Chapter 5 accounting quiz

Werth Company produces tie racks. Its estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 racks at a price of $20 per unit. How many units will be sold at breakeven? Select one: a. 48,000. b. 3,600. c. 14,400. d. 20,571.

A 48,000. Correct! The breakeven point in units is determined as follows:20X − 14X − 288,000 = 0 X= 48,000 units

Which of the following is likely to contain a linear relationship between costs and activities? Select one: a. Full capacity. b. Relevant range. c. Small-scale operations. d. The entire range of possible activity.

Relevant range. Outside of the relevant range, costs do not always behave in a linear fashion.

Deighan Company had the following amounts from its income statement: Sales revenue (800) $80,000 Cost of goods sold - fixed $20,000 Cost of goods sold - variable $18, 500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin? Select one: a. $48,000. b. $61,500. c. $16,000. d. $41,500.

a. $48,000. Correct! Sales less variable costs equals contribution margin:$80,000 − $18,500 − $6,000 − $7,500 = $48,000

Smith Company produces desk lamps. The information for June indicated that the selling price was $25 per unit, variable costs were $15 per unit, fixed costs totaled $6,000, and the margin of safety in dollars was $12,500. Smith currently sells 1,100 lamps and earns $5,000 of profit. How much is Smith's margin of safety ratio? Select one: a. 45.5%. b. 2.2%. c. 2.5%. d. 40.0%.

a. 45.5%. Correct! The margin of safety ratio = margin of safety in dollars divided by actual sales = $12,500/($25*1,100) = 45.5%

What is contribution margin? Select one: a. The amount available to cover fixed costs and contribute to profits. b. The amount available to cover fixed and variable costs and contribute to profits. c. The percent of selling price pertaining to the cost of goods sold. d. The amount of revenue remaining after deducting fixed costs.

a. The amount available to cover fixed costs and contribute to profits.

The margin of safety is computed as Select one: a. actual sales - break-even sales. b. contribution margin - fixed costs. c. break-even sales - variable costs. d. actual sales - contribution margin.

a. actual sales - break-even sales. Correct! Margin of safety is computed as actual sales - break-even sales.

Mixed costs consist of a Select one: a. variable cost element and a fixed cost element b. fixed cost element and a controllable cost element. c. relevant cost element and a controllable cost element. d. variable cost element and a relevant cost element.

a. variable cost element and a fixed cost element. Correct! Mixed costs consist of a variable cost element and a fixed cost element.

Which one of the following is not an assumption of cost-volume-profit analysis? Select one: a. All costs can be classified as either variable or fixed. b. Changes in activity and sales mix are the only factors that affect costs. c. All units produced are sold. d. The behavior of costs is linear throughout the relevant range.

b. Changes in activity and sales mix are the only factors that affect costs. Correct! This statement is not an assumption. Changes in activity are the only factors that affect costs. Sales mix must stay the same.

Which statement describes a fixed cost? Select one: a. It varies in total at every level of activity. b. When activity declines, its cost per unit increases. c. The unit cost varies directly to the activity level. d. The unit costs stay the same at every activity level.

b. When activity declines, its cost per unit increases. Correct! Fixed costs remain the same in total, but as activity declines, the costs per unit increases.

The margin of safety ratio is computed by dividing Select one: a. actual sales by break-even sales. b. margin of safety in dollars by actual sales. c. margin of safety in dollars by break-even sales. d. break-even sales by margin of safety in dollars.

b. margin of safety in dollars by actual sales.

Costs that change in total but not proportionately with changes in the activity level are Select one: a. fixed costs. b. mixed costs. c. semifixed costs. d. variable costs.

b. mixed costs. Correct! Mixed costs change in total but not proportionately with changes in the activity level ("Mixed Costs").

Panera Bread sells a box of bagels for $6 with a contribution margin of 62.5%. Its fixed costs are $150,000 per year. How many sales in dollars does Panera Bread need to break-even per year if bagels are its only product? Select one: a. $93,750. b. $333,750. c. $240,000. d. $937,500.

c. $240,000. Correct! Breakeven sales is calculated by dividing fixed costs by the contribution margin ratio ($150,000/62.5% = $240,000).

On a CVP income statement Select one: a. Sales - Cost of goods sold = Contribution margin. b. Sales - Variable costs - Fixed costs = Contribution margin. c. Sales - Variable costs = Contribution margin. d. Sales - Fixed costs = Contribution margin.

c. Sales - Variable costs = Contribution margin. Correct! On a CVP income statement, Sales - Variable costs = Contribution margin.

At the break-even point Select one: a. sales equal total variable costs. b. contribution margin equals total variable costs. c. contribution margin equals total fixed costs. d. sales equal total fixed costs.

c. contribution margin equals total fixed costs. Correct! Contribution margin equals total fixed costs at the break-even point ("Contribution Margin Technique").

The break-even point in dollars is computed by dividing Select one: a. fixed costs by contribution margin per unit. b. variable costs by contribution margin per unit. c. fixed costs by contribution margin ratio. d. variable costs by contribution margin ratio.

c. fixed costs by contribution margin ratio.

Required sales in dollars to meet a target net income is computed by dividing Select one: a. fixed costs plus target net income by contribution margin per unit. b. variable costs plus target net income by contribution margin per unit. c. fixed costs plus target net income by contribution margin ratio. d. total costs plus target net income by contribution margin ratio.

c. fixed costs plus target net income by contribution margin ratio.

Bergman Company has total fixed costs of $350,000 and a contribution margin ratio of 20%. Bergman's target net income is $250,000. Sales in dollars to meet the target net income would be Select one: a. $600,000. b. $1,750,000. c. $1,250,000. d. $3,000,000.

d. $3,000,000. Correct! Sales in dollars to meet the $250,000 target net income would be $3,000,000 = ($350,000 + $250,000) / .20 ("Target Net Income").

Palms, Inc. wants to sell enough palm trees to earn a profit of $20,000. If the unit sales price is $40, unit variable cost is $22, and total fixed costs are $120,400, how many trees must be sold to earn a profit of $20,000? Select one: a. 8,911. b. 312,000. c. 6,689. d. 7,800.

d. 7,800. Correct! Palms, Inc. must sell 7,800 trees to earn a profit of $20,000.Required unit sales = fixed costs + target profit / unit contribution margin [($120,400 + $20,000) /($40 - 22) = 7,800 units]

Variable costs are costs that Select one: a. vary in total directly and proportionately with changes in the activity level. b. remain the same per unit at every activity level. c. include direct materials and direct labor for a manufacturer. d. All of these answer choices are correct.

d. All of these answer choices are correct. Correct! Variable costs vary in total directly and proportionately with changes in the activity level, remain the same per unit at every activity level, and include direct materials and direct labor for a manufacturer.

The break-even point can be Select one: a. computed from a mathematical equation. b. computed by using contribution margin. c. derived from a cost-volume-profit graph. d. All of these answers choices are correct.

d. All of these answer choices are correct. Correct! All of the options can be used to compute the break-even point ("Break-Even Analysis").

Why is the determination of a relevant range important? Select one: a. Costs that occur outside this range are assumed to be linear. b. Most companies operate at 100% of capacity. c. Costs outside this range cause losses to companies. d. Cost behavior outside the relevant range may be distorted.

d. Cost behavior outside the relevant range may be distorted. Correct! At this level costs may not behave the same as they do within the relevant range.

What type of cost remains the same per unit at every level of activity? Select one: a. Fixed cost. b. Mixed cost. c. Semivariable cost. d. Variable cost.

d. Variable cost. Correct! A variable cost remains the same per unit at every level of activity.