Ch 5 Flashcards
CVP analysis looks at how
_ is affected by sales price per unit, variable costs per unit, volume, and fixed costs.
Income
A …….
cost remains unchanged when the volume of activity changes within the relevant range.
Fixed
A manufacturing company incurs depreciation costs of $6,000 per month on manufacturing machinery. The depreciation cost per unit is $…..
when the company manufactures 2,000 units.
$3
Reason: 6,000÷2,000
Which of the following is the correct statement about variable costs?
The variable cost per unit does not change when volume changes.
A company incurs $12,000 in direct labor costs when they produce 480 units and $12,500 in direct labor costs when they produce 500 units. The direct labor cost per unit is $….
$25
Reason: 12,500÷500
Cost-volume-profit analysis helps managers predict how changes in
……. and ……. levels affect income.
Costs
Sales
Jack works on the production line at an assembly plant. Jack receives a base salary plus $1.25 per unit assembled. This is an example of a ______ cost.
Mixed
Which of the following is the correct statement about fixed costs?
The fixed cost per unit will decrease when volume increases.
A manufacturing company incurs rent costs of $12,500 per month. The company manufactured 250,000 units in May and 300,000 units in June. The cost per unit in May and June, respectively, is:
$0.05 and 0.04
Reason: May=$12,500/250,000=.05. June=$12,500/300,000=.04.
Acme Manufacturing recently added another shift, which required the company to hire another production supervisor. The supervisor’s salary would be considered a:
step-wise cost
A …..
cost changes in proportion to changes in volume of activity.
Variable
A manufacturing company incurs direct materials costs of $6 per unit. The total direct materials cost is $…..
when the company manufactures 2,000 units.
$12,000
Reason: 2,000×6
Match each example below to the correct cost type.
Drag and drop application.
Fixed
Variable
Mixed
Fixed: Depreciation
Variable: Direct materials
Mixed: Water and electricity
A ….
cost includes both fixed and variable components.
Mixed
Each of the following are methods used to separate mixed costs into their fixed and variable components except:
low-high method
A ….
cost remains unchanged when the volume of activity changes within the relevant range.
Fixed
When preparing a scatter diagram, the estimated line of cost behavior is drawn on a scatter diagram to show the relation between:
cost and unit volume
A cost which reflects a stair-step pattern in costs is called a ….
cost
step-wise
When using the high-low method, the slope represents:
the variable cost per unit
The high-low formula to compute total costs is:
Fixed costs + (Variable cost per unit x Units)
Match each example below to the correct cost type.
Drag and drop application.
Fixed
Mixed.
Variable
Fixed:Office salaries
Mixed: Sales rep pay which includes salary plus commission
Variable: direct materials
The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated variable cost per unit is $….
.
$15
Reason: (110,000−87,500)÷(4,000
−2,500)
three methods used to classify costs into their fixed and variable components includes
scatter diagrams
regression
high-low method
The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and it lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated fixed costs are $…
.
$17500
Reason:
True or false: On a scatter diagram, costs are plotted on the horizontal axis.
False
The high-low method uses ___ points to estimate the cost equation.
Two
A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculators is:
least-squares regression
The cost accountant at Company C used the high-low method to determine a cost equation of $14,000 plus $1.50 per unit. If the company plans to produce 200,500 units next month, then the total estimated cost will be $….
$314750
Reason: 14,000+(200,500×1.50)
cost estimation methods from the least precise to the most precise, with the least precise on top.
- Scatter diagrams
- High-low method
- Least Sq regression
The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and its lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated variable cost per hour is $…
$25
Reason: (125,000−55,000)÷(4,300
−1,500)
The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated fixed costs are $…
$50000
Reason: (110,000−87,500)÷(4,000
−2,500) = 15
110,000= fixed+(15×4000)
110,000= fixed+(60000)
50,000 = fixed
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $…
$4
Reason: 10-6
A statistical method for identifying cost behavior is called ….
.
regression
The amount by which a product’s unit selling price exceeds its total unit variable cost is the:
contribution margin per unit
Match each cost estimation method to its characteristics.
