Ch 5

Question 1

CVP analysis looks at how
_ is affected by sales price per unit, variable costs per unit, volume, and fixed costs.

Answer 1

Income

Question 2

A …….
cost remains unchanged when the volume of activity changes within the relevant range.

Answer 2

Fixed

Question 3

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.

Answer 3

$3
Reason: 6,000÷2,000

Question 4

Which of the following is the correct statement about variable costs?

Answer 4

The variable cost per unit does not change when volume changes.

Question 5

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 $….

Answer 5

$25
Reason: 12,500÷500

Question 6

Cost-volume-profit analysis helps managers predict how changes in
……. and ……. levels affect income.

Answer 6

Costs
Sales

Question 7

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.

Answer 7

Mixed

Question 8

Which of the following is the correct statement about fixed costs?

Answer 8

The fixed cost per unit will decrease when volume increases.

Question 9

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:

Answer 9

$0.05 and 0.04
Reason: May=$12,500/250,000=.05. June=$12,500/300,000=.04.

Question 10

Acme Manufacturing recently added another shift, which required the company to hire another production supervisor. The supervisor’s salary would be considered a:

Answer 10

step-wise cost

Question 11

A …..
cost changes in proportion to changes in volume of activity.

Answer 11

Variable

Question 12

A manufacturing company incurs direct materials costs of $6 per unit. The total direct materials cost is $…..
when the company manufactures 2,000 units.

Answer 12

$12,000
Reason: 2,000×6

Question 13

Match each example below to the correct cost type.

Drag and drop application.
Fixed

Variable

Mixed

Answer 13

Fixed: Depreciation

Variable: Direct materials

Mixed: Water and electricity

Question 14

A ….
cost includes both fixed and variable components.

Answer 14

Mixed

Question 15

Each of the following are methods used to separate mixed costs into their fixed and variable components except:

Answer 15

low-high method

Question 16

A ….
cost remains unchanged when the volume of activity changes within the relevant range.

Answer 16

Fixed

Question 17

When preparing a scatter diagram, the estimated line of cost behavior is drawn on a scatter diagram to show the relation between:

Answer 17

cost and unit volume

Question 18

A cost which reflects a stair-step pattern in costs is called a ….
cost

Answer 18

step-wise

Question 19

When using the high-low method, the slope represents:

Answer 19

the variable cost per unit

Question 20

The high-low formula to compute total costs is:

Answer 20

Fixed costs + (Variable cost per unit x Units)

Question 21

Match each example below to the correct cost type.

Drag and drop application.
Fixed
Mixed.
Variable

Answer 21

Fixed:Office salaries

Mixed: Sales rep pay which includes salary plus commission

Variable: direct materials

Question 22

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 $….
.

Answer 22

$15
Reason: (110,000−87,500)÷(4,000
−2,500)

Question 23

three methods used to classify costs into their fixed and variable components includes

Answer 23

scatter diagrams
regression
high-low method

Question 24

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 $…
.

Answer 24

$17500
Reason:

Question 25

True or false: On a scatter diagram, costs are plotted on the horizontal axis.

Answer 25

False

Question 26

The high-low method uses ___ points to estimate the cost equation.

Answer 26

Two

Question 27

A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculators is:

Answer 27

least-squares regression

Question 28

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 $….

Answer 28

$314750
Reason: 14,000+(200,500×1.50)

Question 29

cost estimation methods from the least precise to the most precise, with the least precise on top.

Answer 29

1. Scatter diagrams
2. High-low method
3. Least Sq regression

Question 30

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 $…

Answer 30

$25
Reason: (125,000−55,000)÷(4,300
−1,500)

Question 31

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 $…

Answer 31

$50000
Reason: (110,000−87,500)÷(4,000
−2,500) = 15
110,000= fixed+(15×4000)
110,000= fixed+(60000)
50,000 = fixed

Question 32

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 $…

Answer 32

$4
Reason: 10-6

Question 33

A statistical method for identifying cost behavior is called ….
.

