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Test Bank Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis

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Test Bank Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis

Chapter 21--Cost Behavior and Cost-Volume-Profit Analysis

Student: ___________________________________________________________________________

1. Cost behavior refers to the methods used to estimate costs for use in managerial decision making. 
 

 

2. Cost behavior refers to the manner in which a cost changes as the related activity changes. 
 

 

3. The fixed cost per unit varies with changes in the level of activity. 
 

 

4. A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost. 
 

 

5. Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. 
 

 

6. In order to choose the proper activity base for a cost, managerial accountants must be familiar with the operations of the entity. 
 

 

7. The relevant range is useful for analyzing cost behavior for management decision-making purposes. 
 

 

8. The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management. 
 

 

9. The range of activity over which changes in cost are of interest to management is called the relevant range. 
 

 

10. Total fixed costs change as the level of activity changes. 
 

 

11. Because variable costs are assumed to change in direct proportion to changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle. 
 

 

12. Variable costs are costs that remain constant in total dollar amount as the level of activity changes. 
 

 

13. Variable costs are costs that remain constant on a per-unit basis as the level of activity changes. 
 

 

14. Variable costs are costs that vary in total in direct proportion to changes in the activity level. 
 

 

15. Variable costs are costs that vary on a per-unit basis with changes in the activity level. 
 

 

16. Direct materials and direct labor costs are examples of variable costs of production. 
 

 

17. Total variable costs change as the level of activity changes. 
 

 

18. Unit variable cost does not change as the number of units of activity changes. 
 

 

19. A mixed cost has characteristics of both a variable and a fixed cost. 
 

 

20. Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours is an example of a fixed cost. 
 

 

21. A rental cost of $20,000 plus $.70 per machine hour of use is an example of a mixed cost. 
 

 

22. For purposes of analysis, mixed costs can generally be separated into their variable and fixed components. 
 

 

23. The contribution margin ratio is the same as the profit-volume ratio. 
 

 

24. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio. 
 

 

25. The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost. 
 

 

26. The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio. 
 

 

27. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%. 
 

 

28. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%. 
 

 

29. The data required for determining the break-even point for a business are the total estimated fixed costs for a period, stated as a percentage of net sales. 
 

 

30. If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero when sales revenue is $930,000. 
 

 

31. If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when 15,000 units are sold. 
 

 

32. The point in operations at which revenues and expired costs are exactly equal is called the break-even point. 
 

 

33. Break-even analysis is one type of cost-volume-profit analysis. 
 

 

34. If the property tax rates are increased, this change in fixed costs will result in a decrease in the break-even point. 
 

 

35. If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point. 
 

 

36. If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease. 
 

 

37. If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease. 
 

 

38. If direct materials cost per unit increases, the break-even point will decrease. 
 

 

39. If direct materials cost per unit increases, the break-even point will increase. 
 

40. If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease. 
 

 

41. If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units. 
 

 

42. If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units. 
 

 

43. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart. 
 

 

44. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart. 
 

 

45. Cost-volume-profit analysis can be presented in both equation form and graphic form. 
 

 

46. If a business sells two products, it is not possible to estimate the break-even point. 
 

 

47. If a business sells four products, it is not possible to estimate the break-even point. 
 

 

48. Even if a business sells six products, it is possible to estimate the break-even point. 
 

 

49. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 11,500 units. 
 

 

50. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 14,500 units. 
 

 

51. If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 25%. 

 

52. If the volume of sales is $7,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 45.8%. 
 

 

53. Companies with large amounts of fixed costs will generally have a high operating leverage. 
 

54. A low operating leverage is normal for highly automated industries. 
 

 

55. Garmo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%. 
 

 

56. The reliability of cost-volume-profit analysis does NOT depend on the assumption that costs can be accurately divided into fixed and variable components. 
 

 

57. Absorption costing is required for financial reporting under generally accepted accounting principles. 
 

 

58. The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced. 
 

 

59. In an absorption costing income statement, the manufacturing margin is the excess of sales over the variable cost of goods sold. 
 

 

60. Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold. 
 