Scatter diagrams
High-low method
Scatter diagrams: Based on visual fit and subject to interpretation
High-low method:Uses only two sets of values
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin ratio is …..%
40%
reason: (4÷10)×100
The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated variable cost per unit is $…
.
15
The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and it lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated fixed costs are $…
17,500
Reasons: 125,000−(4,300×25)
The contribution margin ratio is interpreted as the percent of:
each sales dollar that remains after deducting unit variable cost
LMN Company produces a product that sells for $1. The company has production costs of $600,000, half of which are fixed costs. Assuming production and sales of 750,000 units, the contribution margin per unit is $….
0 .60
WHY?
Contribution margin per unit contributes to covering ______ costs and then generating _____ on a per unit basis.
fixed; profits
A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ratio is ….%
64%
Reason: (80,000÷125,000)×100
The break-even point can be expressed as sales in ….
or …..
units
dollars
The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and its lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated variable cost per hour is $
…..
25
A company has fixed costs of $50,000 while manufacturing a product that has variable costs of $4 per unit and sells for $14 per unit. The break-even point is ….
units.
5,000
Reason: 50,000÷(14−4)
The percent by which a product’s unit selling price exceeds its total unit variable cost is the:
contribution margin ratio.
A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The break-even point in sales dollars is $…
$46875
Reason: 30,000÷((125,000
−45,000)÷125,000)
The amount by which a product’s unit selling price exceeds its total unit variable cost is the:
contribution margin per unit
The break-even point is the sales level at which a company: (Check all that apply.)
contribution margin equals fixed costs.
has income of $0.
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. How many units must be produced to break-even ….
7500
Reason: 30,000÷(10−6)
Because of its usefulness in CVP analysis, managers generally use an income statement in which format?
Contribution margin income statement
The contribution margin ratio is interpreted as the percent of:
Sales dollars that remain after deducting variable costs
On a CVP chart, the horizontal line represents ______ costs.
volume
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. The break-even point in sales dollars is $….
$75000
Reason: 30,000÷((10−6)÷10)
Assuming all other factors remain constant, if sales price per unit increases, then the break-even point will:
decrease
The formula used in a contribution margin income statement is:
sales - variable costs = contribution margin - fixed costs = income
Maker’s Company produces a product that has a variable cost of $4 per unit. The company’s fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. The revised break-even point in dollars is $…
$60,000
Reason: (40,000+5,000)÷(12−3) = 5000
5000×12=60,000
On a CVP chart, the slope of the line which starts at the level of fixed costs and slopes upwards is the:
variable cost per unit
A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The break-even point in sales dollars is $….
A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are:
$40,000
Reason: (50,000-x)/50,000=20%. x = $40,000.
Assuming all other factors remain constant, if fixed costs increase, then the break-even point will:
increase
A company has break-even sales of $200,000. If the company expects sales of $500,000, the margin of safety is …%.
60%
Reason: ((500,000−200,000)
÷500,000)×100
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $…
75000
Reason: (30,000+15,000)÷(10−4)= 7500
7500×10 = 75000
On a CVP chart, the line which crosses the vertical axis at $0 and slopes upwards represents:
total sales
A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs and expects to sell 2,500 units their income would be $…
28000
Reason: (36×2,500)−62,000
The margin of safety is: (Check all that apply.)
the amount sales can drop before the company incurs a loss.
the difference between expected sales and break-even sales divided by expected sales.
A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $….
26000
Reason: (3,000+10,000)÷((5
−2.50)÷5)
RST Company produces a product that has a variable cost of $6 per unit. The company’s fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a target income of $20,000. The sales level in units to achieve the desired target income is …..
