Deck 2: Introduction to Cost Behavior and Cost-Volume Relationships

Question 1

A good example of a cost driver for production labor wages is the number of engineering hours worked.

Answer 1

False

Question 2

To predict costs and manage them on a day-to-day basis,managers must identify:

A)cost of resources used
B)cost drivers
C)key activities and resources used to perform activities
D)all of the above

Answer 2

D

Question 3

To control costs,managers should focus their efforts on managing ________.

A)products or services
B)revenues from products or services
C)activities required to make,sell and deliver products or services
D)production costs of products or services

Answer 3

C

Question 4

As the sales volume increases in the relevant range,variable costs per unit ________ but total variable costs ________.

A)do not change; increase
B)do not change; decrease
C)increase; do not change
D)decrease; do not change

Question 5

A good example of a cost driver for production supervisor salaries is the number of people supervised.

Question 6

As sales volume increases in the relevant range,a fixed cost does not change ________,but the fixed cost ________ becomes progressively smaller.

A)per-unit; total
B)in total; per-unit
C)per-unit; per-unit
D)in total; per year

Question 7

Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane.What is an appropriate cost driver for the salary of the supervisor in charge of this activity?

A)number of mechanic hours
B)number of engineering hours
C)number of workers supervised
D)weight of the seats installed

Question 8

When analyzing costs,accountants should think of variable costs on a ________ basis and fixed costs on a ________ basis.

A)total; total
B)per-unit; per-unit
C)total; per-unit
D)per-unit; total

Question 9

Which of the following cost drivers would NOT be appropriate for the customer services activity of the value chain?

A)number of service calls
B)hours spent servicing products
C)number of engineering hours by research and development staff
D)number of service call workers

Question 10

Consider the following activity: Several product and process engineers are working to make improvements to several existing products.These improvements revolve around safety and durability issues.What is an appropriate cost driver for this activity?

A)number of engineering hours
B)number of products
C)number of parts per product
D)all of the above

Question 11

Which of the following costs is a variable cost?

A)rental expense for factory building for manufacturer of electronics
B)lease cost for factory machine for manufacturer of electronics
C)fuel for airplane for airline
D)depreciation expense of airplane for airline

Question 12

Which value chain function would use the following cost driver: number of advertisements?

A)production
B)distribution
C)marketing
D)customer service

Question 13

Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane.What is an appropriate cost driver for the labor resources used for this activity?

A)number of service center hours
B)number of labor hours used for installation
C)number of mechanic hours
D)number of engineering hours

Question 14

Cost drivers are ________.

A)the different functions in the value chain
B)different types of functional areas in the firm
C)measures of activities that require the use of resources and thereby cause costs
D)different types of cost calculations

Question 15

Which of the following statements about costs is FALSE?

A)An organization may have cost drivers across various activities of its value chain.
B)It is important to identify the appropriate cost drivers.
C)One of the main goals of management accounting is helping managers control costs.
D)Managers can control costs without understanding how activities of an organization affects its costs.

Question 16

Several machines are used in the factory to manufacture a simple product.What is an appropriate cost driver for the depreciation expense on the machines?

A)number of advertisements
B)number of service calls
C)number of machine hours
D)number of hours spent servicing defective products

Question 17

Consider the following activity: The installation of seats by an airplane manufacturer in a commercial airplane.What is an appropriate cost driver for the cost of the seats?

A)number of seats installed
B)number of labor hours used for installation
C)number of mechanic hours
D)number of engineering hours

Question 18

As sales volume decreases in the relevant range,fixed costs per unit ________,but total fixed costs ________.

A)increase; do not change
B)decrease: do not change
C)do not change; increase
D)do not change; decrease

Question 19

Which value chain function would use the following cost driver: weight of items delivered?

A)marketing
B)distribution
C)customer service
D)none of the above

Question 20

A key factor in controlling costs is focusing on the revenues a product or service generates.

Question 21

Variable costs ________.

