Deck 19: Cost-Volume-Profit Analysis

Question 1

Which of the following is NOT a fixed cost?

A) Property taxes
B) Salary of plant manager
C) Direct materials cost
D) Straight-line depreciation

Answer 1

C

Question 2

Which of the following statements is CORRECT with respect to total fixed costs, within the relevant range?

A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.

Answer 2

A

Question 3

Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double.

Answer 3

False

Question 4

The mixed cost per unit is constant throughout the relevant range of activity.

Question 5

Within the relevant range for production costs, the total fixed costs and the variable cost per unit remain the same.

Question 6

Variable costs change in direct proportion to a change in volume.

Question 7

Which of the following statements is CORRECT with respect to total variable costs, within the relevant range?

A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.

Question 8

Total variable costs change in response to changes in the volume of production.

Question 9

The variable cost per unit is assumed to be constant within a particular relevant range of activity.

Question 10

Fixed costs per unit decrease as production levels decrease.

Question 11

Total fixed costs can change from one relevant range to another.

Question 12

A 15% increase in production volume will result in a:

A) 15% increase in the variable cost per unit.
B) 15% increase in total mixed costs.
C) 15% increase in total manufacturing costs.
D) 15% increase in total variable costs.

Question 13

Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $1,700, occurred in July when she washed 800 dogs and her lowest bill, $900, occurred in November when she washed 400 dogs.

- What was the variable cost per dog associated with Jenny's water bill?

A) $0.67
B) $1.00
C) $0.50
D) $2.00

Question 14

Which of the following statements is CORRECT with respect to fixed costs per unit?

A) They will increase as production decreases.
B) They will decrease as production decreases.
C) They will remain the same as production levels change.
D) They will increase as production increases.

Question 15

Which of the following statements is CORRECT with respect to variable cost per unit, within the relevant range?

A) It will increase as production decreases.
B) It will decrease as production decreases.
C) It will remain the same as production levels change.
D) It will decrease as production increases.

Question 16

The long distance company that you use charges $5.00 per month and $0.10 per minute per call. If your current bill is $25.00, how many minutes did you use?

A) 250 minutes
B) 100 minutes
C) 200 minutes
D) 150 minutes

Question 17

Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $1,700, occurred in July when she washed 800 dogs and her lowest bill, $900, occurred in November when she washed 400 dogs.

- What was the fixed cost associated with Jenny's water bill?

A) $150
B) $300
C) $100
D) $200

Question 18

Dakota Company provides the following information about its single product:
$$\begin{array} {| l | r | } \hline \text { Targeted aperating income } & \$ 40,000 \\\hline \text { Selling price per unit } & \$ 3.50 \\\hline \text { Variable cost per unit } & \$ 1.05 \\\hline \text { Total fixed costs } & \$ 90,000 \\\hline\end{array}$$
What is the contribution margin ratio?

A) 0.70
B) 0.44
C) 0.56
D) 0.30

Question 19

Peterson Company has both fixed and variable costs. If the volume doubles, the total variable costs will double.

Question 20

Peterson Company has both fixed and variable costs. If the volume doubles, the total of all costs combined will double.

Question 21

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total of all costs? (Assume all volumes are within the relevant range.)

A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down

Question 22

America First Company provided the following manufacturing costs for the month of June.
$\begin{array}{|l|r|}\hline \text { Direct materials cost } & \$ 40,000 \\\hline \text { Janitor's salary } & \$ 2,500 \\\hline \text { Property taxes } & \$ 8,000 \\ \hline \text { Direct labor cost } & \$ 68,000 \\\hline \text { Packaging costs } & \$ 9,400 \\\hline \text { Equipment depreciation (straight-line) } & \$ 12,000 \\\hline \text { Factory insurance } & \$ 9,500 \\\hline \text { Factory manager's salary } & \$ 6,400 \\\hline\end{array}$

-
How much of the above would normally be considered fixed costs?

