Deck 11: Cost Behavior and Cost-Volume-Profit Analysis

Question 1

The relevant range is useful for analyzing cost behavior for management decision-making purposes.

Answer 1

True

Question 2

A production supervisor's salary that does NOT vary with the number of units produced is an example of a fixed cost.

Answer 2

True

Question 3

The range of activity over which changes in cost are of interest to management is called the relevant range.

Answer 3

True

Question 4

Total variable costs change as the level of activity changes.

Question 5

Cost behavior refers to the methods used to estimate costs for use in managerial decision making.

Question 6

A mixed cost has characteristics of both a variable cost and a fixed cost.

Question 7

Variable costs are costs that vary on a per-unit basis as the level of manufacturing activity changes.

Question 8

Variable costs are costs that vary in total in direct proportion to changes in the activity level.

Question 9

Cost behavior refers to the manner in which a cost changes as the related activity changes.

Question 10

The variable cost per unit remains constant with changes in the level of activity.

Question 11

Because variable costs are assumed to change in constant proportion with changes in the activity level,the graph of the variable costs when plotted against the activity level appears as a circle.

Question 12

Monthly rent on a factory building that does NOT vary with the number of units produced is an example of a fixed cost.

Question 13

Fixed costs are costs that vary in total dollar amount as the level of activity changes.

Question 14

Direct materials and direct labor costs are examples of variable costs of production.

Question 15

Total fixed costs remain constant as the level of activity changes.

Question 16

Direct materials cost that varies with the number of units produced is an example of a fixed cost of production.

Question 17

Rental charges of $60,000 per year plus $2 for each machine hour over 15,000 hours is an example of a fixed cost.

Question 18

A rental cost of $40,000 plus $0.50 per machine hour of use is an example of a mixed cost.

Question 19

Variable costs are costs that remain constant in total with changes in the activity level.

Question 20

The fixed cost per unit varies with changes in the level of activity.

Question 21

If fixed costs are $300,000 and variable costs are 70% of break-even sales,profit is zero when sales revenue is $1,000,000.

Question 22

If direct materials cost per unit increases,the break-even point will increase.

Question 23

The dollars available from each unit of sales to cover fixed cost and profit is the contribution margin per unit.

Question 24

If direct materials cost per unit decreases,the amount of sales necessary to earn a desired amount of profit will decrease.

Question 25

Break-even analysis is one type of cost-volume-profit analysis.

Question 26

For purposes of analysis,mixed costs can generally be separated into their variable and fixed components.

Question 27

If fixed costs are $220,000 and the unit contribution margin is $25,the sales necessary to earn an operating income of $30,000 are 10,000 units.

Question 28

The data required for determining the break-even point for a business are the total estimated fixed costs for a period stated as a percentage of net sales.

Question 29

If sales total $1,000,000,fixed costs total $400,000,and variable costs are 55% of sales,the contribution margin ratio is 45%.

Question 30

If yearly insurance premiums are increased,this change in fixed costs will result in a decrease in the break-even point.

Question 31

Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.

Question 32

If sales total $2,000,000,fixed costs total $800,000,and variable costs are 60% of sales,the contribution margin ratio is 60%.

Question 33

If fixed costs are $850,000 and the unit contribution margin is $50,profit is zero when 15,000 units are sold.

Question 34

The point in operations at which revenues and expired costs are exactly equal is called the break-even point.

Question 35

The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio.

Question 36

If the property tax rates are increased,this change in fixed costs will result in an increase in the break-even point.

Question 37

If direct materials cost per unit decreases,the break-even point will increase.

Question 38

If employees accept a wage contract that decreases the unit contribution margin,the break-even point will decrease.

Question 39

The contribution margin ratio is the same as the variable cost ratio.

Question 40

If sales total $2,000,000,fixed costs total $800,000,and variable costs are 60% of sales,the contribution margin ratio is 40%.

Question 41

DeGiaimo Co.has an operating leverage of 5.If next year's sales are expected to increase by 10%,then the company's operating income will increase by 50%.

Question 42

Cost behavior refers to the manner in which

A)a cost changes as the related activity changes.
B)a cost is allocated to products.
C)a cost is used in setting selling prices.
D)a cost is estimated.

Question 43

Which of the following describes the behavior of the variable cost per unit?

A)Decreases with increasing production
B)Decreases with decreasing production
C)Remains constant with changes in production
D)Increases with increasing production

Question 44

If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000,the margin of safety is 20%.

Question 45

A low operating leverage is normal for highly automated industries.

Question 46

If a business sells two products,it is NOT possible to estimate the break-even point.

Question 47

Costs that remain constant on a per-unit level as the level of activity changes are called

A)fixed costs.
B)mixed costs.
C)opportunity costs.
D)variable costs.

Question 48

If the unit selling price is $40,the volume of sales is $3,000,000,sales at the break-even point amount to $2,500,000,and the maximum possible sales are $3,300,000,the margin of safety is 7,500 units.

Question 49

If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000,the margin of safety is 25%.

Question 50

If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000,the margin of safety is 20%.

Question 51

Only a single line,which represents the difference between total sales revenues and total costs,is plotted on the cost-volume-profit chart.

Question 52

Which of the following activity bases would be the most appropriate for food costs of
A hospital?

