the following items is NOT a key factor involved in cost-volume-profit (C-V-P) analysis?

A) Time value of money
B) Fixed and variable costs
C) Sales revenue
D) The mix of products sold

Question 13

Within the relevant range, the fixed cost per unit:

A) Increases as activity level increases
B) Remains constant as activity level increases
C) Decreases as activity level increases
D) Decreases as activity level decreases

Question 14

Fixed costs per unit:

A) Remain constant as activity levels increase
B) Increase as activity levels increase
C) Decrease as activity levels increase
D) None of these are correct

Question 15

Within the relevant range some fixed costs may actually be:

A) Variable costs
B) Direct costs
C) Nonlinear costs
D) Stepped costs

Question 16

Which of the following is most likely to be a variable cost?

A) Raw materials
B) Insurance
C) Supervisor's salary
D) New computing technology

Question 17

Costs that contain both fixed and variable components are:

A) Fixed costs
B) Variable costs
C) Mixed costs
D) All of these are correct

Question 18

C-V-P analysis is useful to managers in:

A) Planning
B) Controlling decisions
C) Evaluating decisions
D) All of these are correct

Question 19

Relevant ranges must be considered for:

A) Fixed costs
B) Variable costs
C) Both fixed and variable costs
D) Neither fixed nor variable costs

Question 20

Within the relevant range, per-unit variable cost:

A) Increases as activity level increases
B) Decreases as activity level increases
C) Remains constant as activity level increases
D) Decreases as activity level decreases

Question 21

The slope of the line in a scattergraph represents the:

A) Variable cost per unit
B) Fixed cost per unit
C) Mixed cost per unit
D) Opportunity cost per unit

Question 22

Refer to the figure below. A charge for electricity that is based on a flat rate plus a variable cost after a certain number of kilowatt-hours are used follows which of the following cost behavior patterns?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 23

The scattergraph method is a useful tool for:

A) Analyzing abrupt changes in cost behavior
B) Separating mixed costs into their variable and fixed components
C) Determining the break-even point
D) Working outside the relevant range

Question 24

Which of the following costs would LEAST likely be a variable cost?

A) Indirect materials
B) Direct labor
C) Sales commissions
D) Plant manager's salary

Question 25

Zodiac Company's total costs are increasing in direct proportion to the increases in activity levels. The company's cost structure must have all:

A) Fixed costs
B) Variable costs
C) Mixed costs
D) Stepped costs

Question 26

Assume that Upward Company has total variable costs of $90,000 when 30,000 units are sold. If 40,000 units were sold, total variable costs would be:

A) $100,000
B) $120,000
C) $130,000
D) $150,000

Question 27

Exhibit 21-1 Wimmer Company makes swimming suits and wants to analyze its mixed costs. The diagram below shows a scattergraph representing Wimmer's mixed costs for the previous five months.
Refer to Exhibit 21-1. Using the graph above, determine the amount of Wimmer's fixed costs.

A) $400
B) $475
C) $600
D) $650

Question 28

The scattergraph method is used to analyze:

A) Variable costs
B) Mixed costs
C) Fixed costs
D) Relevant costs

Question 29

Costs that would NOT be graphed as a straight line are:

A) Variable costs
B) Total costs
C) Fixed costs
D) Stepped costs

Question 30

Exhibit 21-2 The following cost data are available for Malta Marketing:
Refer to Exhibit 21-2. Given the data above and using the high-low method of analysis, total variable costs are approximately:

A) $3 per direct labor hour
B) $4 per direct labor hour
C) $5 per direct labor hour
D) $6 per direct labor hour

Question 31

Which of the following is a common method of analyzing mixed costs?

A) High-Low
B) Scattergraph
C) Both high-low and scattergraph
D) Neither high-low nor scattergraph

Question 32

In the scattergraph method fixed costs are:

A) Represented by the slope of the line
B) The highest point in the graph
C) The point where the line crosses the cost axis
D) The point where the line crosses the activity axis

Question 33

Exhibit 21-2 The following cost data are available for Malta Marketing:
Refer to Exhibit 21-2. Given the data above and using the high-low method of analysis, total fixed costs are approximately:

A) $16,000
B) $24,000
C) $20,000
D) $36,000

Question 34

Exhibit 21-1 Wimmer Company makes swimming suits and wants to analyze its mixed costs. The diagram below shows a scattergraph representing Wimmer's mixed costs for the previous five months.
Refer to Exhibit 21-1. Using the graph above, determine Wimmer's variable cost rate.