A)vary per unit
B)are fixed in total
C)decrease in total as the cost-driver activity level increases
D)are fixed per unit and vary in total

Question 22

What happens when the cost-driver activity level increases within the relevant range?

A)total fixed costs increase
B)fixed costs per unit decrease
C)total variable costs decrease
D)variable costs per unit decrease

Question 23

Only one cost driver may affect a cost at any given time.

Question 24

The relevant range is the limit of cost-driver level within which a specific relationship between costs and the cost driver is valid.

Question 25

The relevant range applies to ________.

A)variable costs
B)fixed costs
C)fixed costs and variable costs
D)none of the above

Question 26

Fixed costs ________.

A)are fixed on a per-unit basis,but vary in total
B)vary on a per-unit basis,but are fixed in total
C)are fixed on a per-unit basis,and fixed in total
D)vary on a per-unit basis,and vary in total

Question 27

Costs may behave in a linear or a nonlinear manner.

Question 28

The level of sales at which revenues equal expenses and net income is zero is called the ________.

A)margin of safety
B)contribution margin
C)break-even point
D)point of no return

Question 29

Cherry Wood Company sells desks at $480 per desk.The variable costs are $372 per desk.Total fixed costs for the period are $456,840.The contribution margin ratio is ________.

A)22.5%
B)29.0%
C)40.6%
D)77.5%

Question 30

What happens when the cost-driver activity level decreases within the relevant range?

A)total fixed costs increase
B)fixed costs per unit decrease
C)total variable costs decrease
D)variable costs per unit decrease

Question 31

An accountant may have difficulty classifying costs as fixed or variable because ________.

A)costs may behave in a nonlinear way
B)costs may be affected by more than one cost driver
C)it depends on the decision situation
D)all of the above

Question 32

Which of the following costs is a fixed cost?

A)cost of dairy ingredients used to produce ice cream
B)factory supervisory salaries
C)fuel used by delivery trucks
D)labor wages of workers who mix dairy ingredients to make ice cream

Question 33

What happens when the cost-driver level increases within the relevant range?

A)total fixed costs remain unchanged
B)fixed costs per unit increases
C)total variable costs decrease
D)variable costs per unit increases

Question 34

Walnut Corporation sells desks at $480 per desk.The variable costs associated with each desk are $372.Total fixed costs for the period are $456,840.The contribution margin per desk is ________.

A)$51
B)$108
C)$126
D)$195

Question 35

With very short time spans,more costs are fixed and fewer are variable.

Question 36

Total fixed costs increase when volume increases in the relevant range.

Question 37

Last year,XYZ Company sold 10,000 units that cost $40,000 to produce.This cost included $4,000 in fixed computer resource costs,$6,000 in fixed labor cost and $3.00 per unit for communications resource costs.XYZ Company expects to sell 20,000 units next year.Resource costs are expected to be in the same relevant range next year.What are the total estimated costs for next year?

A)$70,000
B)$75,000
C)$80,000
D)$84,000

Question 38

What happens when the cost-driver activity level decreases within the relevant range?

A)total fixed costs increase
B)fixed costs per unit decrease
C)total variable costs increase
D)variable costs per unit are unchanged

Question 39

An increase in total variable costs usually indicates ________.

A)the cost-driver activity level is decreasing
B)the cost-driver activity level is increasing
C)variable costs per unit is decreasing
D)fixed costs per unit is increasing

Question 40

Hot Company,a producer of salsa,has the following information: The contribution margin per unit is ________.

A)$2.00
B)$3.00
C)$5.00
D)$8.00

Question 41

HugME Company produces dolls.Each doll sells for $20.00.Variable costs are $14.00 per unit.If the break-even volume in dollars is $1,446,000,then the total fixed costs for the period are ________.

A)$361,500
B)$433,800
C)$516,425
D)$1,446,000

Question 42

Assume the sales price is $100 per unit and the variable cost is $75 per unit.Total fixed costs are $150,000.Then the break-even volume in dollar sales is ________.

