Question 1

To which function of management is CVP analysis most applicable?

Accepted Answer

A) Planning 
B) Motivating 
C) Directing 
D) Controlling

Question 2

For analysis purposes, the high-low method usually produces a(n)

Accepted Answer

A) reasonable estimate. 
B) precise estimate. 
C) overstated estimate. 
D) understated estimate.

Question 3

At the break-even point,

Accepted Answer

A) sales equal total variable costs. 
B) contribution margin equals total variable costs. 
C) contribution margin equals total fixed costs. 
D) sales equal total fixed costs.

Question 4

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Accepted Answer

A) True 
 B)False

Question 5

Farmers' Industries has fixed costs of $600,000 and variable costs are 60% of sales.How much will Farmers report as sales when its net income equals $60,000?

Accepted Answer

A) $1,650,000 
B) $1,100,000 
C) $1,560,000 
D) $396,000

Question 6

In evaluating the margin of safety, the

Accepted Answer

A) break-even point is not relevant. 
B) higher the margin of safety ratio, the greater the margin of safety. 
C) higher the dollar amount, the lower the margin of safety. 
D) higher the margin of safety ratio, the lower the fixed costs.

Question 7

Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of $100,000.If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $200,000, how many units must be sold to earn income of $100,000?

Accepted Answer

A) 150,000 units 
B) 100,000 units 
C) 37,500 units 
D) 1,500,000 units

Question 8

An example of a mixed cost is

Accepted Answer

A) direct materials. 
B) supervisory salaries. 
C) utility costs. 
D) property taxes.

Question 9

A variable cost remains constant per unit at various levels of activity.

Accepted Answer

A) True 
 B)False

Question 10

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%.The total sales necessary to break even are

Accepted Answer

A) $960,000. 
B) $1,200,000. 
C) $300,000. 
D) $288,000.

Question 11

Greg's Golf Carts produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each.If sales of Model 26 increase by 100 units, how much will profit change?

Accepted Answer

A) $5,000 increase 
B) $17,500 increase 
C) $22,500 increase 
D) $35,000 increase

Question 12

CVP analysis is not important in

Accepted Answer

A) calculating depreciation expense. 
B) setting selling prices. 
C) determining the product mix. 
D) utilizing production facilities.

Question 13

The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

Accepted Answer

A) True 
 B)False

Question 14

In the Restin Company, maintenance costs are a mixed cost.At the low level of activity (80 direct labor hours), maintenance costs are $600.At the high level of activity (200 direct labor hours), maintenance costs are $1,100.Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost? $\begin{array}{lll}&\text { Variable Cost Per Unit }&\text { Total Fixed Cost }\
\text { a. } & \$ 4.17 & \$ 267 \
\text { b. } & \$ 4.17 & \$ 500 \
\text { c. } & \$ 5.50 & \$ 220 \
\text { d. } & \$ 5.50 & \$ 400
\end{array}$

Accepted Answer

The answer of In the Restin Company, maintenance costs are...

Question 15

Vintage Wines has fixed costs of $20,000 per year.Its warehouse sells wine with variable costs of 80% of its unit selling price.How much in sales does Vintage need to break even per year?

Accepted Answer

A) $16,000 
B) $4,000 
C) $25,000 
D) $100,000

Question 16

The equation which reflects a CVP income statement is

Accepted Answer

A) Sales = Cost of goods sold + Operating expenses + Net income. 
B) Sales + Fixed costs = Variable costs + Net income. 
C) Sales - Variable costs + Fixed costs = Net income. 
D) Sales - Variable costs - Fixed costs = Net income.

Question 17

Cost behavior analysis applies to

Accepted Answer

A) retailers. 
B) wholesalers. 
C) manufacturers. 
D) all entities.

Question 18

When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

Accepted Answer

A) True 
 B)False

Question 19

Which one of the following is a name for the range over which a company expects to operate?

Accepted Answer

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

Question 20

A CVP graph does not include a

Accepted Answer

A) variable cost line. 
B) fixed cost line. 
C) sales line. 
D) total cost line.

Exam 5: Merchandising Operations and the Multiple-Step Income Statement

To which function of management is CVP analysis most applicable?

For analysis purposes, the high-low method usually produces a(n)

At the break-even point,

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Farmers' Industries has fixed costs of $600,000 and variable costs are 60% of sales.How much will Farmers report as sales when its net income equals $60,000?

In evaluating the margin of safety, the

Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of $100,000.If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $200,000, how many units must be sold to earn income of $100,000?

An example of a mixed cost is

A variable cost remains constant per unit at various levels of activity.

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%.The total sales necessary to break even are

Greg's Golf Carts produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each.If sales of Model 26 increase by 100 units, how much will profit change?

CVP analysis is not important in

The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

Vintage Wines has fixed costs of $20,000 per year.Its warehouse sells wine with variable costs of 80% of its unit selling price.How much in sales does Vintage need to break even per year?

The equation which reflects a CVP income statement is

Cost behavior analysis applies to

When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

Which one of the following is a name for the range over which a company expects to operate?

A CVP graph does not include a