A) $1.00
B) $1.25
C) $2.00
D) $2.50

Question 35

When using the scattergraph method to analyze mixed costs, the regression line should be visually fit to:

A) Go through the highest and the lowest points
B) Maximize the average distance between all the data points and the regression line
C) Go through the cost axis at 0
D) Minimize the average distance between all the data points and the regression line

Question 36

Mosely Company's per-unit cost is the same at all levels of activity. The company's cost structure must have all:

A) Fixed costs
B) Variable costs
C) Mixed costs
D) Stepped costs

Question 37

Another name for the scattergraph method of analyzing mixed costs is the:

A) Regression analysis method
B) Visual-fit method
C) High-low method
D) Engineering method

Question 38

Refer to the figure below. Which would be the diagram of a mixed cost?

A) Graph A
B) Graph B
C) Graph C
D) Graph D

Question 39

Which of the following is the formula used to calculate the slope of the regression line on a scattergraph?

A) Change in activity ¸ change in cost
B) Fixed costs ¸ change in activity
C) Change in cost ¸ change in activity
D) Fixed costs ¸ change in cost

Question 40

Which of the following is the formula for the high-low method of analyzing mixed costs?

A) Fixed costs = total costs - (activity level × variable cost rate)
B) Total costs = fixed costs - (activity level × variable cost rate)
C) Variable costs = fixed costs + total costs
D) Fixed costs = total costs - variable cost rate

Question 41

If total sales are $460,000, total variable costs are $138,000, and total fixed costs are $184,000, the contribution margin ratio is:

A) 70%
B) 60%
C) 40%
D) 30%

Question 42

Exhibit 21-3 The following partial income statement is available for Lauria Company:
Refer to Exhibit 21-3. Given the data above, at an activity level of 5,000 units, net income would increase by:

A) $10,000
B) $15,000
C) $22,500
D) $37,500

Question 43

If a company has a positive contribution margin, the maximum amount of loss that it can have is equal to its:

A) Fixed costs
B) Variable costs
C) Fixed and variable costs
D) None of these are correct

Question 44

Challis Company had sales of $450,000 and a profit of $54,000 during the period. Assume the fixed costs for the period were $184,500. The contribution margin ratio for the period was:

A) 12%
B) 47%
C) 53%
D) 88%

Question 45

Contribution margin will provide a profit if:

A) All variable costs are covered
B) Sales revenues increase
C) Fixed costs are covered
D) The contribution margin ratio is high enough

Question 46

If total costs are $27,000 and $36,000 for activity levels of 5,000 and 8,000, respectively, how much are fixed costs?

A) $12,000
B) $8,000
C) $6,000
D) $0

Question 47

What are the total costs for a company with per-unit variable costs of $12 and total fixed costs of $51,000 if it sells 8,000 units of product?

A) $51,000
B) $147,000
C) $96,000
D) $125,000

Question 48

Contribution margin is equal to:

A) Revenues - Fixed costs
B) Revenues - Variable costs
C) Fixed costs + Variable costs
D) Fixed costs - Variable costs

Question 49

The excess of sales over variable costs is equal to:

A) Gross margin
B) Contribution margin
C) Profit margin
D) Net margin

Question 50

Exhibit 21-3 The following partial income statement is available for Lauria Company:
Refer to Exhibit 21-3. Given the data above, the contribution margin per unit is:

A) $20
B) $30
C) $45
D) $75

Question 51

Black Company had the following income statement: Given this data, Black Company has a per-unit contribution margin of:

A) $40
B) $45
C) $70
D) $100

Question 52

The per-unit contribution margin is equal to:

A) Selling price per unit - Fixed costs per unit
B) Selling price per unit - Variable costs per unit
C) Variable costs per unit - Fixed costs per unit
D) Selling price per unit - Both fixed and variable costs per unit

Question 53

Heyburn Company had the following income statement: Given this data, Heyburn Company's per-unit contribution margin is:

A) $108
B) $352
C) $440
D) $460

Question 54

If total sales are $460,000, total variable costs are $138,000, and total fixed costs are $184,000, the contribution margin is:

A) $460,000
B) $184,000
C) $276,000
D) $322,000

Question 55

When the variable cost ratio decreases, the:

A) Contribution margin as a percentage of net sales increases
B) Contribution margin as a percentage of net sales decreases
C) Break-even point increases
D) Fixed cost per unit increases

Question 56

If the fixed costs relative to a specific product increase while the variable costs and sales price remain constant, the contribution margin will:

A) Increase
B) Decrease
C) Remain unchanged
D) The answer cannot be determined from the information given

Question 57

If fixed costs are $40,000 and total costs are $200,000 at an activity level of 8,000 units, variable costs are approximately:

A) $5 per unit
B) $20 per unit
C) $25 per unit
D) $40 per unit

Question 58

If sales revenue is equal for a manufacturing firm and a service firm, which of these two firms will probably need a higher contribution margin to break even?

A) Manufacturing firm
B) Service firm
C) There would be no difference
D) More information is necessary to answer the question

Question 59

The contribution margin minus total fixed costs is equal to:

A) Gross margin
B) Net income
C) Variable costs
D) Earnings per share

Question 60

XYZ Company generally produces between 200 and 350 units of product. Its fixed costs, within this relevant range, are $50,000. Its variable costs at 250 units of production are $10 per unit. What are the fixed costs per unit at 250 and 300 units of production, respectively? (Round to the nearest dollar.)