 

61. Cost behavior refers to the manner in which: 
A. a cost changes as the related activity changes
B. a cost is allocated to products
C. a cost is used in setting selling prices
D. a cost is estimated

 

62. The three most common cost behavior classifications are: 
A. variable costs, product costs, and sunk costs
B. fixed costs, variable costs, and mixed costs
C. variable costs, period costs, and differential costs
D. variable costs, sunk costs, and opportunity costs

 

63. Costs that remain constant in total dollar amount as the level of activity changes are called: 
A. fixed costs
B. mixed costs
C. product costs
D. variable costs

 

64. 

 Which of the graphs in Figure 20-1 illustrates the behavior of a total fixed cost? 
A. Graph 2
B. Graph 3
C. Graph 4
D. Graph 1

 

65. 

 Which of the graphs in Figure 20-1 illustrates the behavior of a total variable cost? 
A. Graph 2
B. Graph 3
C. Graph 4
D. Graph 1

 

66. 

 Which of the graphs in Figure 20-1 illustrates the nature of a mixed cost? 
A. Graph 2
B. Graph 3
C. Graph 4
D. Graph 1

 

67. Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes? 
A. Direct labor
B. Salary of a factory supervisor
C. Units of production depreciation on factory equipment
D. Direct materials

 

68. Which of the following describes the behavior of the fixed cost per unit? 
A. Decreases with increasing production
B. Decreases with decreasing production
C. Remains constant with changes in production
D. Increases with increasing production

 

69. Which of the following activity bases would be the most appropriate for food costs of a hospital? 
A. Number of cooks scheduled to work
B. Number of x-rays taken
C. Number of patients who stay in the hospital
D. Number of scheduled surgeries

 

70. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service? 
A. Number of trucks employed
B. Number of miles driven
C. Number of trucks in service
D. Number of packages delivered

 

71. Most operating decisions of management focus on a narrow range of activity called the: 
A. relevant range of production
B. strategic level of production
C. optimal level of production
D. tactical operating level of production

 

72. Costs that vary in total in direct proportion to changes in an activity level are called: 
A. fixed costs
B. sunk costs
C. variable costs
D. differential costs

 

73. Which of the following is an example of a cost that varies in total as the number of units produced changes? 
A. Salary of a production supervisor
B. Direct materials cost
C. Property taxes on factory buildings
D. Straight-line depreciation on factory equipment

 

74. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes? 
A. Electricity per KWH to operate factory equipment
B. Direct materials cost
C. Straight-line depreciation on factory equipment
D. Wages of assembly worker

 

75. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes? 
A. Electricity per KWH to operate factory equipment
B. Direct materials cost
C. Insurance premiums on factory building
D. Wages of assembly worker

 

76. Which of the following describes the behavior of the variable cost per unit? 
A. Varies in increasing proportion with changes in the activity level
B. Varies in decreasing proportion with changes in the activity level
C. Remains constant with changes in the activity level
D. Varies in direct proportion with the activity level

 

77. The graph of a variable cost when plotted against its related activity base appears as a: 
A. circle
B. rectangle
C. straight line
D. curved line

 

78. A cost that has characteristics of both a variable cost and a fixed cost is called a: 
A. variable/fixed cost
B. mixed cost
C. discretionary cost
D. sunk cost

 

79. Which of the following costs is a mixed cost? 
A. Salary of a factory supervisor
B. Electricity costs of $3 per kilowatt-hour
C. Rental costs of $10,000 per month plus $.30 per machine hour of use
D. Straight-line depreciation on factory equipment

 

80. For purposes of analysis, mixed costs are generally: 
A. classified as fixed costs
B. classified as variable costs
C. classified as period costs
D. separated into their variable and fixed cost components

 

81. Marcye 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: 
A. $56,000
B. $28,400
C. $17,600
D. cannot be determined from the data given

 

82. Given the following cost and activity observations for Bounty Company’s utilities, use the high-low method to calculate Bounty’ 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

3,600

 

18,000

 

 

 

 

 

 

 
A. $10.00
B. $.67
C. $.63
D. $.11

 

83. Given the following cost and activity observations for Smithson Company’s utilities, use the high-low method to calculate Smithson’s fixed costs per month.  Do not round your intermediate calculations.
 