A) $47,800
B) $26,400
C) $35,800
D) $38,400

Question 23

The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low method, and answer the question.
$$\begin{array} { | l | r | r | } \hline & { \text { Minutes } } & \text { Total Bill } \\\hline \text { Jan } & 300 & \$ 2,650 \\\hline \text { Feb } & 150 & \$ 2,575 \\\hline \text { Mar } & 100 & \$ 2,550 \\\hline \text { Apr } & 250 & \$ 2,625 \\\hline\end{array}$$

-
How much is the variable cost per minute?

A) $0.50
B) $1.75
C) $2.50
D) $0.25

Question 24

Arlington Company's highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in December. The company makes a single product. Production volume in June was 7,000 units; production volume in December was 12,500 units. If the production volume is 9,000 units, what will the total costs be?

A) $55,000
B) $55,750
C) $45,600
D) $57,062

Question 25

Arlington Company's highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in December. The company makes a single product. Production volume in June was 7,000 units; production volume in December was 12,500 units. How much is the variable cost per unit?

A) $4.95
B) $1.05
C) $1.75
D) $7.46

Question 26

Which of the following is the term for a cost that changes in total in direct proportion to a change in volume?

A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost

Question 27

The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low method, and answer the question.
$$\begin{array} { | l | r | r | } \hline & { \text { Minutes } } & \text { Total Bill } \\\hline \text { Jan } & 300 & \$ 2,650 \\\hline \text { Feb } & 150 & \$ 2,575 \\\hline \text { Mar } & 100 & \$ 2,550 \\\hline \text { Apr } & 250 & \$ 2,625 \\\hline\end{array}$$

-
How much is the fixed portion of the total cost?

A) $2,050
B) $1,960
C) $2,500
D) $250

Question 28

Which of the following is the term for a cost that is part variable and part fixed?

A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost

Question 29

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total variable costs? (Assume all volumes are within the relevant range.)

A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down

Question 30

JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units are produced. How much is the variable cost per unit? (Please round to the nearest cent.)

A) $9.45
B) $2.78
C) $7.50
D) $1.95

Question 31

America First Company provided the following manufacturing costs for the month of June.
$\begin{array}{|l|r|}\hline \text { Direct materials cost } & \$ 40,000 \\\hline \text { Janitor's salary } & \$ 2,500 \\\hline \text { Property taxes } & \$ 8,000 \\ \hline \text { Direct labor cost } & \$ 68,000 \\\hline \text { Packaging costs } & \$ 9,400 \\\hline \text { Equipment depreciation (straight-line) } & \$ 12,000 \\\hline \text { Factory insurance } & \$ 9,500 \\\hline \text { Factory manager's salary } & \$ 6,400 \\\hline\end{array}$

-
How much of the above would normally be considered variable costs?

A) $108,000
B) $125,400
C) $117,400
D) $38,400

Question 32

Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there were 100,000 units produced and total costs of $550,000. How much is the variable cost per unit? (Please round all amounts to the nearest cent.)

A) $3.00
B) $5.50
C) $2.50
D) $3.50

Question 33

JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units are produced. If the volume increases to 50,000 units, what will the total costs be?

A) $375,000
B) $472,500
C) $397,500
D) $330,000

Question 34

Orleans Company has a normal range of production volumes between 100,000 units and 180,000 units per month. That is considered the relevant range for production cost analysis. If the company expands significantly beyond 180,000 units per month, which of the following would be the most likely expectation?

A) The fixed costs will remain the same, but the variable cost per unit may change.
B) The fixed costs may change, but the variable cost per unit will remain the same.
C) The fixed costs and the variable cost per unit will not change.
D) Both the fixed costs and the variable cost per unit may change.

Question 35

Which of the following is the term for a cost that does NOT change in total despite wide changes in volume?

A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost

Question 36

Ace Card Company has variable costs of $0.40 per unit of product. The remainder of its production costs are fixed. In May, the volume was 12,000 units and the total production costs were $6,900. How much are the fixed costs?

