Managerial accounting, 5th by jiambalvo test bank ch04

Total cost equals total fixed costs plus variable cost per unit times the activity level in units.. At the break-even point, total fixed costs equal total contribution margin.. Total fix

Cost-Volume-Profit Analysis Summary of Questions by Objectives and Bloom’s Taxonomy

Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

1 Total variable costs change inversely with changes in volume or activity

2 Variable costs per unit remain the same when the level of activity changes within the relevant

range

3 Total fixed costs remain the same when the level of activity changes within the relevant range

4 Total variable costs remain constant across all levels of activity within the relevant range

5 Mixed costs are also referred to as semivariable costs

6 A step cost is similar to a variable cost, except that the relevant range is smaller for a step cost

7 Direct labor and manufacturing overhead costs are examples of fixed costs

8 The variable cost per unit is the same at all activity levels within the relevant range

9 Fixed costs are the same in total amount at any activity level within the relevant range

10 Committed fixed costs are costs that can be changed easily in a relatively brief period of time

11 Total production cost is generally a mixed cost

12 In order to use CVP analysis, costs must be separated into fixed and variable components

13 The account analysis method of estimating fixed and variable costs uses software programs such

as Microsoft Excel® to fit a line to multiple data points

14 The high-low method is subjective in that different managers viewing the same set of data may

select different data points to use in estimating costs

15 The high-low method is used to estimate a cost equation that can be used to predict costs at

estimated activity levels

16 The high-low method fits a straight line to the data points that represent the highest and lowest

cost levels of a particular activity

17 When using the high-low method, total fixed cost is found by calculating the intercept point of

the sloped line on the vertical axis

18 Total cost equals total fixed costs plus variable cost per unit times the activity level in units

19 Computer software is often used to conduct a regression analysis

20 Total costs and activity are assumed to have a linear relationship within the relevant range

21 Account analysis is a method used to estimate fixed and variable costs

22 A significant weakness of the high-low method is that the two data points chosen may not be

representative of the relationship between cost and activity

23 Regression analysis is a method of estimating the slope and y-intercept using all available data

points

24 Cost behavior patterns are assumed to be linear at all activity levels when a regression is used to

estimate cost behavior

25 Profit is equal to revenue minus total variable costs minus total fixed costs

26 At the break-even point, total revenue equals total fixed costs

27 The margin of safety is the difference between the current level of sales and break-even sales

28 Contribution margin is the difference between revenue and total costs

29 If the contribution margin ratio is 32%, this means that every $1.00 of sales will contribute $0.32

towards covering fixed costs and generating a profit

30 Contribution margin ratio is another name for the gross margin ratio

31 At the break-even point, total fixed costs equal total contribution margin

32 The margin of safety is the difference between the expected level of profit and break-even profit

33 If x = the number of units sold, profit = (contribution margin per unit × x) ‒ total fixed costs.

34 The contribution margin ratio is determined by subtracting total costs from total sales revenue,

and then dividing by total sales revenue

35 When performing cost-volume-profit analysis with multiple products, it is assumed that the sales

mix remains constant, even when a different number of total units is are expected to be sold

36 CVP analysis for companies that sell more than one product assumes that the contribution margin

ratio for all products is the same

37 Total fixed costs divided by the contribution margin ratio equals the break-even point in sales

revenue

38 When performing multiple product CVP analysis, a necessary assumption is that sales mix,

variable cost per unit, and fixed cost per unit remain constant

39 Companies that have higher operating leverage find that their profit level is more responsive to

changes in sales volume than if operating leverage was low

40 Firms that have relatively high levels of variable costs have high operating leverage

41 Firms have no control over their level of operating leverage

42 If a company has only variable costs and its sales revenue increases by 20%, its profit will

increase by an amount larger than 20%

43 When dealing with a constrained resource situation, a company should generally produce only the

product with the highest contribution margin per unit in order to maximize profit

44 When dealing with a constrained resource situation, a company should generally produce only the

product with the highest contribution margin ratio, as this will insure the highest profit level