 

Cost

Machine Hours

 

January

$52,200

 

20,000

 

February

75,000

 

29,000

 

March

57,000

 

22,000

 

April

64,000

 

24,500

 

 

 

 

 

 

 
A. $1,533
B. $2,530
C. $22,800
D. $50,600

 

84. Given the following cost and activity observations for Taco Company’s utilities, use the high-low method to calculate Taco’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

 

 

 

 

 

 

 
A. $10.00
B. $.60
C. $.40
D. $.52

 

85. Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are: 
A. $61,875
B. $33,875
C. $24,750
D. cannot be determined from the data given

 

86. Which of the following statements is true regarding fixed and variable costs? 
A. Both costs are constant when considered on a per unit basis.
B. Both costs are constant when considered on a total basis.
C. Fixed costs are constant in total, and variable costs are constant per unit.
D. Variable costs are constant in total, and fixed costs vary in total.

 

87. As production increases, what would you expect to happen to fixed cost per unit? 
A. Increase
B. Decrease
C. Remain the same
D. Either increase or decrease, depending on the variable costs

 

88. Knowing how costs behave is useful to management for all the following reasons except for 
A. predicting customer demand.
B. predicting profits as sales and production volumes change.
C. estimating costs.
D. changing an existing product production.

 

89. The manufacturing cost of Prancer Industries for three months of the year are provided below:
 

 

Total Cost

Production

April

$ 60,700

1,200 Units

May

80,920

1,800        

June

100,300

2,400        

 

 

 


Using the high-low method, the variable cost per unit, and the total fixed costs are: 
A. $32.30 per unit and $77,520 respectively.
B. $33 per unit and $21,100 respectively.
C. $32 per unit and $76,800 respectively.
D. $32.30 per unit and $22,780 respectively.

 

90. As production increases, what should happen to the variable costs per unit? 
A. Stay the same.
B. Increase.
C. Decrease.
D. Either increase or decrease, depending on the fixed costs.

 

91. Cool-It Company manufactures and sells commercial air conditioners. Because of current trends, it expects to increase sales by 10 percent next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year’s total amounts for the following costs.

                 Variable Costs                        Fixed Costs                               Mixed Costs 
A.           increase                                   increase                                     increase
B.           increase                                   no change                                  increase
C.           no change                                no change                                  increase
D.           decrease                                  increase                                     increase

 

92. Given the following costs and activities for Downing Company electrical costs, use the high-low method to calculate Downing’s variable electrical costs per machine hour.
 

 

Costs

Machine Hours

April

$11,700

15,000

May

$13,200

17,500

June

$11,400

14,500

 

 

 

 
A. $2.08
B. $6.00
C. $0.60
D. $1.20

 

93. The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed: 
A. contribution margin analysis
B. cost-volume-profit analysis
C. budgetary analysis
D. gross profit analysis

 

94. In cost-volume-profit analysis, all costs are classified into the following two categories: 
A. mixed costs and variable costs
B. sunk costs and fixed costs
C. discretionary costs and sunk costs
D. variable costs and fixed costs

 

95. Contribution margin is: 
A. the excess of sales revenue over variable cost
B. another term for volume in the "cost-volume-profit" analysis
C. profit
D. the same as sales revenue

 

96. The contribution margin ratio is: 
A. the same as the variable cost ratio
B. the same as profit
C. the portion of equity contributed by the stockholders
D. the same as the profit-volume ratio

 

97. If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio? 
A. 45%
B. 55%
C. 62%
D. 32%

 

98. What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit? 
A. Margin of safety ratio
B. Contribution margin ratio
C. Costs and expenses ratio
D. Profit ratio

 

99. A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit was: 
A. $90,000
B. $210,000
C. $590,000
D. $490,000

 

100. If sales are $425,000, variable costs are 62% of sales, and operating income is $50,000, what is the contribution margin ratio? 
A. 38%
B. 26.8%
C. 11.8%
D. 62%

 

101. Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000? 
A. $8,000 increase
B. $8,000 decrease
C. $30,000 decrease
D. $30,000 increase