A) $2,100
B) $2,200
C) $1,950
D) $2,025

Question 37

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total fixed costs? (Assume all volumes are within the relevant range.)

A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down

Question 38

The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low method, and answer the question.
$$\begin{array} { | l | r | r | } \hline & { \text { Minutes } } & \text { Total Bill } \\\hline \text { Jan} & 300 & \$ 2,650 \\\hline \text { Feb } & 150 & \$ 2,575 \\\hline \text { Mar } & 100 & \$ 2,550 \\\hline \text { Apr } & 250 & \$ 2,625 \\\hline\end{array}$$

-
If the company uses 280 minutes in May, how much will the total bill be?

A) $2,625
B) $2,750
C) $2,640
D) $2,540

Question 39

Arlington Company's highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in December. The company makes a single product. Production volume in June was 7,000 units; production volume in December was 12,500 units. How much is the fixed cost per month?

A) $9,625
B) $42,500
C) $40,000
D) $21,875

Question 40

Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there were 100,000 units produced and total costs of $550,000. In June, the company produced only 60,000 units. How much was the total cost in June?

A) $378,000
B) $430,000
C) $330,000
D) $414,500

Question 41

Arturo Company's model A generator sells for $456, and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo sells more of model B than model A, it will generate lower revenues, but higher net income.

Question 42

Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. How many scarves does she need to sell to break even?

A) 4
B) 3
C) 5
D) 2

Question 43

Both the income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.

Question 44

Dalian Company provides the following information:
$$\begin{array} { l l } \text { Price per unit: } & \$ 20 \\\text { Variable cost per unit: } & \$ 8 \\\text { Fixed costs per month: } & \$ 15,000\end{array}$$

-
How much is the contribution margin per unit?

A) $12.00
B) $4.00
C) $4.50
D) $16.00

Question 45

Dalian Company provides the following information:
$$\begin{array} { l l } \text { Price per unit: } & \$ 20 \\\text { Variable cost per unit: } & \$ 8 \\\text { Fixed costs per month: } & \$ 15,000\end{array}$$

-
What is the breakeven point in terms of sales revenues?

A) $18,500
B) $25,000
C) $37,500
D) $22,750

Question 46

Breakeven is the point where the sales revenues are exactly equal to the fixed costs.

Question 47

If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60.

Question 48

Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed costs.

Question 49

Arturo Company's model A generator sells for $456 and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo Company's sales incentives reward sales of the goods with highest contribution margin, the sales force will be motivated to push sales of model A more aggressively than model B.

Question 50

The breakeven point represents the sales volume at which the company's net income is zero.

Question 51

CVP analysis assumes that the ONLY factor that affects costs is change in volume.

Question 52

If all other factors are constant, an increase in fixed costs will increase the breakeven point.

Question 53

Dalian Company provides the following information:
$$\begin{array} { l l } \text { Price per unit: } & \$ 20 \\\text { Variable cost per unit: } & \$ 8 \\\text { Fixed costs per month: } & \$ 15,000\end{array}$$

-
How much is the contribution margin ratio?

A) 12%
B) 6%
C) 40%
D) 60%

Question 54

Fixed costs divided by the contribution margin per unit equals the breakeven point in unit sales.

Question 55

Dalian Company provides the following information:
$$\begin{array} { l l } \text { Price per unit: } & \$ 20 \\\text { Variable cost per unit: } & \$ 8 \\\text { Fixed costs per month: } & \$ 15,000\end{array}$$

-
What is the breakeven point in terms of units sold?

A) 1,150
B) 1,200
C) 1,875
D) 1,250

Question 56

Some companies use contribution margin rather than sales revenues as the basis of incentives for motivating sales persons because it will lead them to sell more of the higher margin goods.

Question 57

Reevis Company has fixed costs of $7,500. Their contribution margin ratio is 20%. What is the break-even point in sales dollars?

A) $22,000
B) $37,500
C) $1,500
D) $32,750

Question 58

Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. What total revenue amount does she need to earn to break even?