A) $10 and $200
B) $250 and $143
C) $200 and $167
D) Answer cannot be determined from data given

Question 61

The limiting assumptions of C-V-P analysis include all of the following, EXCEPT:

A) The behavior of revenues and cost are linear throughout the relevant range
B) All costs can be organized as fixed or variable
C) The operating leverage is constant throughout the relevant range
D) The sales mix does not change

Question 62

Star of the Sea School has annual fixed costs of $150,000 and variable costs of $550 per student. Star of the Sea expects 345 students for the upcoming year. If the school wishes to earn a profit of $10,000, what should tuition per student be?

A) $957
B) $1,014
C) $1,233
D) $1,346

Question 63

Which of the following is true of a firm having a high level of fixed costs?

A) It would have a better chance of making profits than would a company with a low level of fixed costs
B) It would be more susceptible to profit fluctuations because of volume changes than would a firm with a low level of fixed costs
C) It must also have high mixed costs
D) None of these are true

Question 64

Everclean Company cleans draperies. It charges $75 to clean a full-size drape, and its variable and fixed costs are $45 per drape and $8,000 per year, respectively. Given this data, approximately how many drapes must the company clean to break even?

A) 134
B) 267
C) 300
D) 320

Question 65

To reach a target income of $20,000, a firm with fixed costs of $10,000 and a per-unit contribution margin of $5 must sell:

A) 2,000 units
B) 4,000 units
C) 6,000 units
D) 8,000 units

Question 66

A firm will break even when:

A) Revenues = Variable costs - Fixed costs
B) Revenues = Variable costs + Fixed costs
C) Revenues - Variable costs = Fixed costs
D) Both Revenues = Variable costs + Fixed costs and Revenues - Variable costs = Fixed costs are correct

Question 67

is the formula for:

A) Break-even sales (in units)
B) Per unit fixed costs
C) Relevant range
D) Per unit variable costs

Question 68

Given the equation $500X = $300X + $200,000, the break-even point in units is:

A) 200,000
B) 30,000
C) 20,000
D) 2,000

Question 69

Exhibit 21-4 Cash2U Company had the following income statement:
Refer to Exhibit 21-4. Given the data above, Cash2U Company's break-even point in units is:

A) 700 units
B) 800 units
C) 900 units
D) 1,000 units

Question 70

Which of the following is NOT true of the break-even point?

A) The volume of activity where total revenues equal total costs
B) The volume of activity where contribution margin equals variable costs
C) The volume of activity where there is no profit or loss
D) The volume of activity where contribution margin equals fixed costs

Question 71

Everclean Company cleans draperies. It charges $75 to clean a full-size drape, and its variable and fixed costs are $40 per drape and $8,000 per year, respectively. Given this data, how many drapes must the company clean to make $50,000 profit?

A) 967
B) 1,657
C) 2,000
D) 2,320

Question 72

If variable costs are $46 per unit, revenues are $76 per unit, and fixed costs are $7,500, the break-even point is:

A) 1,000 units
B) 500 units
C) 250 units
D) 100 units

Question 73

A company that has a per-unit contribution margin of $140 and fixed costs of $126,000 will break even when it sells:

A) 600 units
B) 800 units
C) 900 units
D) 1,200 units

Question 74

The equation for computing the break-even point is:

A) Revenues - (Fixed costs - Variable costs) = Profit
B) Variable costs = Revenues - Fixed costs
C) Revenues = Variable costs - Fixed costs
D) Revenues - Variable costs - Fixed costs = $0

Question 75

Exhibit 21-4 Cash2U Company had the following income statement:
Refer to Exhibit 21-4. Given the data above, Cash2U Company's contribution margin percentage is:

A) 40%
B) 45%
C) 50%
D) 55%

Question 76

Given the equation $500X = $300X + $200,000, variable costs are:

A) $300 per unit
B) $200 per unit
C) $200,000
D) Represented by X

Question 77

Assume that StoneWorks has total fixed costs of $31,540 for the period. Each unit sells for $20. The variable cost per unit is $12.40. How many units must be sold to break even?

A) 1,577
B) 2,544
C) 4,150
D) 4,200

Question 78

Given the equation $500X = $300X + $200,000, per-unit contribution margin is:

A) $300
B) $200
C) $200,000
D) $500

Question 79

A company with a cost-volume-profit structure of $50X = $30X + $20,000 will earn a 20% return on revenues when it sells:

A) 1,000 units
B) 2,000 units
C) 1,500 units
D) 3,000 units

Question 80

The behavior of a cost is usually defined in terms of how that cost varies with respect to:

A) Time
B) Profit
C) Level of activity
D) Sales price