45 When there is a constraint on how many units can be produced, the focus shifts from contribution

margin per unit to contribution margin per unit of the constraint

46 Common constraints found in business that impact production include hours of labor, hours of

machine time, quantities of materials, and the cost of a product

47 The R Square is the slope of the regression line

MULTIPLE CHOICE

48 Which of the following is most likely to be a variable cost?

49 Variable cost per unit

A can be estimated by performing break-even calculations

B increases on a per unit basis when the level of activity increases

C is represented by the slope of the total cost line

D All of these answer choices are correct

50 Which of the following costs is least likely to be a variable cost?

C decrease in direct proportion to the decrease in activity

D decrease, but at a slower rate than the level of activity

52 When the level of activity increases, the variable cost per unit

B remains constant within the relevant range

D fluctuates, depending on the amount of the increase in activity

53 When the level of activity increases, total fixed costs

C decrease inversely with the change in activity

D increase within the relevant range

54 When the level of activity increases, the fixed cost per unit

D fluctuates, depending on the amount of the increase in activity

55 Which of the following components are included in a mixed cost?

56 Three costs incurred by Randall Rockers are summarized below at two different activity levels,

57 Within the relevant range, variable costs

A per unit change when the activity level changes

B are the same in total at different activity levels

C are the same amount per unit at any activity level

58 A cost is $4,900 at 800 units, $5,600 at 900 units, and $6,200 at 980 units This cost is a

A per unit are the same for each range of volume

B are classified as step variable or step fixed depending on the range of activity for which

the cost remains fixed

C change in total at every level of activity

D are considered to be step fixed costs within a relatively small range

60 A company has a cost that is $7.00 per unit at a volume of 10,000 units and $5.00 per unit at a

volume of 14,000 units What type of cost is this?

63 The account analysis approach to estimating fixed and variable costs

A requires at least five years of historical data

B is based on the professional judgment of the manager

C is not useful for general and selling expenses

D is only used if the data for the high-low method or regression analysis is not available

64 Walsh Company graphed its units produced and total production costs for the past eight months

What is this called?

65 The high-low method calculates the total fixed cost as the

A difference between total variable costs and total costs at a particular activity level

B difference between the unit variable cost and the unit total cost

C change in cost divided by the change in activity level for two points

D change in activity level divided by the change in cost for two points

66 A significant weakness of the high-low method is that

A a significant amount of management expertise is necessary to break out the variable and

fixed costs

B the two data points that are used may not be representative of the general relationship

between cost and activity

C the calculations are so complex that a computer is usually necessary in order to get accurate

results

D monthly data must be collected for at least three years before the method can be used

A uses all the available data points to estimate a cost equation

B is less accurate than other methods of estimating costs

C estimates a cost equation that indicates the variable and fixed costs per unit

D is a method of determining the break-even point

68 The range of activity for which estimates and predictions are likely to be accurate is the

69 A cost is $34,500 at an activity level of 23,000 units, and $42,000 at an activity level of 28,000

units What type of cost is this?

70 Duradyne, Inc has total costs of $18,000 when 2,000 units are produced and $26,000 when 5,200

units are produced During March, 4,000 units were produced and sold for $8 each If the low method is used, how much is the variable cost per unit?

71 Ranger Pressure Cleaners has total monthly costs of $5,800 when 3,200 units are produced and

$6,425 when 3,700 units are produced If the high-low method is used, how much is the estimatedtotal monthly fixed cost?

72 C-Drive Components has collected the following production data for the past four months:

Units produced Total cost

If the high-low method is used, what is the monthly total cost equation?

A Total cost = $2,500 + ($2.00 × units produced)

B Total cost = $3,750 + ($2.75 × units produced)

C Total cost = $1,500 + ($2.00 × units produced)

73 Management of MRC Enterprises has provided the following output from Excel®:

B $55,394

D There is not enough information provided to determine the answer

74 Total costs were $38,400 when 16,000 units were produced and $41,100 when 17,200 units were

produced If the high-low method is used, how much are estimated total costs for a production level of 17,100 units?

75 Hardigree Insurance has collected the following information over the last six months

Month Units produced Total costs

76 Hardigree Insurance has collected the following information over the last six months

Month Units produced Total costs

77 Hardigree Insurance has collected the following information over the last six months

Month Units produced Total costs

78 Window Shine is aprovides window cleaning service Information concerning costs and number

of windows cleaned for three months during 2014 appear below:

79 Princeton offers a large range of undergraduate courses The University is interested in

determining the cost equation for the facilities cost as a function of student credit hours so that it can more accurately budget its facilities costs as enrollment grows Information for the high and low cost semesters and volumes for last 5 years appears below:

Semester Student Credit Hours Facilities Cost

Using the high-low method, with student credit hours as the activity driver, what is the equation for facilities cost (FC) as a function of student credit hours?

80 A cost is $11,000 at 1,000 units, $12,000 at 2,000 units, and $13,000 at 3,000 units Using the

high-low method, how much is the fixed portion of these costs?

D The answer depends on the actual activity

81 Which of the following methods provides the most accurate predictions of future costs?

A Unit fixed costs stay the same and unit variable costs increase

B Total fixed costs stay the same and total variable costs increase

C Unit fixed costs decrease and total variable costs decrease

D Unit fixed costs decrease and unit variable costs decrease

83 Past relationships between cost and activity may not be a useful basis for estimating future costs

A if most of a company’s costs are variable

B the company is able to accurately estimate its cost behavior

C if the cost is a mixed cost

D if future activity levels are expected to be beyond the relevant range

84 Which of the following methods requires the most professional judgment in classifying costs?

85 Each point on the scattergraph represents one pair of

86 Carpet Renewal dyes carpets for residential customers The company is interested in estimating

fixed and variable costs The following data are available for the month of June when 420 carpets were dyed:

87 Lawn Cut Perfection provided data concerning the costs incurred to mow residential lawns for

which customers pay $45 per mowing Data for the past 7 months are as follows:

88 Lawn Cut Perfection provided data concerning the costs incurred to mow residential lawns for

which customers pay $45 per mowing Data for the past 7 months are as follows:

89 What are the three elements of the profit equation?

A Selling price per unit, variable cost per unit, and fixed cost per unit

B Total revenues, total variable costs, and total fixed cost

C Selling price per unit, variable cost per unit, and total fixed costs

D Selling price per unit, total variable costs, and fixed cost per unit

90 What must be true if the contribution margin is less than zero?

A The selling price per unit is less than the variable cost per unit

B Total fixed costs will be greater than total variable costs

D Fixed costs plus variable costs are less than total revenue

91 Which of the following assumptions might negatively affect the validity of a CVP analysis?

A Costs can be accurately separated into fixed and variable components

B Fixed costs remain fixed, and variable costs per unit do not change over the activity

levels of interest

C Both the assumptions—costs can be accurately separated into fixed and variable

components, and fixed costs remain fixed, and variable costs per unit do not change over the activity levels of interest—negatively affect the validity of a CVP analysis

92 Which of the following is not considered to be a ‘cost’ in cost-volume-profit analysis?

93 Which of the following statements is correct?

A Total fixed costs are equal to revenue plus variable cost per unit times the quantity

produced

B Profit is equal to total fixed costs plus revenue

C Total fixed costs are equal to profit minus revenue

D Profit is equal to revenue minus total variable costs minus total fixed costs

94 Which of the following will have no effect on the break-even point in units?

B The variable cost per unit increases

95 Hanalei Fishing Trips is operating at its break-even point of 4,200 fishing trips per year Which of

the following statements is true?

A The amount of the company’s total costs equals the amount of its revenues

B The company’s fixed costs equal its variable costs

C The company’s profit is equal to its contribution margin

D Assuming no other changes, if the company sold fewer trips, it will earn a higher

contribution margin per trip

96 The margin of safety is the difference between

A total revenue and total fixed costs

B expected level of sales and the break-even point in revenue dollars

C expected profit and profit at break-even

D selling price and variable cost per unit

97 IM Enterprises sells two products, Crunchies and Munchies Crunchies have a 32 percent

contribution margin and Munchies have a 35 percent contribution margin Profit earned from each box of Crunchies is $8 and the profit earned from each box of Munchies is $7 If the

company is planning to generate revenue of $100, what should the company do?

C It should sell an equal number of each product

98 If the contribution margin is greater than zero,

A the selling price of each product is less than the variable cost per unit

B total variable costs are less than sales revenue

D the fixed costs are greater than variable cost

99 The incremental profit generated by the sale of one additional unit is equal to the

100 Which of the following statements regarding the contribution margin ratio is not true?

A The contribution margin ratio is equal to the contribution margin per unit divided by the

selling price per unit

B The contribution margin ratio is the amount of each sales dollar that goes toward

covering fixed costs and generating a profit

C The contribution margin ratio is equal to variable cost per unit divided by fixed cost per

unit

D The contribution margin ratio is useful when companies that sell a variety of products

calculate a break-even point in sales

101 Holding all other factors constant, the break-even point will decline if

B the contribution margin per unit increases

C the selling price declines

102 Which of the following is not involved in determining the break-even point?

A Anticipated sales for the next period

103 Which of the following is not an assumption of CVP analysis?

A Costs can be accurately separated into fixed and variable components

B Fixed costs per unit remain constant within the relevant range

C Total variable costs are proportional to the level of activity

D Selling price per unit remains the same at all activity levels

104 Diva Products produces scarves The estimated fixed costs for the year are $164,500, and the

estimated variable costs per unit are $9 The company expects to produce and sell 40,000 scarves

at a unit selling price of $16 per unit How much is the break-even point in units?

105 Diva Products produces scarves The estimated fixed costs for the year are $164,500, and the

estimated variable costs per unit are $9 The company expects to produce and sell 40,000 scarves

at a unit selling price of $16 per unit By how much can sales revenue drop before Diva Products incurs a loss?

106 At Bahama Foods, the break-even point is 1,600 units If fixed costs total $44,000 and variable

costs are $12 per unit, what is the selling price per unit?

D There is not enough information provided to determine the answer

107 Widgely Sales Company’s break-even point is 12,200 units Each unit incurs variable costs of

$2.20 and is sold for $4.90 How much are total fixed costs?

108 Splurge Electronics sells homework machines for $80 each Variable costs per unit are $45 and

total fixed costs are $43,750 Splurge is considering the purchase of new equipment that would increase fixed costs to $48,700, but decrease the variable costs per unit by $5 At that level, Splurge Electronics expects it can sell 1,500 units next year What is the company’s break-even point in units if it purchases the new equipment, assuming the selling price remains constant? (Round your answer to the nearest whole number.)

109 Splurge Electronics sells homework machines for $80 each Variable costs per unit are $45 and

total fixed costs are $43,750 Splurge Electronics expects it can sell 1,500 units next year By howmany units can Splurge’s sales drop before the company incurs a loss?

110 Oak Hill Furniture has a contribution margin ratio of 20%, and a contribution margin per unit of

$12 If fixed costs are $156,000, how much sales revenue must the company generate in order to reach its break-even point?

111 Randolph Corporation sells a single product at a price of $275 per unit Variable cost per unit is

$135 and fixed costs total $356,860 If sales are expected to be $825,000, what is the company’s margin of safety?

112 MDI Enterprises prepared the following income statement for June:

Cost of goods sold:

113 One Finger Staples produces a single stapler that it sells for $15 per unit If variable costs per unit

are $6 and fixed costs total $42,300, how many units must the company sell in order to earn a profit of $12,150?

114 The president of DynaMark will not receive a bonus next year unless the company’s profits are at

least $435,000 DynaMark sells a single product at a price of $27 per unit If variable costs are

$12 per unit and fixed costs total $150,000, what amount of unit sales must DynaMark generate

in order for the president to receive a bonus?

115 MDI Enterprises prepared the following income statement for June:

Cost of goods sold:

D There is not enough information provided to determine the answer

116 WayFair Clothing has total fixed costs of $34,000 per month It sells a single product with

variable costs of $5.60 per unit If 8,000 units can be sold this month, what price must Wayfair charge in order to break-even?

D There is not enough information provided to determine the answer

117 Revert Creations sells a single product at a price of $50 per unit Fixed costs total $312,000 and

variable costs per unit are $24 Revert is considering the purchase of new equipment that would reduce variable costs per unit to $21, but fixed costs would increase to $334,370 Above what volume would Revert be profitable with the new machine, assuming the selling price remains constant?

D There is not enough information provided to determine the answer

118 SkyBucks Bagels sells boxes of bagels each with a variable cost of 45% of sales Its fixed costs

are $36,000 per year Each box has a contribution margin of $8 How much sales revenue does SkyBucks need to break-even per year if bagels are its only product?

119 Plant Bottling needs to reduce the selling price of its acrylic water bottles in order to be

competitive Currently, it has fixed costs of $110,000 and variable costs per unit of $4.10 If PlantBottling can sell 40,000 units, what price should it charge in order to break-even?