12500
Reason: (30,000+20,000)÷(10−6)
RST Company produces a product that has expected sales of $75,000 and break-even sales of $50,000. The margin of safety is $
25000
Reason: 75,000−50,000
Sales mix is the (volume/proportion/mix)…..
of the sales volume for each product.
proportion
A company sells two models of a product—basic and premium. If the company sells 5,000 basic models and 2,500 premium models, then the sales mix can be expressed as:
2:1
Reason: Reason: 5,000/2,500=2:1
A company sells 800 units at $16 each, has variable costs of $12 per unit, and fixed costs of $1,200. Income is $
2000
Reason: ((800×16)−(800×12))
−1,200
A company sells two models of a product—basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 2,500 basic models and 7,500 premium models, then the weighted-average contribution margin per unit is $
43.75
Reason: 7,500÷(7,500+2,500)
×100 = 75
2,500÷(7,500+2,500)
×100 = 25
((100−75)×25%)+((150
−100)×75%) = 43.75
A company sells two models of a product—basic and premium. Fixed costs are $150,000. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5 basic models to 3 premium models, then the weighted-average break-even in units is
4364
A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in units to achieve the desired target income is
….. units.
5200
(3,000+10,000)÷(5.00
−2.50)
Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.)
costs can be classified as variable or fixed.
costs are linear within the relevant range.
A measure to assess the effect of changes in the level of sales on income is the :
DOL
A company sells two models of a product—Alpha and Omega. If the company sells 10,000 Alpha models and 2,500 Omega models, then the sales mix can be expressed as:
4:1
10,000÷2,500
A company that sells multiple types of products has a combined selling price per unit of $150, combined variable cost per unit of $50 and total fixed costs of $25,000. The weighted-average contribution margin per unit is $
$100 WHY
A company sells two models of a product—basic and premium. The basic model has a contribution margin per unit of $25 and unit sales of 750. The premium model has a contribution margin per unit of $40 and unit sales of 250. Fixed costs are $15,000. The weighted average break-even in units is
. (Round your answer to the next highest whole number.)
521 or 522
((10×15,000)−(6×15,000))
−30,000 = 30000
60000÷30000
Under the (absorption,variable) costing method only costs which vary with changes in production volume are assigned to products.
variable
Brother Company uses variable costing. Their direct materials are $8, direct labor is $6 and total overhead is $5 of which $3 is variable. What is Brother Company’s total unit cost?
17
Mandolin produced 70,000 units and sold 50,000 units. Their unit selling price is $20 and they have variable unit production costs of $10, variable selling expenses of $3 and fixed overhead of $10,000. Compute Mandolin’s net income under variable costing.
$340,000
Reason: Variable costing =Sales-all variable expenses minus fixed costs. $20 - (10+3)=$7 x 50,000=$350,000. $350,000 - $10,000 fixed costs=$340,000.
Landow Company uses variable costing for internal purposes and wants to restate income to that of absorption costing for external reporting purposes. Landow’s income under variable costing is $630,000. Fixed production cost in ending inventory is $120,000 and $85,000 in beginning inventory. What is Landow’s income under absorption costing?
665000
Reason: $630,000+$120,000 - $85,000.
Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?
10
Naples Company produced 650,000 units and sold 500,000 units. Their unit selling price is $10. Cost of goods sold is $6 per unit. Fixed selling expenses are $10,000 and variable selling and administrative expenses are $3 per unit. Compute Naple’s net income under absorption costing.
$490,000
Reason: Sales-all expenses.
Galen Company income under variable costing is $1,050,000. Fixed production costs in ending inventory are $300,000 and $250,000 in beginning inventory. What is Galen Company’s income under absorption costing?
$1,100,000.
Reason: $1,050,000 + 300,000 - 250,000 = $1,100,000.
Mandolin produced 70,000 units and sold 50,000 units. Their unit selling price is $20 and they have variable unit production costs of $10, variable selling expenses of $3 and fixed overhead of $10,000. Compute Mandolin’s net income under variable costing.
Reason: Variable costing =Sales-all variable expenses minus fixed costs. $20 - (10+3)=$7 x 50,000=$350,000. $350,000 - $10,000 fixed costs=$340,000.
CH 5 CV
Cost-volume-profit analysis is used to predict how changes in _______blank levels affect profit.
costs and sales
A cost that does not change with changes in volume of activity is called a _______blank cost.
fixed
A cost that changes in proportion to changes in the activity output volume is called a _______blank cost.
variable
Fixed costs on a per unit basis _______blank as production increases.
