question

Cost behavior refers to the manner in which

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a cost changes as the related activity changes.

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

answer

variable costs.

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

answer

Graph 1

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

answer

Salary of a factory supervisor

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

answer

Remains constant with changes in production

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

answer

Number of patients who stay in the hospital

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

answer

Number of miles driven

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

answer

variable costs.

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

answer

Direct materials cost

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

answer

Electricity per KWH to operate factory equipment

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

answer

Decrease

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

answer

Fixed costs are fixed in total, and variable costs are fixed per unit.

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

answer

Graph 3

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

answer

straight line.

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

answer

Decreases with increasing production

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

answer

predicting customer demand

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

answer

predicting customer demand.

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

answer

Graph 2

question

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. Cost Machine Hours January $52,600 20,000 February 75,100 29,000 March 57,000 22,000 April 64,000 24,500

answer

$2,600

question

Which of the following costs is a mixed cost?

answer

Rental costs of $5,000 per month plus $0.30 per machine hour of use

question

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. Cost Machine Hours May $8,300 15,000 June 10,400 20,000 July 7,200 12,000 August 9,500 18,000

answer

$0.40

question

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

answer

Stay the same

question

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

answer

$28,400.

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For purposes of analysis, mixed costs are generally

answer

separated into their variable and fixed cost components.

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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. Cost Machine Hours March $3,100 15,000 April 2,700 10,000 May 2,900 12,000 June 3,500 18,000

answer

$0.10

question

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

answer

$12,000.

question

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

answer

cost-volume-profit analysis.

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In cost-volume-profit analysis, all costs are classified into the following two categories:

answer

variable costs and fixed costs.

question

The contribution margin ratio is

answer

the same as the profit-volume ratio.

question

Which ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?

answer

Contribution margin ratio

question

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much will operating income change if sales increase by $50,000?

answer

$12,500 increase

question

If sales are $820,000, variable costs are 68% of sales, and operating income is $260,000, what is the contribution margin ratio?

answer

32%

question

A firm operated at 90% of capacity for the past year during which fixed costs were $320,000, variable costs were 60% of sales, and sales were $1,200,000. Operating profit was

answer

$160,000.

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If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio?

answer

44%

question

Wiles Inc.'s unit selling price is $40, the unit variable costs are $30, fixed costs are $135,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units?

answer

$50,000 increase

question

If fixed costs are $850,000 and variable costs are 70% of sales, what is the break-even point (in dollars)?

answer

$2,833,333

question

If fixed costs are $250,000, the unit selling price is $105, and the unit variable costs are $65, what is the break-even sales (in units)?

answer

6,250 units

question

If fixed costs are $750,000 and variable costs are 55% of sales, what is the break-even point (in dollars)?

answer

$1,666,667

question

Foggy Co. has the following operating data for its manufacturing operations: Unit selling price $ 250 Unit variable cost $ 100 Total fixed costs $840,000 The company has decided to increase the wages of hourly workers, which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the break-even point for Flynn Co. will

answer

increase by 640 units.

question

If fixed costs are $350,000, the unit selling price is $75, and the unit variable costs are $30, what is the break-even sales (in units)?

answer

7,778 units

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If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if the variable costs are increased by $2?

answer

81,000 units

question

If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if fixed costs are reduced by $50,000?

answer

63,333 units

question

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales (in units) if the unit selling price increases by $5?

answer

18,000 units and 15,000 units

question

Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and Snower is in the 25% corporate tax bracket. What are the sales (in dollars) required to earn a net income (after tax) of $40,000?

answer

$2,577,778

question

If fixed costs are $850,000 and the unit contribution margin is $90, what amount of units must be sold in order to have a zero profit?

answer

9,445

question

If fixed costs are $600,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000?

answer

58,334

question

If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point in units if fixed costs are reduced by $80,000?

answer

10,500

question

If fixed costs are $561,000 and the unit contribution margin is $10, what is the break-even point in units if variable costs are decreased by $0.50 per unit?

answer

53,429

question

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would

answer

increase

question

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

answer

decrease

question

Which of the following conditions would cause the break-even point to decrease?

answer

Unit variable cost decreases

question

Which of the following conditions would cause the break-even point to increase?

answer

Unit variable cost increases

question

Which of the following conditions would cause the break-even point to increase?

