Questions -
Q1. If the activity level increases 10%, total variable costs will
a. remain the same.
b. increase by more than 10%.
c. decrease by less than 10%.
d. increase 10%.
Q2. A decrease in the level of activity will have the following effects on the costs per unit:
Unit Variable Cost Unit Fixed Cost
a. Increases Decreases
b. Remains constant Increases
c. Decreases Remains constant
d. Remains constant Decreases
Q3. A mixed cost contains
a. a variable element and a fixed element.
b. both selling and administrative costs.
c. both retailing and manufacturing costs.
d. both operating and non-operating costs.
Q4. Two costs at Watson, Inc. appear below for specific months of operation.
Month Amount Units Produced
Delivery costs January $ 60,000 40,000
February 90,000 60,000
Utilities January $ 84,000 40,000
February 120,000 60,000
Which type of costs are these?
a. Delivery costs and utilities are both variable.
b. Delivery costs and utilities are both mixed.
c. Utilities are mixed and delivery costs are variable.
d. Delivery costs are mixed and utilities are variable.
Q5. For analysis purposes, the high-low method usually produces a(n)
a. reasonable estimate.
b. precise estimate.
c. overstated estimate.
d. understated estimate.
Q6. The following information is for Dasher Airlines:
Month Miles Total Cost
January 80,000 $ 96,000
February 50,000 80,000
March 70,000 94,000
April 90,000 144,000
In applying the high-low method, what is the unit variable cost?
a. $1.44
b. $1.25
c. $1.60
d. Cannot be determined from the information given.
Q7. Fred's used high-low data from June and July to determine its variable cost of $15 per unit. Additional information follows:
Month Units produced Total costs
June 2,000 $40,000
July 1,000 25,000
If Fred's produces 2,300 units in August, how much is its total cost expected to be?
a. $10,000
b. $49,500
c. $34,500
d. $44,500
Q8. Which one of the following is not an assumption of CVP analysis?
a. All units produced are sold.
b. All costs are variable costs.
c. Sales mix remains constant.
d. The behavior of costs and revenues are linear within the relevant range.
Q9. Snerd Inc. has sales of $500,000 and variable costs of $350,000. What is the contribution margin ratio?
a. 43%.
b. 30%.
c. 70%.
d. Cannot be determined because amounts are not expressed per unit.
Q10. The contribution margin ratio decreases when
a. fixed costs increase.
b. fixed costs decrease.
c. variable costs as a percentage of sales decrease.
d. variable costs as a percentage of sales increase.
Q11. Dudley sold 100,000 units during 2012 with the following costs:
Sales $2,000,000
Variable costs:
Materials $380,000
Order processing 150,000
Billing labor 110,000
Selling expenses 60,000
Total variable costs 700,000
Fixed costs 1,000,000
How much is the contribution margin per unit?
a. $2.00.
b. $7.00.
c. $17.00.
d. $13.00..
Q12. Which of the following statements is true?
a. In a CVP income statement, costs and expenses are classified only by function.
b. The CVP income statement is prepared for both internal and external use.
c. The CVP income statement shows gross profit.
d. In the CVP income statement costs and expenses are classified as variable or fixed.
Q13. Clyde sells a product with a unit sales price of $5, unit variable cost of $3 and total fixed costs of $120,000. The number of units the company must sell to break even is
a. 60,000 units.
b. 24,000 units.
c. 240,000 units.
d. 40,000 units.
Q14. Wink has fixed costs of $10,000 per year. Variable costs are 80% of the unit selling price. How much in dollar sales does Wink need to break even per year?
a. $8,000.
b. $2,000.
c. $12,500.
d. $50,000.
Q15. Variable costs for Sam, Inc. are 25% of sales. Its selling price is $80 per unit. If Sam sells one unit more than break-even units, how much will profit increase?
a. $60.00.
b. $20.00.
c. $26.66.
d. $320.00.
Q16. Smudge has a target profit of $40,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $80,000, how many units must Smudge sell to reach its income goal?
a. 60,000 units.
b. 40,000 units.
c. 15,000 units.
d. 600,000 units.
Q17. Roscoe produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $70,000; Actual sales for the month of October 4,000 units. How much is the margin of safety in dollars for the company for October?
a. $42,000.
b. $63,000.
c. $37,800.
d. $1,500.
Q18. In evaluating the margin of safety, the
a. break-even point is not relevant.
b. higher the margin of safety ratio, the greater the margin of safety.
c. higher the dollar amount, the lower the margin of safety.
d. higher the margin of safety ratio, the lower the fixed costs.
Q19. Elon sells its product for $20 each. Each units has variable costs of $6. During November, 1,000 units were sold and fixed costs for the month were $4.20 per unit or $4,200 total for the month. Elon is considering using cheaper materials which would reduce variable costs by 10%. If the new material is used, what happens to the break-even in units per month?
a. It is 10% higher than the original break-even point.
b. It decreases about 12 units.
c. It decreases about 30 units.
d. It depends on the number of units the company expects to produce and sell.
Q20. Marge produces two types of briefcases: During an average month, the Salesperson model has sales of 500 units, a sales price of $80 and variable costs per unit of $40; the Executive model has sales of 350 units, a sales price of $100 and variable costs per unit of $50. Total fixed costs are $24,000 per year. Which of the following is true?
a. The Executive model is more profitable for Marge.
b. The Salesperson model is more profitable for Marge.
c. Both models are equally profitable.
d. More information is needed to determine which model is more profitable.