Decrease
A cost that behaves like a combination of fixed and variable costs is called a _______blank cost.
mixed
A cost that has a step pattern when volume changes occur outside the relevant range of operations is called a _______blank cost.
step-wise
Jelly Company has a product that sells for $150 per unit and has variable costs of $60 per unit. What is the contribution margin per unit?
90
150−60
The break-even point is the sales level at which:
total sales equals total costs
Delta Company sells mini-flash drives. The selling price is $10 each and the variable costs are $8. If fixed costs are $3,000, how much in sales dollars must Delta have to break even?
$15,000
3,000÷(10−8) = 1500
1500×10 = $15,000
Revenue $ 100,000
Variable Costs 20,000
Fixed Costs 5,000
What is the income?
$75,000
100,000−20,000−5,000
A company sells three products: Product A, Product B, and Product C. Usually it sells 5,000 units of Product A; 6,000 units of Product B; and 8,000 units of Product C. What is the sales mix for Products A, B and C, respectively?
26.3%, 31.6%, 42.1%
A company sells three products: Product A, Product B, and Product C. Usually it sells 5,000 units of Product A; 6,000 units of Product B; and 8,000 units of Product C. What is the sales mix for Products A, B and C, respectively?
26.3%, 31.6%, 42.1%
Total unit sales = 5,000 + 6,000 + 8,000 = 19,000.
Product A = Units sales of 5,000 ÷ Total unit sales of 19,000 = 26.3%.
Product B = Units sales of 6,000 ÷ Total unit sales of 19,000 = 31.6%
Product C = Units sales of 8,000 ÷ Total unit sales of 19,000 = 42.1%.
Hat Company sells two types of hats: knit hats with a selling price of $15 and variable costs of $5, and hard hats with a selling price of $25 and variable costs of $10. Knit hats comprise 80% of all sales. If fixed costs are $22,000, what is the break even point in units?
2,000
Weighted-average contribution margin per unit = ([$15 − 5 × 0.80 = $8] + [$25 − 10 × 0.20 = $3]) = $8 + 3 = $11 per unit. Break-even point in units = $22,000 / $11 = 2,000 units.
Which of the following is NOT an assumption in CVP analysis?
Sales mix is not constant
Units produced 1,000
Direct materials $ 6
Direct labor $ 10
Fixed overhead $ 6,000
Variable overhead $ 6
Fixed selling and administrative $ 2,000
Variable selling and administrative $ 2
The total product cost per unit under absorption costing is:
$28.
Using absorption costing, the total product cost per unit is determined as follows:
Direct materials of $6 + Direct labor of $10 + Variable overhead of $6 + Fixed overhead of $6 (or $6,000 ÷ 1,000) = Total product cost of $28 per unit.
Units produced 1,000
Direct materials $ 6
Direct labor $ 10
Fixed overhead $ 6,000
Variable overhead $ 6
Fixed selling and administrative $ 2,000
Variable selling and administrative $ 2
The total product cost per unit under variable costing is:
$22
Using variable costing, the total product cost per unit is determined as follows:
Direct materials of $6 + Direct labor of $10 + Variable overhead of $6 = Total product cost of $22 per unit.
Company A operates at a sales level of 1,200 units with a contribution margin of $30 per unit. Its income is $12,000. What is the company’s degree of operating leverage?
3.0
Degree of operating leverage = Contribution margin of $36,000 (or 1,200 units × Contribution margin per unit of $30) ÷ income of $12,000 = 3.0.
CH 5 HE
- Rubber used in making tennis balls. Variableselected answer correct
- Factory rent. Fixedselected answer correct
- Packaging expense. Variableselected answer correct
- Salesperson salary plus commission. Mixedselected answer correct
- Depreciation expense of warehouse. Fixedselected answer correct
- Hourly wages of assembly-line worker. Variableselected answer correct
- Administrative assistant wages. Fixedselected answer correct
Zhao Company has fixed costs of $429,000. Its single product sells for $187 per unit, and variable costs are $122 per unit. Determine the break-even point in units.
Break-even point 6600 units
429,000÷(187−122)
- Amount of expected income if sales increase by 15% $393,600selected answer correct
((4×15%)×100) = 60%
60% × 246000 = 147600
147600+246000 = 393600
