Deck 20: Cost-Volume-Profit Analysis

Question 1

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

Answer 1

False

Question 2

First Buy Television Antenna Company provided the following manufacturing costs for the month of June. $\begin{array}{|l|r|}\hline\text { Direct labor cost } & \$ 132,000 \\\hline \text { Direct materials cost } & 84,000 \\\hline \text { Equipment depreciation } & \\\text { (straight-line) } & 24,000\\\hline \text { Factory insurance } & 10,000 \\\hline \text { Factory manager's salary } & 10,200 \\\hline \text { Janitor's salary } & 4,000 \\\hline \text { Packaging costs } & 18,600 \\\hline \text { Property taxes } & 16,000\\\hline\end{array}$ From the above information,calculate First Buy's total fixed costs.

A)$298,800
B)$40,200
C)$60,200
D)$64,200

Answer 2

$64,200

Question 3

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

Answer 3

True

Question 4

Which of the following statements is true of the behavior of 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 5

If the volume of activity doubles in the relevant range,total variable costs will also double.

Question 6

The fixed costs per unit will ________.

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

Question 7

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

Question 8

Fixed costs per unit decrease as production levels decrease.

Question 9

Fixed costs per unit is inversely proportional to the volume of units produced.

Question 10

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

Question 11

North Shore Clothing Company provided the following manufacturing costs for the month of June. $\begin{array}{|l|r|}\hline\text { Direct labor cost } & \$ 138,000 \\\hline \text { Direct materials cost } & 85,000 \\\hline \text { Equipment depreciation } & \\\text { (straight-line) } & 24,000\\\hline \text { Factory insurance } & 19,000 \\\hline \text { Factory manager's salary } & 11,000 \\\hline \text { |anitor's salary } & 3,000 \\\hline \text { Packaging costs } & 19,200 \\\hline \text { Property taxes } & 14,000\\\hline\end{array}$ From the above information,calculate North Shore's total variable costs.

A)$313,200
B)$71,000
C)$242,200
D)$223,000

Question 12

Which of the following statements is true of the behavior of 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.

Question 13

Which of the following is a variable cost?

A)property taxes
B)salary of plant manager
C)direct materials cost
D)straight-line depreciation expense

Question 14

Which of the following costs does not change in total despite changes in volume within the relevant range?

A)fixed costs
B)variable costs
C)mixed costs
D)total production costs

Question 15

The high-low method requires the identification of the lowest and highest levels of total costs,not activity,over a period of time.

Question 16

Variable cost per unit is constant throughout various relevant ranges.

Question 17

Variable cost per unit,within the relevant range,will ________.

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

Question 18

During the current year,Simpson,Inc.incurred $9,000 in fixed costs and $13,000 in variable costs.If the number of units produced is halved next year,the company will incur $4,500 as fixed costs and $6,500 as variable costs.

Question 19

Which of the following costs change in total in direct proportion to a change in volume?

A)fixed costs
B)variable costs
C)mixed costs
D)period costs

Question 20

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 administration costs
D)15% increase in total variable costs

Question 21

Jupiter,Inc.incurred fixed costs of $300,000.Total costs,both fixed and variable,are $500,000 when 59,000 units are produced.It sold 35,000 units during the year.Calculate the variable cost per unit.(Round your answer to the nearest cent. )

A)$8.47
B)$14.29
C)$5.08
D)$3.39

Question 22

Ron Moss,a manager of Waterworks,Inc. ,was reviewing the water bills of a dog daycare and spa.He determined that its highest and lowest bills of $3,600 and $2,800 were incurred in the months of May and November,respectively.If 500 dogs were washed in May and 200 dogs were washed in November,what was the variable cost per dog associated with the company's water bill? (Round your answer to the nearest cent. )

A)$4.00
B)$14.00
C)$7.20
D)$2.67

Question 23

The phone bill for a company consists of both fixed and variable costs.Refer to the four-month data below and apply the high-low method to answer the question.(Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. ) $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 3,000 \\\hline \text { February } & 200 & \$ 2,675 \\\hline \text { March } & 180 & \$ 2,630 \\\hline \text { April } & 320 & \$ 2,840 \\\hline\end{array}$$ What is the fixed portion of the total cost?