A)$1,500
B)$150,000
C)$200,000
D)$600,000

Question 43

General Hospital has variable costs of 90% of total revenues and total fixed costs of $50 million per year.There are 50,000 patient-days estimated for next year.What is the average daily revenue per patient necessary to breakeven?

A)$250
B)$1,000
C)$4,000
D)$10,000

Question 44

HugME Company produces dolls.Each doll sells for $20.00.Variable costs per unit are $14.00 and total fixed costs for the period are $435,000.What is the break-even volume in dollars?

A)$435,000
B)$621,429
C)$1,023,529
D)$1,450,000

Question 45

Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel.Average daily room rents are $50 per room and average variable costs are $10 for each room rented.It operates 365 days per year.If the hotel is one-half full throughout the entire year,what is the amount of net income for one year?

A)$(1,192,500)
B)$990,000
C)$1,590,000
D)$2,737,500

Question 46

Deadwood Hospital has variable costs of 50% of total revenues and fixed costs of $40 million per year.There are 40,000 patient-days estimated for the next year.The break-even point expressed in total revenue is ________.

A)$10 million
B)$40 million
C)$80 million
D)$90 million

Question 47

Assume the sales price is $100 per unit and the total fixed costs are $75,000.The break-even volume in dollar sales is $250,000.What is the variable cost per unit?

A)$30
B)$70
C)$100
D)$125

Question 48

Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel.Average daily room rents are $50 per room and average variable costs are $10 for each room rented.It operates 365 days per year.If the hotel is completely full throughout the year,what is net income for one year?

A)$(1,188,000)
B)$3,180,000
C)$4,275,000
D)$5,475,000

Question 49

Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel.Average daily room rents are $50 per room,and average variable costs are $10 for each room rented.It operates 365 days per year.What is the break-even point in number of rooms rented?

A)24,000
B)30,000
C)100,000
D)120,000

Question 50

Oakes Corporation sells desks at $480 per desk.The variable costs are $372 per desk.Total fixed costs for the period are $456,840.The break-even point in desks is ________.

A)952
B)1,228
C)4,230
D)5,458

Question 51

The sales price is $30 per unit,the contribution margin is $8 per unit and total fixed costs are $32,000.What is the break-even point in units?

A)857
B)1,200
C)2,000
D)4,000

Question 52

Mercy Hospital has total variable costs of 80% of total revenues and fixed costs of $20 million per year.There are 70,000 estimated patient-days for next year.What is the break-even point expressed in total revenue?

A)$10 million
B)$12.5 million
C)$20 million
D)$100 million

Question 53

HugME Company produces dolls.Each doll sells for $20.00.Variable costs per unit are $14.00 and total fixed costs for the period are $435,000.What is the break-even point in units?

A)21,750
B)31,071
C)51,176
D)72,500

Question 54

Medina Hospital has variable costs of 75% of total revenues and fixed costs of $40 million per year.There are 40,000 patient-days estimated for next year.What is the average daily revenue per patient necessary to breakeven?

A)$250
B)$1,000
C)$4,000
D)$20,000

Question 55

Company ZZZ has the following information available: What is the expected operating income for a year?

A)$480,000
B)$680,000
C)$1,580,000
D)none of the above

Question 56

On Fire Company,a producer of electronic devices,has the following information: The contribution-margin ratio is ________.

A)30%
B)40%
C)60%
D)100%

Question 57

Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel.Average daily room rents are $50 per room and average variable costs are $10 for each room rented.It operates 365 days per year.What percent of occupancy is needed to breakeven?

A)3.65%
B)25%
C)27.4%
D)34.3%

Question 58

Assume the sales price is $34 per unit and the variable cost is $19 per unit.The break-even point is 12,000 units.What are total fixed costs?

A)$180,000
B)$190,000
C)$340,000
D)$530,000

Question 59

Knotty Company sells desks at $480 per desk.The variable costs are $372 per desk.Total fixed costs for the period are $456,840.The break-even volume in dollars is ________.