Answer 33

regression

Question 34

The amount by which a product’s unit selling price exceeds its total unit variable cost is the:

Answer 34

contribution margin per unit

Question 35

Match each cost estimation method to its characteristics.
Scatter diagrams
High-low method

Answer 35

Scatter diagrams: Based on visual fit and subject to interpretation

High-low method:Uses only two sets of values

Question 36

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 …..%

Answer 36

40%
reason: (4÷10)×100

Question 37

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 $…
.

Answer 37

15

Question 38

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 $…

Answer 38

17,500
Reasons: 125,000−(4,300×25)

Question 39

The contribution margin ratio is interpreted as the percent of:

Answer 39

each sales dollar that remains after deducting unit variable cost

Question 40

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 $….

Answer 40

0 .60
WHY?

Question 41

Contribution margin per unit contributes to covering ______ costs and then generating _____ on a per unit basis.

Answer 41

fixed; profits

Question 42

A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ratio is ….%

Answer 42

64%
Reason: (80,000÷125,000)×100

Question 43

The break-even point can be expressed as sales in ….
or …..

Answer 43

units
dollars

Question 44

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 $
…..

Answer 44

25

Question 45

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.

Answer 45

5,000
Reason: 50,000÷(14−4)

Question 46

The percent by which a product’s unit selling price exceeds its total unit variable cost is the:

Answer 46

contribution margin ratio.

Question 47

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 $…

Answer 47

$46875
Reason: 30,000÷((125,000
−45,000)÷125,000)

Question 48

The amount by which a product’s unit selling price exceeds its total unit variable cost is the:

Answer 48

contribution margin per unit

Question 49

The break-even point is the sales level at which a company: (Check all that apply.)

Answer 49

contribution margin equals fixed costs.

has income of $0.

Question 50

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 ….

Answer 50

7500
Reason: 30,000÷(10−6)

Question 51

Because of its usefulness in CVP analysis, managers generally use an income statement in which format?

Answer 51

Contribution margin income statement

Question 52

The contribution margin ratio is interpreted as the percent of:

Answer 52

Sales dollars that remain after deducting variable costs

Question 53

On a CVP chart, the horizontal line represents ______ costs.

Answer 53

volume

Question 54

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 $….

Answer 54

$75000
Reason: 30,000÷((10−6)÷10)

Question 55

Assuming all other factors remain constant, if sales price per unit increases, then the break-even point will:

Answer 55

decrease

Question 56

The formula used in a contribution margin income statement is:

Answer 56

sales - variable costs = contribution margin - fixed costs = income

Question 57

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 $…

Answer 57

$60,000
Reason: (40,000+5,000)÷(12−3) = 5000
5000×12=60,000

Question 58

On a CVP chart, the slope of the line which starts at the level of fixed costs and slopes upwards is the:

Answer 58

variable cost per unit

Question 59

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 $….

Question 60

A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are:

Answer 60

$40,000
Reason: (50,000-x)/50,000=20%. x = $40,000.

Question 61

Assuming all other factors remain constant, if fixed costs increase, then the break-even point will:

Answer 61

increase

Question 62

A company has break-even sales of $200,000. If the company expects sales of $500,000, the margin of safety is …%.

Answer 62

60%
Reason: ((500,000−200,000)
÷500,000)×100

Question 63

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 $…

Answer 63

75000
Reason: (30,000+15,000)÷(10−4)= 7500
7500×10 = 75000

Question 64

On a CVP chart, the line which crosses the vertical axis at $0 and slopes upwards represents:

Answer 64

total sales

Question 65

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 $…

Answer 65

28000
Reason: (36×2,500)−62,000

Question 66

The margin of safety is: (Check all that apply.)

Answer 66

the amount sales can drop before the company incurs a loss.

the difference between expected sales and break-even sales divided by expected sales.

Question 67

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 $….

Answer 67

26000
Reason: (3,000+10,000)÷((5
−2.50)÷5)

Question 68

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 …..

Answer 68

12500
Reason: (30,000+20,000)÷(10−6)

Question 69

RST Company produces a product that has expected sales of $75,000 and break-even sales of $50,000. The margin of safety is $

Answer 69

25000
Reason: 75,000−50,000

Question 70

Sales mix is the (volume/proportion/mix)…..
of the sales volume for each product.

