Question 1

When changes occur in the sales mix, there is no effect on the cost- volume- profit relationships.

Accepted Answer

A) True 
 B)False

Question 2

The level of sales at which the contribution margin equals the fixed cost

Accepted Answer

The answer of The level of sales at which the...

Question 3

Gross margin is the same as contribution margin.

Accepted Answer

A) True 
 B)False

Question 4

The break- even point may be reduced by reducing total fixed costs and holding everything else constant.

Accepted Answer

A) True 
 B)False

Question 5

Hug Me Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If the break- even volume in dollars is $1,446,000, then the total fixed costs for the period must be:

Accepted Answer

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

Question 6

An increase in total variable cost usually indicates:

Accepted Answer

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

Question 7

Meredith Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Meredith's tax rate is 40%. The number of units that must be sold to breakeven is:

Accepted Answer

A)  19,000 units 
B)  21,500 units 
C)  14,000 units 
D)  17,000 units

Question 8

The horizontal axis of the CVP graph

Accepted Answer

The answer of The horizontal axis of the CVP graph...

Question 9

Babbling Brook Hospital has overall 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. The break- even point expressed in total revenue is:

Accepted Answer

A)  $160 million 
B)  $10 million 
C)  $40 million 
D)  None of these answers is correct.

Question 10

is the relative proportions or combinations of quantities of products that comprise total sales.

Accepted Answer

A)  Variable- cost ratio 
B)  Contribution- margin ratio 
C)  Gross margin 
D)  Sales mix

Question 11

Which of the following is not a cost driver of customer services costs?

Accepted Answer

A)  Hours spent servicing products are not a cost driver of customer services costs. 
B)  Number of service calls is not a cost driver of customer services costs. 
C)  Travel costs are not a cost driver of customer services costs. 
D)  All of these answers are correct.

Question 12

Number of engineering hours is a likely cost driver for which value chain function?

Accepted Answer

A)  The production function has number of engineering hours as a likely cost driver. 
B)  The research and development function has number of engineering hours as a likely cost driver. 
C)  The marketing function has number of engineering hours as a likely cost driver. 
D)  The design function has number of engineering hours as a likely cost driver.

Question 13

Renew Tires has been in the tire business for five years. It rents a building but owns its equipment. All employees are paid a fixed salary except for the busy season (April - June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.
Selling prices per tire average $50 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $40.
The president of Renew Tires is somewhat displeased with the company's management accounting system because the cost behavior pattern displayed by the monthly break- even charts is inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the break- even point.
Required:
a. What is wrong with the accountant's computations?
b. How can the information be presented in a better format for the president?

Accepted Answer

The answer of Renew Tires has been in the tire...

Question 14

A major simplifying assumption of cost- volume- profit analysis is that costs can be classified as either variable or fixed with respect to a single measure of the volume of output activity.

Accepted Answer

A) True 
 B)False

Question 15

Sales volume of a given product helps guide executives who must decide to emphasize or deemphasize particular products.

Accepted Answer

A) True 
 B)False

Question 16

Up In Smoke Company, a producer of salsa, has the following information: $\begin{array}{ll}
\text { Income tax rate } & 30 \% \
\text { Selling price p er unit } & \$ 5.00 \
\text { Variable cost per unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$ must be sold to obtain a targeted income before taxes of $30,000.

Accepted Answer

A)  27,000 units 
B)  60,000 units 
C)  45,000 units 
D)  10,000 units

Question 17

As sales exceed the break- even point, a high contribution- margin percentage:

Accepted Answer

A)  increases profits faster than does a low contribution- margin percentage 
B)  decreases profits at the same rate as a low contribution- margin percentage 
C)  increases profits slower than does a low contribution- margin percentage 
D)  increases profits at the same rate as a low contribution- margin percentage

Question 18

Cost of goods sold is the cost of the merchandise that a company acquires or produces and then sells.

Accepted Answer

A) True 
 B)False

Question 19

An increase in fixed costs usually indicates:

Accepted Answer

A)  relevant range is decreasing 
B)  cost driver activity is decreasing 
C)  relevant range is increasing 
D)  cost driver activity is increasing

Question 20

Four Alarm Company, a producer of salsa, has the following information: $$\begin{array} { l l } 
\text { Income tax rate } & 30 \% \
\text { Selling pric e per unit } & \$ 5.00 \
\text { Variable cost p er unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$$ The contribution- margin ratio is:

Accepted Answer

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

Exam 2: Introduction to Cost Behavior and Cost Volume Relationships

When changes occur in the sales mix, there is no effect on the cost- volume- profit relationships.

The level of sales at which the contribution margin equals the fixed cost

Gross margin is the same as contribution margin.

The break- even point may be reduced by reducing total fixed costs and holding everything else constant.

Hug Me Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If the break- even volume in dollars is $1,446,000, then the total fixed costs for the period must be:

An increase in total variable cost usually indicates:

Meredith Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Meredith's tax rate is 40%. The number of units that must be sold to breakeven is:

The horizontal axis of the CVP graph

Babbling Brook Hospital has overall 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. The break- even point expressed in total revenue is:

is the relative proportions or combinations of quantities of products that comprise total sales.

Which of the following is not a cost driver of customer services costs?

Number of engineering hours is a likely cost driver for which value chain function?

A major simplifying assumption of cost- volume- profit analysis is that costs can be classified as either variable or fixed with respect to a single measure of the volume of output activity.

Sales volume of a given product helps guide executives who must decide to emphasize or deemphasize particular products.

As sales exceed the break- even point, a high contribution- margin percentage:

Cost of goods sold is the cost of the merchandise that a company acquires or produces and then sells.

An increase in fixed costs usually indicates: