Chapter 5 Quiz

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $35,000. How much is the selling price per unit? Entry field with correct answer $17.50 $10.00 $27.50 $45.00

$45.00 to get the selling price per unit you take the variable cost + fixed cost/ break-even point (55000+ 35000)/2000=45

Both variable and fixed costs are included in calculating the contribution margin. Entry field with correct answer True False

F

In applying the high-low method, which months are relevant? Month Miles Total Cost January 80,000 $192,000 February 50,000 160,000 March 70,000 188,000 April 90,000 260,000 January and April February and March January and February February and April

February and April Because when you do the high low method you need to get the highest and lowest numbers for the miles and total cost and the months that would be used for this data set are February and april.

Oakbrook, Inc. reported actual sales of $2,000,000, and fixed costs of $350,000. The contribution margin ratio is 25%. Compute the margin of safety in dollars and the margin of safety ratio.

Margin of safety in dollar 600000 you would take the formula actual ( expected ) sales- breakeven sales the actual sales is 2,000,000 now lets compute the break even sales which you would do in dollars now in units so fixed costs/contribution margin (350,000/ .25)=1,400,000 then go back the the margin of safety in dollars= 2,000,000-1,400,000=600,000 Margin of safety ratio 30% for the margin of safety ratio the formula is= margin of safety in dollars/ actual (expected) sales= 600,000/ 2,000,000=30%

Which of the following would not be an acceptable way to express contribution margin? Entry field with correct answer Sales minus variable costs Unit selling price minus unit variable costs Unit contribution margin divided by unit selling price Sales minus unit costs

Sales minus unit costs

A cost-volume-profit graph shows the amount of net income or loss at each level of sales. Entry field with correct answer True False

T

For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements. Entry field with correct answer True False

T

The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars. Entry field with correct answer True False

T

When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element. Entry field with correct answer True False

T

Which of the following is not true about the graph of a mixed cost? It is possible to determine the amount of the fixed cost from the graph. The fixed cost portion of the graph is the same amount at all levels of activity. There is a total cost line on the graph. The variable cost portion of the graph is rectangular in shape.

The variable cost portion of the graph is rectangular in shape.

If Qualls Quality Airline cuts its domestic fares by 30%, Entry field with correct answer a profit can only be earned by decreasing the number of flights. its fixed costs will decrease. profit will increase by 30%. a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

look at picture and fill in the blanks

a.135 b. 455 c. 450 d. 25% e. 1100 f. 660 finish at home

The CVP income statement Entry field with correct answer will reflect a different net income than the traditional income statement. is distributed internally and externally. discloses contribution margin in the body of the statement. classifies costs by functions.

discloses contribution margin in the body of the statement.

In using the high-low method, the fixed cost Entry field with correct answer is determined before the total variable cost. is determined by subtracting the total cost at the high level of activity from the total cost at the low activity level. is determined by adding the total variable cost to the total cost at the low activity level. may be determined by subtracting the total variable cost from either the total cost at the low or high activity level.

may be determined by subtracting the total variable cost from either the total cost at the low or high activity level.

The break-even point cannot be determined by Entry field with correct answer deriving it from a CVP graph. computing it from a mathematical equation. computing it using contribution margin. reading the prior year's financial statements.

reading the prior year's financial statements.

Within the relevant range, the variable cost per unit Entry field with correct answer increases as production increases. decreases as production increases. differs at each activity level. remains constant at each activity level.

remains constant at each activity level.

A fixed cost is a cost which Entry field with correct answer remains constant per unit with changes in the level of activity. varies inversely in total with changes in the level of activity. remains constant in total with changes in the level of activity. varies in total with changes in the level of activity.

remains constant in total with changes in the level of activity.

If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net income will be $10,000. Entry field with correct answer True False

t

Target net income is the income objective for an individual product line. Entry field with correct answer True False

t

The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales. Entry field with correct answer True False

t

A CVP graph does not include a Entry field with correct answer variable cost line. fixed cost line. sales line. total cost line.

variable cost line.