A) $85
B) $75
C) $50
D) $100

Question 59

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Question 60

Contribution margin is defined as the sales revenue minus the fixed costs.

Question 61

A company's contribution margin ratio is 8%. Fixed costs are $2,400 per month. How much sales revenue is needed to break even?

A) $28,000
B) $36,000
C) $32,000
D) $30,000

Question 62

Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $2,000, how many units need to be sold?

A) 270
B) 300
C) 320
D) 350

Question 63

Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic managers create a CVP graph from volume levels of zero to 400 units, where will the revenue and total cost lines intersect?

A) 250 units
B) 190 units
C) 240 units
D) 275 units

Question 64

Reevis Company sells hand-sewn shirts for $25 per unit, and has fixed costs of $7,500. Their contribution margin ratio is 20%. How much is the variable cost per unit?

A) $20
B) $8
C) $5
D) $15

Question 65

A company's product sells for $240 per unit. Variable cost is $208 per unit. Fixed costs run at $150,400 per month. How many units need to be sold to break even?

A) 4,700
B) 4,250
C) 3,800
D) 4,900

Question 66

In a CVP graph, what does the line which begins at the lower left corner represent?

A) Total sales revenue
B) Total variable cost
C) Total fixed cost
D) Both the total variable cost and the total sales revenue

Question 67

A company's contribution margin is $9 per unit. Fixed costs are $14,850 per month. How many units must be sold to break even?

A) 1,700
B) 1,425
C) 850
D) 1,650

Question 68

On a CVP graph, the intersection of the sales line and the total cost line is known as the:

A) total cost point.
B) breakeven point.
C) unit contribution margin.
D) margin of safety point.

Question 69

Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. Fixed costs are $6,900 per month. Please prepare a contribution margin income statement in the format provided here.
$$\begin{array} { | l | l | } \hline \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad&\quad\quad\quad \\\hline & \\\hline & \\\hline & \\\hline & \\\hline\end{array}$$

Question 70

CVP graphs can help managers quickly estimate the profit or loss earned at different levels of sales volume.

Question 71

Reevis Company sells hand-sewn shirts for $25 per unit, and has fixed costs of $7,500. Their contribution margin ratio is 20%. How many units do they have to sell to break even?

A) 950
B) 1,750
C) 1,125
D) 1,500

Question 72

A company's product sells for $240 per unit. Variable cost is $210 per unit. Fixed costs run at $141,000 per month. How many dollars of sale revenue are required to break even?

A) $1,290,000
B) $1,128,000
C) $956,000
D) $1,050,000

Question 73

Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. How much is the total contribution margin? (Please round to nearest whole dollar.)

A) $9,500
B) $7,700
C) $39,200
D) $6,750

Question 74

Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. Fixed costs are $6,900 per month. How much is the operating income?

A) $9,500
B) $32,300
C) $800
D) $750

Question 75

On a CVP graph, in the area where the revenue line appears below the total cost line, the vertical distance separating the two lines represents what?

A) Contribution margin
B) Operating loss
C) Operating income
D) Variable costs

Question 76

On a CVP graph, in the area where the revenue line appears above the total cost line, the vertical distance separating the two lines represents what?

A) Contribution margin
B) Operating loss
C) Operating income
D) Variable costs

Question 77

A company's product sells for $240 per unit. The contribution margin ratio is 12.5%. Fixed costs run at $141,000 per month. How many dollars of sale revenue are required to break even?

A) $1,129,000
B) $1,128,000
C) $956,000
D) $1,050,000

Question 78

The breakeven point on a CVP graph is the point where the sales revenue line intersects the total cost line.

Question 79

On a CVP graph, there is a point where the two diagonal lines intersect. Which of the following statements accurately describes that point?

A) It is the point where total revenues equal total variable costs.
B) It is the point where fixed costs equal variable costs.
C) It is the point where total revenues equal fixed costs.
D) It is the point where total costs equal total revenues.

Question 80

Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $5,000, how many units need to be sold?

A) 500
B) 300
C) 450
D) 350