Answer 70

proportion

Question 71

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:

Answer 71

2:1
Reason: Reason: 5,000/2,500=2:1

Question 72

A company sells 800 units at $16 each, has variable costs of $12 per unit, and fixed costs of $1,200. Income is $

Answer 72

2000
Reason: ((800×16)−(800×12))
−1,200

Question 73

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 $

Answer 73

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

Question 74

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

Answer 74

4364

Question 75

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.

Answer 75

5200
(3,000+10,000)÷(5.00
−2.50)

Question 76

Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.)

Answer 76

costs can be classified as variable or fixed.

costs are linear within the relevant range.

Question 77

A measure to assess the effect of changes in the level of sales on income is the :

Answer 77

DOL

Question 78

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:

Answer 78

4:1
10,000÷2,500

Question 79

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 $

Answer 79

$100 WHY

Question 80

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.)

Answer 80

521 or 522

Answer 81

((10×15,000)−(6×15,000))
−30,000 = 30000
60000÷30000

Question 82

Under the (absorption,variable) costing method only costs which vary with changes in production volume are assigned to products.

Answer 82

variable

Question 83

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?

Answer 83

17

Question 84

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.

Answer 84

$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.

Question 85

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?

Answer 85

665000
Reason: $630,000+$120,000 - $85,000.

Question 86

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?

Answer 86

10

Question 87

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.

Answer 87

$490,000
Reason: Sales-all expenses.

Question 88

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?

Answer 88

$1,100,000.
Reason: $1,050,000 + 300,000 - 250,000 = $1,100,000.

Question 89

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.

Answer 89

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.

Question 90

CH 5 CV

Question 91

Cost-volume-profit analysis is used to predict how changes in _______blank levels affect profit.

Answer 91

costs and sales

Question 92

A cost that does not change with changes in volume of activity is called a _______blank cost.

Answer 92

fixed

Question 93

A cost that changes in proportion to changes in the activity output volume is called a _______blank cost.

Answer 93

variable

Question 94

Fixed costs on a per unit basis _______blank as production increases.

Answer 94

Decrease

Question 95

A cost that behaves like a combination of fixed and variable costs is called a _______blank cost.

Answer 95

mixed

Question 96

A cost that has a step pattern when volume changes occur outside the relevant range of operations is called a _______blank cost.

Answer 96

step-wise

Question 97

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?

Answer 97

90
150−60

Question 98

The break-even point is the sales level at which:

Answer 98

total sales equals total costs

Question 99

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?

Answer 99

$15,000
3,000÷(10−8) = 1500
1500×10 = $15,000

Question 100

Revenue $ 100,000
Variable Costs 20,000
Fixed Costs 5,000
What is the income?

Answer 100

$75,000
100,000−20,000−5,000

Question 101

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?

Answer 101

26.3%, 31.6%, 42.1%

Question 102

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?

Answer 102

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%.

Question 103

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?

Answer 103

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.

Question 104

Which of the following is NOT an assumption in CVP analysis?

Answer 104

Sales mix is not constant

Question 105

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:

Answer 105

$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.

Question 106

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:

Answer 106

$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.

Question 107

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?

Answer 107

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.

Question 108

CH 5 HE

Answer 109

1. Rubber used in making tennis balls. Variableselected answer correct
2. Factory rent. Fixedselected answer correct
3. Packaging expense. Variableselected answer correct
4. Salesperson salary plus commission. Mixedselected answer correct
5. Depreciation expense of warehouse. Fixedselected answer correct
6. Hourly wages of assembly-line worker. Variableselected answer correct
7. Administrative assistant wages. Fixedselected answer correct

Question 110

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.

Answer 110

Break-even point 6600 units

429,000÷(187−122)

Question 111

3. Amount of expected income if sales increase by 15% $393,600selected answer correct

Answer 111

((4×15%)×100) = 60%
60% × 246000 = 147600
147600+246000 = 393600