Dollywood Corporation accumulates the following data concerning a mixed cost, using miles as the activity level. Miles Driven Total Cost January 10,000 $16,500 February 8,000 $14,500 March 9,000 $12,500 April 7,000 $12,000 Compute the variable and fixed cost elements using the high-low method. (Round variable cost answer to 2 decimal places, e.g. 52.75.)

Variable Cost =$1.5 per mile Fixed Cost= $1500 You would use the high-low method to figure out that the variable cost per unit= change in total cost/ high minus low activity level: ((16500-12000)/(10000-70)00= 4500/3000=1. 5 then you need to figure out the fixed cost= high fixed cost - (variable cost per unit)(high activity level) 16500-(1.5)(10000)=1500

T or F: A fixed cost remains constant in total and on a per unit basis at various levels of activity.

F

The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price. Entry field with correct answer True False

F

At the break-even point of 2,000 units, variable costs are $165,000, and fixed costs are $96,000. How much is the selling price per unit? Entry field with correct answer $34.50 $130.50 Not enough information $48.00

$130.50 to get the selling price per unit you take the variable cost + fixed cost/ break-even point (165000+96000)/2000=130.50

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. What sales are needed by Cunningham to break even? Entry field with correct answer $300,000. $480,000. $160,000. $360,000.

$360,000. You would figure out the unit contribution margin which is unit selling price-unit variable costs (60-40)=20 then you would figure out the contribution margin ratio which is the unit contribution margin/ unit selling price (20/60)=.333333 then you would figure out the break even in dollars amount because the answers are in dollars and that formula is fixed costs/contribution margin ratio (120000/.33333)= 360,0000

Which of the following costs are variable? Cost 10,000 Units 30,000 Units 1. $100,000 $300,000 2. 40,000 240,000 3. 90,000 90,000 4. 50,000 150,000 Entry field with correct answer 1 and 4 only 1 only 2 1 and 2

1 and 4 Variable costs are costs that stay the same per unit at every level of activity. So, you can have a pen that is 1 dollar per pen so if you buy 10 pens then it is 10 dollars. So, when you look at this problem you have to see which costs would give you the same number 10000/100000= .1 30000/300000=.1 so that is variable 10000/40000=.25 and 30000/2400000=.125 not the same number not variable. 90000=90000when the two numbers = each other then they are fixed. 10000/50000=.2 30000/150000=.2 they are the same so 1 and 4 are variable.

Hurly Co. has fixed costs totaling $165,000. Its unit contribution margin is $1.50, and the selling price is $5.50 per unit. Compute the break-even point in units.

110,000 to get the break-even point in units you would take the fixed costs/ unit contribution margin (165,000/1.50)=110,000

A company desires to sell a sufficient quantity of products to earn a profit of $400,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $800,000, how many units must be sold to earn net income of $400,000? Entry field with correct answer 150,000 units 120,000 units 225,000 units 90,000 units

150,000 units you would figure out the required sales in units which is (fixed costs + Target net income) / unit contribution margin. ( 800,000 + 400,000)/ contrubtion margin c.m= unit selling price - unit variable costs 20-12=8 (800,000+400,000)/ 8=150,000

April Industries sells a product with a contribution margin of $12 per unit, fixed costs of $223,200, and sales for the current year of $300,000. How much is April's break-even point? Entry field with correct answer $76,800 18,600 units 6,400 units 13,800 units

18,600 units The break even point in units is the fixed costs/ unit contribution margin : 223200/12=18600

Hayduke Corporation reported the following results from the sale of 5,000 units in May: sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000. Assume that Hayduke increases the selling price by 5% on June 1. How many units will have to be sold in June to maintain the same level of net income? 4,750. 5,000. 4,444. 4,600.

4,444 STEP 1: you would figure out the sales per unit to start with: 300,000/5,000=60 per unit Step 2: you would figure out the variable cost per unit: 180,000/5,000=36 per unit Step 3: Fixed cost=90,000 Step 4: now figure out what the per unit for sales is now that its gone up 5%: to do that you would take 1.05 (105%) x 60 (the original per unit for sales) = 63 Step 5: lets get the formal to figure out net income: sales-variable costs-fixed costs=net income Step 6: lets plug in our unknown which would be the x to the sales per unit and the variable cost per unit. 63x and 36x Step 7: What is the formula 63x-36x-90,000=30,000 once you simplify that you would get 4,444

Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $110, and the total monthly fixed costs are $300,000. How much is Weatherspoon's contribution margin ratio? Entry field with correct answer 55% 150% 182% 45%

45% you would find the unit contribution margin by taking the unit selling price (200) - unit variable price (110)= 90 then you would take the unit contribution margin (90)/ unit selling price (200) to get 45% :)

Greg's Golf Carts produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each. If sales of Model 26 increase by 100 units, how much will profit change? Entry field with correct answer $17,500 increase $5,000 increase $35,000 increase $22,500 increase

5,000 increase come back

At the high level of activity in November, 7,000 machine hours were run and power costs were $18,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $9,000. Using the high-low method, the estimated fixed cost element of power costs is $18,000. $12,600. $9,000. $5,400.

5,400. You would use the high-low method to figure out that the variable cost per unit= change in total cost/ high minus low activity level: ((18000-9000)/(7000-2000)= 9000/5000=1. 8 then you need to figure out the fixed cost= high fixed cost - (variable cost per unit)(high activity level) 18000-(1.8)(7000)=5400

The following monthly data are available for Fortner Industries which produces only one product which it sells for $18 each. Its unit variable costs are $8, and its total fixed expenses are $17,000. Actual sales for the month of May totaled 2,000 units. Compute the margin of safety in dollars for the company for May.

5400 formula= actual (expected) sales - breakeven sales break even in dollars formula= fixed costs/ contribution margin ratio contrubition margin ratio= unit contribution margin/ unit selling price unit contribution margin= unit selling price- unit variable costs step 1: unit contribution margin= 18-8=10 step 2: contribution margin ratio= 10/18=56% step 3: break even in dollars= 17,000/.56=30,600 step 4: margin of safety in dollars= actual (expected) sales - 30,600 to get actual sales units x selling price (2000 x 18)=36,000 36,000-30,600-5400

Cannon Co. has a unit selling price of $500, variable cost per unit $300, and fixed costs of $240,000. Compute the break-even point in units and in sales dollars.

Break even points in units: 1200 to figure out the break even points in units you would need to first figure out what the unit contribution margin which is the unit selling - unit variable costs (500-300=200). then you would take the fixed costs/unit contribution margin (240,000/200=1200) Break even points in sales dollars: 600,000 to figure out the break even points in sales dollars you would need to figure out the contribution margin ratio which is unit contribution margin/ unit selling price (200/500=.4) then you would take the fixed costs/contribution margin ratio (240,000/.4=600,000)

Sandel Company makes 2 products, footballs and baseballs. Additional information follows: Footballs Baseballs Units 4,000 2,500 Sales $60,000 $25,000 Variable costs 36,000 7,000 Fixed costs 9,000 9,000 Net income $15,000 $9,000 Profit per unit $3.75 $3.60 Compute the Contribution margin per unit. (Round answers to 2 decimal places, e.g. 15.25.)

Contribution margin per unit Footballs ([Sales]60,000- [variable costs]36,000/ [units]4,000)=$6 Baseballs ([Sales]25,000- [variable costs]7,000/ [units]2,500,)=$7.20

Contribution margin Entry field with correct answer is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. equals sales revenue minus variable costs. excludes variable selling costs from its calculation. is always the same as gross profit margin.

equals sales revenue minus variable costs.

In evaluating the margin of safety, the Entry field with correct answer higher the margin of safety ratio, the lower the fixed costs. higher the margin of safety ratio, the greater the margin of safety. break-even point is not relevant. higher the dollar amount, the lower the margin of safety.

higher the margin of safety ratio, the greater the margin of safety.

The amount by which actual or expected sales exceeds break-even sales is referred to as Entry field with correct answer contribution margin. unanticipated profit. margin of safety. target net income.

margin of safety.