 

102. Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units? 
A. $150,000 decrease
B. $175,000 increase
C. $200,000 increase
D. $150,000 increase

 

103. If sales are $914,000, variable costs are $498,130, and operating income is $260,000, what is the contribution margin ratio? 
A. 52.2%
B. 28.4%
C. 54.5%
D. 45.5%

 

104. A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit was: 
A. $140,000
B. ($30,000)
C. $370,000
D. $670,000

 

105. If sales are $525,000, variable costs are 53% of sales, and operating income is $50,000, what is the contribution margin ratio? 
A. 47%
B. 26.5%
C. 9.5%
D. 53%

 

106. Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units? 
A. $125,000 decrease
B. $175,000 increase
C. $75,000 increase
D. $247,500 increase

 

107. Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are: 
A. 47% and $11 per unit
B. 53% and $7 per unit
C. 47% and $8 per unit
D. 52% and $11 per unit

 

108. If the contribution margin ratio for France Company is 45%, sales were $425,000. and fixed costs were $100,000, what was the income from operations? 
A. $233,750
B. $91,250
C. $191,250
D. $133,750

 

109. If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)? 
A. 3,425 units
B. 2,381 units
C. 2,000 units
D. 4,808 units

 

110. If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars? 
A. $1,250,000
B. $450,000
C. $1,875,000
D. $300,000

 

111. If fixed costs are $1,200,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales required to realize an operating income of $200,000? 
A.   9,231 units
B. 12,000 units
C. 10,769 units
D.   5,833 units

 

112. If fixed costs are $300,000, the unit selling price is $31, and the unit variable costs are $22, what is the break-even sales (units) if fixed costs are reduced by $30,000? 
A. 30,000 units
B. 8,710 units
C. 12,273 units
D. 20,000 units

 

113. If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs are $30, what is the break-even sales (units) if fixed costs are increased by $80,000? 
A. 10,545 units
B. 19,333 units
C. 23,200 units
D. 25,000 units

 

114. If fixed costs are $350,000, the unit selling price is $29, and the unit variable costs are $20, what is the break-even sales (units) if the variable costs are decreased by $4? 
A. 26,924 units
B. 12,069 units
C. 21,875 units
D. 38,889 units

 

115. 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 (units) if the unit selling price increases by $10? 
A. 6,000 units and 5,294 units
B. 18,000 units and 6,000 units
C. 18,000 units and 12,858 units
D. 9,000 units and 15,000 units

 

116. If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit? 
A. 25,000 units
B. 10,000 units
C. 400,000 units
D. 20,000 units

 

117. If fixed costs are $700,000 and the unit contribution margin is $17, what amount of units must be sold in order to realize an operating income of $100,000? 
A.   5,000
B. 41,176
C. 47,059
D. 58,882

 

118. If fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000? 
A. 25,000
B. 29,000
C. 4,000
D. 21,000

 

119. If fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000? 
A. 17,250
B. 15,000
C. 8,333
D. 9,667

 

120. If fixed costs are $561,000 and the unit contribution margin is $8.00, what is the break-even point in units if variable costs are decreased by $.50 a unit? 
A. 66,000
B. 70,125
C. 74,800
D. 60,000

 

121. If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would: 
A. decrease
B. increase
C. remain the same
D. increase or decrease, depending upon the percentage increase in wage rates

 

122. If variable costs per unit decreased because of a decrease in utility rates, the break-even point would: 
A. decrease
B. increase
C. remain the same
D. increase or decrease, depending upon the percentage increase in utility rates

 

123. If fixed costs increased and variable costs per unit decreased, the break-even point would: 
A. increase
B. decrease
C. remain the same
D. cannot be determined from the data provided

 

124. Which of the following conditions would cause the break-even point to decrease? 
A. Total fixed costs increase
B. Unit selling price decreases
C. Unit variable cost decreases
D. Unit variable cost increases

 

125. Which of the following conditions would cause the break-even point to increase? 
A. Total fixed costs decrease
B. Unit selling price increases
C. Unit variable cost decreases
D. Unit variable cost increases

 

