Chapter 5

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

increase

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

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

The margin of safety is

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

CVP

Cost-Volume-Profit

A___ cost remains unchanged when the volume of activity changes within the relevant range

fixed

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

step-wise

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

$12,000 2,000x6=12,000 12,000/2,000=6

Cost-volume-profit analysis helps managers predict how changes in___and___levels affect income.

sales and costs

The break-even point can be expressed as sales in___ or ____

units, dollars

A___ cost changes in proportion to changes in volume of activity

variable

Managers make assumptions in CVP analysis. These assumptions include

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

Sales mix is the proportion of _____ for various products.

sales volume

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

scatter diagrams high-low method regression

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 $___

$25 12,000/480=25 12,500/500=25

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

low-high method

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

profit

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

proportion

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.

mixed

The high-low formula to compute total costs is: Variable costs + (Fixed cost per unit x Units) Fixed costs + (Variable cost per unit / Units) Fixed costs + (Variable cost per unit x Units)

Fixed costs + (Variable cost per unit x Units)

Match the definitions: Fixed Mixed Variable Direct materials Depreciation Water and electricity

Fixed - water and electricity Variable - direct materials Mixed - depreciation

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

decrease

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

fixed, profits

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:

$0.05 and $0.04 12,500/250,000=0.05 12,500/300,000=0.04

A company that sells multiple types of products has a selling price per unit of $150, variable cost per unit of $50 and total fixed costs of $25,000. The weighted-average contribution margin per unit is $___

$100 150-50=100

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 $___

$125,000 30,000+20,000=50,000 10-6=4 4/10=.40 50,000/.4=125,000

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

volume

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 $___

$314,750 200,500x1.50+14,000= 314,750

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 $___

$17,500 25x4,300=107,500 125,000-107,500=17,500

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 $___

$15 110,000-87,500=22,500 4,000-2,500=1,500 22,500/1,500=15

A company sells two models of a product—basic and premium. Break-even in units is 1,000. 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 contribution margin for the basic model is $___

$18,750

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

$2,000 800x16=12,800 800x12=9,600 12,800-9,600=2,000

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

$25,000 expected - sales= in dollars

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 $___

$26,000 selling-variable=CM CM/selling=CMR fixed+target=? ?/CMR=sales level

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

$28,000 2,500x36=90,000 90,000-62,000=28,000

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.

$3.00 6,000/2,000=3

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 $___

$46,875 125,000-45,000=80,000 30,000/80,000=.375 .375x125,000=46,875

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 $____

125,000-55,000=70,000 4,300-1,500=2,800 70,000/2,800=25

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:

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

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

5,000 selling-variable=CM fixed/CM=break-even point

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___

5,200 5.00-2.50=2.50 3,000+10,000=13,000 13,000/2.50=5,200

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___

545 or 546

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

60% expected sales - break-even sales=? ?/expected sales

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?

7,500 selling-variable=CM fixed/CM=break-even point

Fixed costs

Reason: Fixed costs in total will not change with volume increases but fixed cost per unit will decrease as volume increases

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

contribution margin ratio.

The contribution margin ratio is interpreted as the percent of:

each sales dollar that remains after deducting unit variable cost

A___ cost includes both fixed and variable components.

mixed

CVP analysis relies on all of the following assumptions except:

mixed costs can be used

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

step-wise cost

On a CVP chart, on either side of the break-even point, the vertical distance between the total sales line and the total cost line represents:

total loss to the left of the intersection, total profit to the right of the intersection

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

the variable cost per unit

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 10-6=4 selling price per unit - variable cost

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

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

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 5,000 basic models and 10,000 premium models, then the weighted-average contribution margin per unit is $___

$41.75

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 $___

$50,000 15(variable cost per unit)x4,000=60,000 110,000-60,000=50,000

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 $___

$75,000 selling-variable=CM fixed/CM=break-even in sales

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___%

40% 6-10=4 selling-variable=CM 4/10=.40 -> 40% CM/selling=ratio

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:

4:1 10,000/2,500

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

64% 125,000-45,000=80,000 80,000/125,000=.64

Match the definitions: Fixed Mixed Variable Direct materials Sales rep pay which includes salary plus commission Office salaries

Fixed - Offices salaries Mixed - Sales rep pay which includes salary plus commission Variable - Direct materials

Variable costs

The variable cost per unit does not change when volume changes. Reason: Variable costs per unit will remain the same. Variable costs in total will increase with volume increases.

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

contribution margin per unit

On a CVP chart, the line which starts at the level of fixed costs and slopes upwards represents the ______ cost line.

total

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

variable cost per unit