A)$456,840
B)$1,573,560
C)$2,030,400
D)none of these answers is correct

Question 60

Sizzling Company,a producer of electronic components,has the following information: The break-even point in dollars is ________.

A)$150,000
B)$180,000
C)$225,000
D)$270,000

Question 61

The break-even point is when enough units are sold that total contribution margin equals total variable costs.

Question 62

Brunswick Manufacturing has prepared the following income statement:
According to company records,$50,000 of Cost of Goods Sold and $166,000 of Operating Expenses are fixed.
Required:

A)Compute the contribution margin.
B)Compute the contribution margin ratio.
C)Compute the break-even volume in sales dollars.

Question 63

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

A)We can classify expenses into fixed and variable categories.
B)Sales mix will be constant.
C)Revenues and expenses are linear over the relevant range.
D)There will be changes in efficiency or productivity.

Question 64

If the total amount of fixed costs increases,what is the effect on the break-even point? (Assume no other changes.)

A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point will be zero.

Question 65

The vertical axis on the cost-volume-profit graph is the ________.

A)dollars of cost
B)sales volume in units
C)dollars of revenue
D)dollars of cost and revenue

Question 66

At the break-even point,net income may be positive.

Question 67

Explosion Company produces one type of product.Total fixed costs are $100,000.Unit variable costs are $6.00.The break-even point is 25,000 units.Planned unit sales are 30,000.
Required:

A)Compute the selling price per unit.
B)Compute the contribution-margin ratio.
C)Compute the break-even volume in dollars.

Question 68

The following information is available for Donald Corporation: If total fixed costs increased to $394,850,then the break-even volume in dollars would increase by ________.

A)10.0%
B)12.3%
C)18.4%
D)34.3%

Question 69

If the selling price per unit increases,what is the effect on the break-even point? (Assume no other changes.)

A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point is zero.

Question 70

The Eastman Family Restaurant is open 24 hours per day.Fixed costs are $24,000 per month.Variable costs are estimated at $9.60 per meal.The average revenue is $12 per meal.
Required:

A)Compute the break-even point in meals.
B)Compute the break-even volume in dollars.

Question 71

If the variable cost per unit increases,what is the effect on the break-even point? (Assume no other changes.)

A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point is zero.

Question 72

Assume ZZZ Company has the following information available: If fixed costs increase $200,000,what is the break-even point in units?

A)11,273
B)12,000
C)13,000
D)none of the above

Question 73

Wildwood Corporation produces one product.Total fixed costs are $500,000.
The unit selling price is $68.50 and the unit variable cost is $50.95.
Required:

A)Compute the contribution margin per unit.
B)Compute the contribution-margin ratio.
C)Compute the break-even point in units.
D)Compute the break-even volume in dollars.

Question 74

The horizontal axis on the cost-volume-profit graph is the ________.

A)dollars of cost
B)sales volume in units
C)dollars of revenue
D)net income

Question 75

Assume ZZZ Company has the following information available: If fixed costs increase $200,000,what is the expected operating income?

A)$280,000
B)$480,000
C)$680,000
D)$1,380,000

Question 76

What action will decrease a company's break-even point?

A)reducing total fixed costs
B)decreasing contribution margin per unit
C)increasing variable cost per unit
D)decreasing the selling price per unit

Question 77

Southwest Hospital has fixed costs of $100 million per year.Variable costs represent approximately 80% of the total revenue.There are 50,000 patient-days estimated for next year.
Required:

A)What is the break-even point expressed in total revenue?
B)What is the average daily revenue per patient necessary to break even?

Question 78

The break-even point is the level of sales at which revenue equals fixed costs.

Question 79

Frances Company produces only one product.The selling price is $95 per unit and the variable cost is $65 per unit.Total fixed costs are $130,000.
Required:

A)Compute break-even point in units.
B)Compute break-even volume in dollars.

Question 80

The equation for the income statement is:
Sales - Variable Expenses- Fixed Expenses = Net Income