126. Which of the following conditions would cause the break-even point to increase? 
A. Total fixed costs increase
B. Unit selling price increases
C. Unit variable cost decreases
D. Total fixed costs decrease

 

127. Calzone Co. has budgeted salary increases to factory supervisors totaling 8%. If selling prices and all other cost relationships are held constant, next year's break-even point: 
A. will decrease by 8%
B. will increase by 8%
C. cannot be determined from the data given
D. will increase at a rate greater than 8%

 

128. Flying Cloud 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 next break-even point for Flying Cloud Co. will be: 
A. increased by 640 units
B. increased by 400 units
C. decreased by 640 units
D. increased by 800 units

 

129. If fixed costs are $850,000 and variable costs are 60% of sales, what is the break-even point (dollars)? 
A. $2,125,000
B. $  340,000
C. $3,400,000
D. $1,416,666

 

130. If fixed costs are $256,000, the unit selling price is $36, and the unit variable costs are $20, what is the break-even sales (units)? 
A. 12,800 units
B.   4,571 units
C. 16,000 units
D. 7,111 units

 

131. If fixed costs are $1,500,000, the unit selling price is $250, and the unit variable costs are $130, what is the amount of sales required to realize an operating income of $200,000? 
A. 14,166 units
B. 12,500 units
C. 16,000 units
D. 11,538 units

 

132. If fixed costs are $490,000, the unit selling price is $35, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are reduced by $40,000? 
A. 32,667 units
B. 14,000 units
C. 30,000 units
D. 24,500 units

 

133. If fixed costs are $400,000, the unit selling price is $25, and the unit variable costs are $15, what is the break-even sales (units) if the variable costs are increased by $2? 
A. 50,000 units
B. 30,770 units
C. 40,000 units
D. 26,667 units

 

134. If fixed costs are $240,000, the unit selling price is $32, and the unit variable costs are $20, what are the old and new break-even sales (units) if the unit selling price increases by $4? 
A. 7,500 units and 6,667 units
B. 20,000 units and 30,000 units
C. 20,000 units and 15,000 units
D. 12,000 units and 15,000 units

 

135. When the fixed costs are $120,000 and the contribution margin is $30, the break-even point is 
A. 16,000 units
B.   8,000 units
C.   6,000 units
D.   4,000 units

 

136. If fixed costs are $46,800, the unit selling price is $42, and the unit variable costs are $24, what is the break-even sales (units)? 
A. 2,400
B. 1,950
C. 1,114
D. 2,600

 

137. If fixed costs are $46,800, the unit selling price is $42, and the unit variable costs are $24, what is the break-even sales (unit ) if the variable costs are decreased by $2? 
A. 2,127
B. 1,114
C. 2,340
D. 1,950

 

138. The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents: 
A. the maximum possible operating loss
B. the maximum possible operating income
C. the total fixed costs
D. the break-even point

 

139. The point where the profit line intersects the horizontal axis on the profit-volume chart represents: 
A. the maximum possible operating loss
B. the maximum possible operating income
C. the total fixed costs
D. the break-even point

 

140. 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. This is called: 
A. "What if" or sensitivity analysis
B. vary the data analysis
C. computer aided analysis
D. data gathering

 

141. In a cost-volume-profit chart, the 
A. total cost line begins at zero.
B. slope of the total cost line is dependent on the fixed cost per unit.
C. total cost line begins at the total fixed cost value on the vertical axis.
D. total cost line normally ends at the highest sales value.

 

142. The relative distribution of sales among the various products sold by a business is termed the: 
A. business's basket of goods
B. contribution margin mix
C. sales mix
D. product portfolio

 

143. 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: 
A. two
B. three
C. fifteen
D. there is no limit

 

144. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
 


Product

Unit Selling
Price

Unit Variable
Cost

Unit Contribution
Margin

Arks

$120

$80

$40

Bins

    80

  60

  20

 

 

 

 



 What was Carter Co.'s sales mix last year? 
A. 20% Arks, 80% Bins
B. 12% Arks, 28% Bins
C. 70% Arks, 30% Bins
D. 40% Arks, 20% Bins

 

145. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
 


Product

Unit Selling
Price

Unit Variable
Cost

Unit Contribution
Margin

Arks

$120

$80

$40

Bins

    80

  60

  20

 

 

 

 



 What was Carter Co.'s weighted average unit selling price? 
A. $200
B. $100
C. $ 80
D. $ 88

 

146. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
 


Product

Unit Selling
Price

Unit Variable
Cost

Unit Contribution
Margin

Arks

$120

$80

$40

Bins

    80

  60

  20

 

 

 

 



 What was Carter Co.'s weighted average variable cost? 
A. $140
B. $ 70
C. $ 64
D. $ 60

 

147. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
 


Product

Unit Selling
Price

Unit Variable
Cost

Unit Contribution
Margin

Arks

$120

$80

$40

Bins

    80

  60

  20

 

 

 

 



 What was Carter Co.'s weighted average unit contribution margin? 
A. $24
B. $60
C. $92
D. $20

 

148. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
 


Product

Unit Selling
Price

Unit Variable
Cost

Unit Contribution
Margin

Arks

$120

$80

$40

Bins

    80

  60

  20

 

 

 

 



 Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units? 
A. 40,000 units
B. 12,000 units
C. 35,000 units
D. 28,000 units

 

149. If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was: 
A. $5,000,000
B. $3,000,000
C. $12,000,000
D. $1,000,000

 

150. Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is: 
A. unaffected
B. expected to increase by 3%
C. expected to increase by 48%
D. expected to increase by 4 %

 

151. If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage? 
A. 0
B. 7.500
C. 2.0
D. 1.333

 

152. The difference between the current sales revenue and the sales at the break-even point is called the: 
A. contribution margin
B. margin of safety
C. price factor
D. operating leverage

 

153. Cost-volume-profit analysis cannot be used if which of the following occurs? 
A. Costs cannot be properly classified into fixed and variable costs
B. The total fixed costs change
C. The per unit variable costs change
D. Per unit sales prices change

 

154. Assume that Corn 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 $30 and $60 respectively. Corn has fixed costs of $378,000. The break-even point in units is: 
A. 8,000 units
B. 6,300 units
C. 12,600 units
D. 10,500 units

 

155. If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage? 
A. 0
B. 1.25
C. 1.3
D. 3.1

 

156. The Rocky Company reports the following data.

 

Sales

$800,000

 

Variable costs

$300,000

 

Fixed costs

$120,000

 

 

 


Rocky Company’s operating leverage is: 
A. 6.7
B. 2.7
C. 1.0
D. 1.3

 

157. Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and 35,000 units of Y’s. Related data are:
 

 

Unit Selling Price

Unit Variable

Unit contribution

Product

Price

Cost

Margin

X

$110.00

$70.00

$40.00

Y

  70.00

  50.00

$20.00

 

 

 

 



 What was Rusty Co.’s sales mix last year? 
A. 58% X’s, 42% Y’s
B. 60% X’s, 40% Y’s
C. 30% X’s, 70% Y’s
D. 12.5% X’s, 87.5% Y’s

 

158. Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and 35,000 units of Y’s. Related data are:
 

 

Unit Selling Price

Unit Variable

Unit contribution

Product

Price

Cost

Margin

X

$110.00

$70.00

$40.00

Y

  70.00

  50.00

$20.00

 

 

 

 



 What was Rusty Co.’s weighted average unit selling price? 
A. $180.00
B. $75.00
C. $100.00
D. $110.00

 

159. Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and 35,000 units of Y’s. Related data are:
 

 

Unit Selling Price

Unit Variable

Unit contribution

Product

Price

Cost

Margin

X

$110.00

$70.00

$40.00

Y

  70.00

  50.00

$20.00

 

 

 

 



 What was Rusty Co.’s weighted average unit variable cost? 
A. $52.50
B. $70.00
C. $120.00
D. $50.00

 

160. Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and 35,000 units of Y’s. Related data are:
 

 

Unit Selling Price

Unit Variable

Unit contribution

Product

Price

Cost

Margin

X

$110.00

$70.00

$40.00

Y

  70.00

  50.00

$20.0

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[Solved] Test Bank Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis

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