answer

Total fixed costs increase

question

Rouney Co. has budgeted salary increases to factory supervisors totaling 10%. If selling prices and all other cost relationships are held constant, next year's break-even point will

answer

increase by 10%.

question

Vest Food Co. has the following operating data: Unit selling price $ 10.00 Unit variable costs 6.00 Fixed costs $960,000 The company is contemplating moving to another state where direct labor costs can be reduced, thereby reducing the unit variable cost by 10%. The state where the company currently operates has offered to reduce property taxes to encourage Vest to stay. The minimum amount of property tax savings necessary to keep the company, assuming no other changes, would be

answer

$125,217.

question

If the contribution margin ratio for Harrison Company is 38%, sales were $425,000 and fixed costs were $100,000, what was the income from operations?

answer

$61,500

question

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents

answer

the break-even point.

question

The point where the profit line intersects the horizontal axis on the profit-volume chart represents

answer

the break-even point.

question

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called

answer

"what if" or sensitivity analysis.

question

The point where the profit line intersects the left vertical axis on the profit-volume chart represents

answer

the maximum possible operating loss.

question

Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is

answer

expected to increase by 32%.

question

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Unit Selling Unit Variable Unit Contribution Product Price Cost Margin Arks $ 80 $20 $60 Bins 120 40 $80 What was Kennedy Co.'s sales mix last year?

answer

64% Arks, 36% Bins

question

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Unit Selling Unit Variable Unit Contribution Product Price Cost Margin Arks $ 80 $20 $60 Bins 120 40 $80 What was Kennedy Co.'s overall enterprise product's unit selling price?

answer

$94.40

question

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Unit Selling Unit Variable Unit Contribution Product Price Cost Margin Arks $ 80 $20 $60 Bins 120 40 $80 What was Kennedy Co.'s overall enterprise product's unit variable cost?

answer

$27.20

question

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Unit Selling Unit Variable Unit Contribution Product Price Cost Margin Arks $ 80 $20 $60 Bins 120 40 $80 What was Kennedy Co.'s overall enterprise product's unit contribution margin?

answer

$67.20

question

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Unit Selling Unit Variable Unit Contribution Product Price Cost Margin Arks $ 80 $20 $60 Bins 120 40 $80 Assuming that last year's fixed costs totaled $910,000, what was Kennedy Co.'s break-even point in units?

answer

13,542 units

question

Assume that Crowson Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45, respectively. Crowson has fixed costs of $350,000. The break-even point in units is

answer

14,000 units.

question

The relative distribution of sales among the various products sold by a business is termed the

answer

sales mix.

question

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed

answer

There is no limit.

question

If a business had sales of $4,000,000, fixed costs of $1,200,000, a margin of safety of 25%, and a contribution margin ratio of 40%, what was the break-even point?

answer

$3,000,000

question

If a business had sales of $4,000,000 and a margin of safety of 25%, what was the break-even point?

answer

$3,000,000

question

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

answer

25%

question

If sales are $300,000, variable costs are 60% of sales, and operating income is $40,000, what is the operating leverage?

answer

3.000

question

The difference between the current sales revenue and the sales at the break-even point is called the

answer

margin of safety.

question

Cost-volume-profit analysis CANNOT be used if which of the following occurs?

answer

Costs cannot be properly classified into fixed and variable costs

question

The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable, fixed, or mixed cost for units produced and sold. (a)Electricity costs of $0.025 per kilowatt-hour. (b)Warehouse rent of $6,000 per month plus $0.50 per square foot of storage used. (c)Thread. (d)Lubricants used to oil machinery. (e)Janitorial costs of $2,000 per month. (f)Advertising costs of $10,000 per month. (g)Sales salaries. (h)Color dyes for producing different colors of sweatshirts. (i)Salary of the production supervisor. (j)Straight-line depreciation on sewing machines. (k)Patterns for different designs. Patterns typically last many years before being replaced. (l)Maintenance costs with sewing machine company. The cost is $2,000 per year plus $0.001 for each machine hour of use. (m)Property taxes on factory, building, and equipment. (n)Cotton and polyester cloth. (o)Hourly wages of sewing machine operators.

answer

(a) variable (b) mixed (c) variable (d) variable (e) fixed (f) fixed (g) fixed (h) variable (i) fixed (j) fixed (k) fixed (l) mixed (m) fixed (n) variable (o) variable

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