A)$607
B)$370
C)$2,393
D)$2,630

Question 24

The highest value of total cost was $800,000 in June for Mantilla Beverages,Inc.Its lowest value of total cost was $510,000 in December.The company makes a single product.The production volume in June and December were 13,000 and 8,000 units,respectively.What is the fixed cost per month? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$510,000
B)$290,000
C)$46,000
D)$8,000

Question 25

Kamal Company incurs both fixed and variable production costs.Assuming that production is within the relevant range,if volume goes up by 20%,then the total costs would ________.

A)increase by 20%
B)remain the same
C)increase by an amount less than 20%
D)decrease by 20%

Question 26

The phone bill for a corporation consists of both fixed and variable costs.Refer to the four-month data below and apply the high-low method to answer the question. $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 4,000 \\\hline \text { February } & 210 & \$ 2,695 \\\hline \text { March } & 170 & \$ 2,640 \\\hline \text { April } & 300 & \$ 2,835 \\\hline\end{array}$$ If the company uses 390 minutes in May,how much will the total bill be? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

A)$1,842.60
B)$1,829.10
C)$3,672
D)$6,157

Question 27

Winslow,Inc. ,a tennis equipment manufacturer,has variable costs of $0.60 per unit of product.In August,the volume of production was 27,000 units,and units sold were 21,800.The total production costs incurred were $30,600.What are the fixed costs per month?

A)$14,400
B)$17,520
C)$3,600
D)$16,200

Question 28

Prudence Company incurs both fixed and variable production costs.Assuming that production is within the relevant range,if volume goes up by 28%,then the total fixed costs would ________.

A)increase by 28%
B)remain the same
C)increase by an amount less than 28%
D)decrease by 28%

Question 29

Left Hand,Inc.has fixed costs of $400,000.Total costs,both fixed and variable,are $550,000 when 40,000 units are produced.Calculate the total costs if the volume increases to 64,000 units.(Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

A)$950,000
B)$150,000
C)$640,000
D)$550,000

Question 30

A cellphone service provider charges $5.00 per month and $0.20 per minute per call.If a customer's current bill is $55,how many minutes did the customer use? (Round any intermediate calculations and your final answer to the nearest whole minute. )

A)275 minutes
B)300 minutes
C)250 minutes
D)225 minutes

Question 31

The relevant production range for Orleans Trailers,Inc.is between 130,000 units and 180,000 units per month.If the company produces beyond 180,000 units per month,________.

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 32

The highest value of total cost was $70,000 in June for Fargo Beverages,Inc.Its lowest value of total cost was $52,000 in December.The company makes a single product.The production volume in June and December were 13,000 and 7,000 units,respectively.What is the variable cost per month? (Round your answer to the nearest cent. )

A)$1.38 per unit
B)$2.57 per unit
C)$3.00 per unit
D)$11.67 per unit

Question 33

Costs that have both variable and fixed components are called ________.

A)fixed costs
B)variable costs
C)mixed costs
D)contribution costs

Question 34

The phone bill for a company consists of both fixed and variable costs.Refer to the four-month data below and apply the high-low method to answer the question. $$\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 460 & \$ 3,000 \\\hline \text { February } & 200 & \$ 2,675 \\\hline \text { March } & 170 & \$ 2,660 \\\hline \text { April } & 310 & \$ 2,825 \\\hline\end{array}$$ What is the variable cost per minute? (Round your answer to the nearest cent. )

A)$1.17
B)$6.52
C)$0.85
D)$0.11

Question 35

The high-low method is used to ________.

A)determine the highest price that can be charged for a product
B)separate mixed costs into their variable and fixed components
C)identify the relevant and irrelevant costs of a business
D)determine the sales level at highest capacity

Question 36

When the total variable costs are deducted from total mixed costs,we obtain ________.

A)mixed cost per unit
B)variable cost per unit
C)total high-low costs
D)total fixed costs

Question 37

Jose Foster,a manager of Prettiest Pooch,Inc. ,was reviewing the water bills of a dog daycare and spa.He determined that its highest and lowest bills of $3,800 and $2,000 were incurred in the months of May and November,respectively.If 600 dogs were washed in May and 200 dogs were washed in November,what was the fixed cost associated with the company's water bill? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

A)$2,000
B)$3,800
C)$1,100
D)$1,800

Question 38

Anthony Chemicals,Inc.has fixed costs of $34,000 per month.The highest production volume during the year was in January when 120,000 units were produced,72,000 units were sold,and total costs of $610,000 were incurred.In June,the company produced only 54,000 units.What was the total cost incurred in June? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

A)$259,200
B)$293,200
C)$610,000
D)$644,000

Question 39

Porterhouse Company incurs both fixed and variable production costs.Assuming that production is within the relevant range,if volume goes up by 28%,then the total variable costs would ________.

A)increase by 28%
B)remain the same
C)increase by an amount less than 28%
D)decrease by 28%

Question 40

Within the relevant range,which of the following costs remains the same irrespective of the changes in production?

A)total mixed costs
B)total operating costs
C)total variable costs
D)total fixed costs

Question 41

How is the unit contribution margin calculated?

Question 42

Garcia's,a company that sells fishing nets,provides the following information about its product: $$\begin{array} { | l | r | } \hline \text { Targeted operating income } & \$ 54,000 \\\hline \text { Sales price per unit } & 10.00 \\\hline \text { Variable cost per unit } & 1.50 \\\hline \text { Total fixed costs } & 120,000 \\\hline\end{array}$$ What is the contribution margin ratio? (Round any intermediate calculations and your final answer to two decimal places. )

A)85.00%
B)100%
C)75.00%
D)15.00%

Question 43

Emara Company sells two generators-Model A and Model B-for $456 and $394,respectively.The variable cost of Model A is $406 and of Model B is $304.The company will generate lower revenues but a higher net income if it sells more of Model B than Model A.

Question 44

Arturo Company sells two generators-Model A and Model B-for $454 and $396,respectively.The variable cost of Model A is $408 and of Model B is $314.If Arturo Company's sales incentives reward sales of the goods with the highest contribution margin,the sales force will be motivated to push sales of Model A more aggressively than Model B.

Question 45

Which of the following is the correct formula for calculating total mixed cost?

A)Total mixed cost = (Variable cost per unit / Number of units)+ Total fixed cost
B)Total mixed cost = (Variable cost per unit × Number of units)- Total fixed cost
C)Total mixed cost = (Variable cost per unit × Number of units)+ Total fixed cost
D)Total mixed cost = (Variable cost per unit / Number of units)- Total fixed cost

Question 46

Because contribution margin is based on sales price and variable costs,the ratio can be calculated using either the total amounts or the unit amounts.

Question 47

Identify each cost below as variable (V),fixed (F),or mixed (M),relative to units sold.Explain the reason for your answer.

Question 48

How is the contribution margin ratio calculated?

Question 49

Gainesville Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 56 \\\hline \text { Variable cost per unit } & 12 \\\hline \text { Fixed costs per month } & \$ 12,000 \\\hline\end{array}$$ Calculate the contribution margin ratio.(Round your answer to two decimal places. )

A)21.43%
B)82.35%
C)64.71%
D)78.57%

Question 50

How is the contribution margin calculated?

Question 51

Young Company has provided the following information: $$\begin{array} { | l | r | } \hline \text { Sales price per unit } & \$ 52 \\\hline \text { Variable cost per unit } & 16 \\\hline \text { Fixed costs per month } & \$ 14,000 \\\hline\end{array}$$ Calculate the contribution margin per unit.

A)$36.00
B)$52.00
C)$68.00
D)$16.00

Question 52

Contribution margin ratio is the ratio of contribution margin to ________.

A)net sales revenue
B)cost of goods sold
C)total variable costs
D)total fixed costs

Question 53

The Perfect Fit Company sells hand sewn shirts at $58.00 per shirt.It incurs monthly fixed costs of $8,000.The contribution margin ratio is calculated to be 30%.What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places. )

A)$40.60 per shirt
B)$75.40 per shirt
C)$58.00 per shirt
D)$17.40 per shirt

Question 54

If the sales price of Product X is $24.00 per unit and unit fixed cost is $7.50,its contribution margin per unit is $16.50.