A)Number of cooks scheduled to work
B)Number of x-rays taken
C)Number of patients who stay in the hospital
D)Number of scheduled surgeries

Question 53

If a business sells four products,it is NOT possible to estimate the break-even point.

Question 54

If fixed costs are $450,000 and the unit contribution margin is $50,the sales necessary to earn an operating income of $30,000 are 14,000 units.

Question 55

Which of the following graphs illustrates the behavior of a total fixed cost?

A)Graph 2
B)Graph 3
C)Graph 4
D)Graph 1

Question 56

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

A)Direct labor
B)Salary of a factory supervisor
C)Units of production depreciation on factory equipment
D)Direct materials

Question 57

Only a single line,which represents the difference between total sales revenues and total costs,is plotted on the profit-volume chart.

Question 58

Even if a business sells six products,it is possible to estimate the break-even point.

Question 59

Cost-volume-profit analysis can be presented in both equation form and graphic form.

Question 60

If the unit selling price is $40,the volume of sales is $3,000,000,sales at the break-even point amount to $2,500,000,and the maximum possible sales are $3,300,000,the margin of safety is 12,500 units.

Question 61

Which of the following is an example of a cost that varies in total as the number of units produced changes?

A)Electricity per KWH to operate factory equipment
B)Monthly rent on a factory building
C)Straight-line depreciation on factory equipment
D)Salary of a production supervisor

Question 62

Winston Co.manufactures office furniture.During the most productive month of the year,3,500 desks were manufactured at a total cost of $84,400.In its slowest month,the company made 1,100 desks at a cost of $46,000.Using the high-low method of cost estimation,total fixed costs are

A)$56,000.
B)$28,400.
C)$17,600.
D)$29,900.

Question 63

The systematic examination of the relationships among selling prices,volume of sales and production,costs,expenses,and profits is termed

A)contribution margin analysis.
B)cost-volume-profit analysis.
C)budgetary analysis.
D)gross profit analysis.

Question 64

Given the following cost and activity observations for Merritt Company's utilities,use the high-low method to calculate Merritt's fixed costs per month.

A)$25,100
B)$50,000
C)$12,500
D)$2,600

Question 65

Which of the following activity bases would be the most appropriate for gasoline costs of
A delivery service such as UPS?

A)Number of trucks employed
B)Number of miles driven
C)Number of trucks in service
D)Number of packages delivered

Question 66

The graph of a variable cost when plotted against its related activity base appears as a

A)circle.
B)rectangle.
C)straight line.
D)curved line.

Question 67

As production increases,what would you expect to happen to fixed costs per unit?

A)Increase
B)Decrease
C)Remain the same
D)Either increase or decrease,depending on the variable costs

Question 68

Tucker Co.manufactures office furniture.During the most productive month of the year,3,600 desks were manufactured at a total cost of $192,000.In its slowest month,the company made 1,200 desks at a cost of $72,000.Using the high-low method of cost estimation,total fixed costs per month are

A)$120,000.
B)$12,000.
C)$72,000.
D)$11,600.

Question 69

Which of the following graphs illustrates the behavior of a total variable cost?

A)Graph 2
B)Graph 3
C)Graph 4
D)Graph 1

Question 70

As production increases,what should happen to the variable costs per unit?

A)Stay the same
B)Increase
C)Decrease
D)Either increase or decrease,depending on the fixed costs

Question 71

Which of the following is an example of a cost that varies in total as the number of units produced changes?

A)Salary of a production supervisor
B)Direct materials cost
C)Property taxes on factory buildings
D)Straight-line depreciation on factory equipment

Question 72

Which of the following graphs illustrates the nature of a mixed cost?

A)Graph 2
B)Graph 3
C)Graph 4
D)Graph 1

Question 73

Given the following cost and activity observations for Pike Company's utilities,use the high-low method to calculate Pike's variable utilities costs per machine hour.

A)$0.55
B)$0.60
C)$0.52
D)$0.40

Question 74

Given the following cost and activity observations for Pike Company's utilities,use the high-low method to calculate Pike Company's variable utilities costs per machine hour.

A)$0.10
B)$0.19
C)$0.21
D)$0.27

Question 75

Which of the following statements is TRUE regarding fixed and variable costs?

A)Both costs are constant when considered on a per-unit basis.
B)Both costs are constant when considered on a total basis.
C)Fixed costs are fixed in total,and variable costs are fixed per unit.
D)Variable costs are fixed in total,and fixed costs vary in total.

Question 76

Knowing how costs behave is useful to management for all the following reasons EXCEPT for

A)predicting customer demand.
B)predicting profits as sales and production volumes change.
C)estimating costs.
D)changing an existing product production.

Question 77

Costs that vary in total in direct proportion to changes in an activity level are called

A)fixed costs.
B)sunk costs.
C)variable costs.
D)differential costs.

Question 78

Which of the following costs is a mixed cost?

A)Salary of a factory supervisor
B)Electricity costs of $2 per kilowatt-hour
C)Rental costs of $5,000 per month plus $0.30 per machine hour of use
D)Straight-line depreciation on factory equipment

Question 79

Which of the following describes the behavior of the fixed cost per unit?

A)Decreases with increasing production
B)Decreases with decreasing production
C)Remains constant with changes in production
D)Increases with increasing production

Question 80

For purposes of analysis,mixed costs are generally

A)classified as fixed costs.
B)classified as variable costs.
C)classified as period costs.
D)separated into their variable and fixed cost components.