Chapter 18

Assuming all other factors remain constant, if fixed costs increase, then the break-even point will: Multiple choice question. increase decrease

increase

A ______ cost includes both fixed and variable components.

mixed

A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are: Multiple choice question. $10,000 $20,000 $50,000 $40,000

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

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 $.

.60

A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $

26000

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 $.

60000

Match each example below to the correct cost type. Fixed Mixed Variable

Fixed Office salaries Mixed Sales rep pay which includes salary plus commission Variable direct materials

Scatter diagrams High-low method Based on visual fit and subject to interpretation Uses only two sets of values

Scatter diagrams matches Based on visual fit and subject to interpretation High-low method matches Uses only two sets of values

Cost-volume-profit analysis helps managers predict how changes in _____and ______ levels affect income.

cost, sales

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

false

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

fixed

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a target income of $20,000. The sales level in dollars to achieve the desired target income is $.

125000

RST Company produces a product that has a selling price of $10 per unit and variable cost of $6 per unit. The company's fixed costs are $30,000. If the company sells 15,000 units, the degree of operating leverage i

2

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

2000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $.

4

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

Income

The break-even point is the sales level at which a company: (Check all that apply.) Multiple select question. contribution margin equals variable costs. contribution margin equals fixed costs. incurs a loss. has a profit equal to fixed costs. has income of $0.

contribution margin equals fixed costs. has income of $0.

A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will: Multiple choice question. increase by 25% increase by 10% decrease by 25% decrease by 10%

increase by 25%

A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculators is: Multiple choice question. scatter diagrams the high-low method least-squares regression

least-squares regression

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

proportion

When using the high-low method, the slope represents: Multiple choice question. the fixed cost per unit total fixed costs total variable costs the variable cost per unit

the variable cost per unit

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

units or dollars

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

variable

In _______ costing, only costs that change in total with changes in production levels are included in product costs.

variable

When preparing a scatter diagram, the estimated line of cost behavior is drawn on a scatter diagram to show the relation between: Multiple choice question. variable and fixed costs lowest and highest point of activity fixed cost and unit volume cost and unit volume

Cost and Unit Volume

Each of the following are methods used to separate mixed costs into their fixed and variable components except: Multiple choice question. high-low method low-high method regression scatter diagram

low-high method

A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs and expects to sell 2,500 units their income would be $.

28000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $.

75000

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. Multiple choice question. variable step-wise fixed mixed

Mixed

Which of the following is the correct statement about variable costs? Multiple choice question. The variable cost per unit does not change when volume changes. The variable cost per unit will increase when volume increases. Reason: Variable costs per unit will remain the same. Variable costs in total will increase with volume increases. The variable cost per unit will decrease when volume increases. Reason: Variable costs per unit will remain the same. Variable costs in total will increase with volume increases.

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

The high-low method uses ___ points to estimate the cost equation. Multiple choice question. four two three

Two

A measure to assess the effect of changes in the level of sales on income is the : Multiple choice question. degree of operating leverage safety margin break-even contribution margin

degree of operating leverage

The margin of safety is: (Check all that apply.) Multiple select question. always expressed as a dollar amount (not in units or percentages). adequate if greater than 15% to 20%. the difference between expected sales and break-even sales divided by expected sales. the amount sales can drop before the company incurs a loss.

the difference between expected sales and break-even sales divided by expected sales. the amount sales can drop before the company incurs a loss.

Match: Fixed Variable Mixed

Answer: Depreciation Direct Materials Water and electricity

Which of the following is the correct statement about fixed costs? Multiple choice question. The fixed cost per unit will decrease when volume decreases. The fixed cost per unit will increase when volume increases. The fixed cost per unit does not change when volume changes. The fixed cost per unit will decrease when volume increases.

The fixed cost per unit will decrease when volume increases.

Under a _____ costing income statement, only variable costs related to production are included in product costs. Multiple choice question. absorption variable fixed

Variable

Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.) Multiple select question. constant unit sales. some units produced are not sold. constant fixed cost per unit. constant total variable costs. costs are linear within the relevant range. costs can be classified as variable or fixed.

costs are linear within the relevant range. costs can be classified as variable or fixed.

Assuming all other factors remain constant, if sales price per unit increases, then the break-even point will: Multiple choice question. decrease increase

decrease

Assuming all other factors remain constant, if sales price per unit increases, then the break-even point will: Multiple choice question. increase decrease

decrease

CVP analysis relies on all of the following assumptions except: Multiple choice question. mixed costs can be used inventory levels do not change sales mix is constant costs must be linear within the relevant range

mixed costs can be used

A statistical method for identifying cost behavior is called ______.

regression

The three methods used to classify costs into their fixed and variable components includes Multiple select question. regression high-low method variable-fixed method most-squares regression scatter diagrams

regression high-low method scatter diagrams