Question 55

Contribution margin is the amount that contributes to covering variable costs.

Question 56

Contribution margin ratio is the ratio of contribution margin to net income.

Question 57

Pluto Hand Blenders Company sold 3,000 units in October at a sales price of $45 per unit.The variable cost is $25 per unit.Calculate the total contribution margin.

A)$135,000
B)$60,000
C)$75,000
D)$37,500

Question 58

Which of the following formulas is the right formula for calculating contribution margin ratio?

A)Contribution margin ratio = Contribution margin + Net sales revenue
B)Contribution margin ratio = Contribution margin / Net sales revenue
C)Contribution margin ratio = Contribution margin × Net sales revenue
D)Contribution margin ratio = Contribution margin - Net sales revenue

Question 59

Contribution margin is the difference between net sales revenue and variable costs.

Question 60

Contribution margin ratio is equal to ________.

A)fixed costs divided by contribution margin per unit
B)net sales revenue per unit minus variable costs per unit
C)net sales revenue minus variable costs
D)contribution margin divided by net sales revenue

Question 61

A ________ groups cost by behavior; costs are classified as either variable costs or fixed costs.

A)balance sheet
B)contribution margin income statement
C)traditional income statement
D)absorption costing income statement

Question 62

A CVP graph shows how changes in the level of sales will affect profits.

Question 63

CVP analysis assumes that the sales price per unit does not change as volume changes.

Question 64

Which of the following is a period cost?

A)manufacturing overhead
B)direct labor cost
C)direct materials cost
D)administrative cost

Question 65

Darwin Company sells glass vases at a wholesale price of $4.50 per unit.The variable cost to manufacture is $1.75 per unit.The monthly fixed costs are $8,500.Its current sales are 29,000 units per month.If the company wants to increase its operating income by 20%,how many additional units must it sell? (Round any intermediate calculations to two decimal places and your final answer to the nearest whole number. )

A)130,500 glass vases
B)8,500 glass vases
C)34,182 glass vases
D)5,182 glass vases

Question 66

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Question 67

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

A)The only factor that affects total costs is a change in volume,which increases or decreases variable and mixed costs.
B)The price per unit does not change as volume changes.
C)Fixed costs do not change.
D)The price per unit changes as volume changes.

Question 68

Which of the following appears as a line item in a contribution margin income statement?

A)Gross profit
B)Total cost of goods sold
C)Operating income
D)Total selling and administrative expenses

Question 69

The fundamental assumption of cost-volume-profit (CVP)analysis is that,in the long run,fixed costs become variable costs.

Question 70

Galose Coffee Company sold 7,000 units in October at a sales price of $45 per unit.The variable cost is $20 per unit.The monthly fixed costs are $8,000.What is the operating income earned in October?

A)$175,000
B)$315,000
C)$167,000
D)$140,000

Question 71

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

Question 72

Target profit can be determined by using the contribution margin,contribution margin ratio,or break even approach.

Question 73

Savannah Company sells glass vases at a wholesale price of $5 per unit.The variable cost of manufacture is $2.50 per unit.The fixed costs are $6,200 per month.It sold 5,700 units during this month.Calculate Savannah's operating income (loss)for this month.

A)$22,300
B)$8,050
C)($8,050)
D)($6,200)

Question 74

The dollar amount that provides for covering fixed costs and then provides for operating income is called ________.

A)variable cost
B)total cost
C)contribution margin
D)margin of safety

Question 75

Andres Napkin Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

Question 76

A contribution margin income statement classifies costs by function; that is,costs are classified as either product costs or period costs.

Question 77

List the cost-volume-profit (CVP)assumptions.

Question 78

Target profit is the operating income that results when sales revenue minus variable and fixed costs equals management's profit goal.

Question 79

Complete the following statements:

-
A traditional income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.

Question 80

Contribution margin is the amount that contributes to covering the fixed costs and then to providing operating income.