D None of these answer choices are correct

120 Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car Annual

fixed costs are $7,000 How much will profit increase if 600 more units are sold?

121 Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car Annual

fixed costs are $7,000 How many cars must be sold to earn a profit of $3,150?

122 Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car Annual

fixed costs are $7,000 If Rogers Racers sells 50 units fewer than break-even, how much loss would the company recognize on its income statement?

123 Angel Toys is a producer of tiny dolls for children Following is information about its revenue

and cost structure:

Variable costs per doll:

Total fixed costs:

In which range does the break-even point fall?

124 Angel Toys is a producer of tiny dolls for children Following is information about its revenue

and cost structure:

Variable costs per doll:

Total fixed costs:

Management is proposing to pay sales people a commission equal to 10% of the variableproduction cost What will be the new contribution margin ratio if the commission plan isimplemented?

D The number of units to be sold is needed to determine the answer

125 Angel Toys is a producer of tiny dolls for children Following is information about its revenue

and cost structure:

Variable costs per doll:

Total fixed costs:

Assume that the current sales level is 14,000 dolls What impact would a 10% increase in saleshave on income?

126 Angel Toys is a producer of tiny dolls for children Following is information about its revenue

and cost structure:

Variable costs per doll:

Total fixed costs:

Assume that sales are expected to fall from 14,000 units this year to 13,000 units next year AngelToys would like to raise the selling price next year from the current $8.00 per unit to achieve thesame profits next year as the current year What will the sales price have to be next year, togenerate the same profits next year as this year?

127 Charlie Shine has written a self-improvement book The following are its pricing and cost details:

Variable cost per unit:

Fixed costs:

How many books must Charlie sell to break-even?

128 Charlie Shine has written a self-improvement book The following are its pricing and cost details:

Variable cost per unit:

Fixed costs:

What is the cost formula for this operation, where TC = Total cost and x = units sold?

A TC = 12.60x – 49,140

B TC = 6x + 49,140

C TC = 5.40x – 49,140

D TC = 5.40x + 49,140

129 Charlie Shine has written a self-improvement book The following are its pricing and cost details:

Variable cost per unit:

Fixed costs:

Charlie Shine is currently selling 5,200 books per year What impact would a 22% increase in sales have on profit?

130 Charlie Shine has written a self-improvement book The following are its pricing and cost details:

Variable cost per unit:

Fixed costs:

Assume the variable production cost and the selling price were each increased by $0.30 per book Which of the following would change?

131 Talk Time Cellular sells smart phones for $150 The unit variable cost per phone is $25 plus a

selling commission of 10% Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100 What is the contribution margin per phone?

D There is not enough information provided to determine the answer

132 Talk Time Cellular sells smart phones for $150 The unit variable cost per phone is $25 plus a

selling commission of 10% Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100 How many phones must be sold to avoid a loss on the company’s income statement?

133 Talk Time Cellular sells smart phones for $150 The unit variable cost per phone is $25 plus a

selling commission of 10% Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100 Talk Time expects sales of $12,300 during next year.How much is the margin of safety estimated for next year?

134 Bunch of Books, a producer of children’s books, has provided the following information:

What is the break-even point in books?

135 Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar

of sales is 42% Sales during June totaled $220,000 What is the break-even point per month in sales?

136 Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar

of sales is 42% Sales during June totaled $220,000 What level of sales is needed for a monthly profit of $31,900?

137 Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar

of sales is 42% For the month of July, the cafe anticipates sales of $300,000 What is the

expected level of profit?

138 If a company sells many different types of products,

A it will have high operating leverage

B the contribution margin ratio approach may be used to calculate the break-even point

C it cannot use cost-volume-profit analysis

D its margin of safety will be negative

139 A company that sells many different types of products should approach CVP analysis by

assuming that

A all products will have the same contribution margin ratio

B products will be sold in a constant mix

C fixed costs per unit will remain constant over the relevant range.the same number of

products will be sold each period

D the company will sell equal amounts of each product each period

140 Tonto Rain Shields sells 3 types of umbrellas Umbrella A sells for $20 and has variable cost of

$9.00 per unit Umbrella B sells for $17.00 and has variable cost of $12.00 per unit Umbrella C sells for $9.00 and has variable costs of $6.00 per unit The company sells in a mix of 2 units of

A, 3 units of B, and 5 units of C What is the weighted average contribution margin per unit for Tonto?