Ch.21 Cost Behavior Analysis

If a business sells four products, it is not possible to estimate the break-even point.

False

In an absorption costing income statement, the manufacturing margin is the excess of sales over the variable cost of goods sold.

False

The reliability of cost-volume-profit analysis does NOT depend on the assumption that costs can be accurately divided into fixed and variable components.

False

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost

True

Even if a business sells six products, it is possible to estimate the break-even point

True

For purposes of analysis, mixed costs can generally be separated into their variable and fixed components

True

Garmo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%.

True

If direct costs per unit increases, the break even point will increase

True

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are $10,000

True

If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%.

True

The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced.

True

The fixed costs per unit varies with the changes in activity level

True

The point in operations at which revenues and expired costs are exactly equal is called break even point

True

The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed to contribution margin ratio

True

The relevant range is useful for analyzing cost behavior for management decision-making purposes

True

Variable costs are costs that remain constant on a per-unit basis as the level of activity changes

True

Variable costs are costs that vary in total in direct proportion to changes in the activity level

True

If fixed costs are $1,400,000, the unit selling price is $240, and the unit variable costs are $110, what is the sales required to realize an operating income of $200,000?

12,308 units

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: ProductUnit SellingPriceUnit VariableCostUnit ContributionMarginArks$120$80$40Bins 80 60 20 What was Carter Co.'s sales mix last year?

20% Arks, 80% Bins

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

25%

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: ProductUnit SellingPriceUnit VariableCostUnit ContributionMarginArks$120$80$40Bins 80 60 20 Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units?

40,000 units

Absorption costing is required for financial reporting under generally accepted accounting principles.

True

Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.

True

Companies with large amounts of fixed costs will generally have a high operating leverage.

True

Cost behavior refers to the manner in which a cost changes as the related activity changes

True

The relative distribution of sales among the various products sold by a business is termed the:

sales mix

The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed:

cost-volume-profit analysis

If fixed costs increased and variable costs per unit decreased, the break-even point would:

increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable costs.

Contribution margin is

the excess of sales revenue over vairable costs

If fixed costs are $200,000 and the unit contribution margin is $20, what amount of units must be sold to have zero profit?

10,000

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: ProductUnit SellingPriceUnit VariableCostUnit ContributionMarginArks$120$80$40Bins 80 60 20 What was Carter Co.'s weighted average variable cost?

$ 64

The Harold Corporation just started business in January of 2010. They had no beginning inventories. During 2010 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000.What would be the Harold Corporations Net income for 2010 using direct costing?

$110,000

If a business sells two products, it is not possible to estimate the break-even point.

False

The Harold Corporation just started business in January of 2010. They had no beginning inventories. During 2010 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000.What would be the Harold Corporations Net income for 2010 using absorption costing?

$114,000

The Harold Corporation just started business in January of 2010. They had no beginning inventories. During 2010 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000.What would be the difference in Harold Corporation's Net income for 2010 if they used direct costing instead of absorption costing?

$4,000 less

Variable costs as a percentage for sales of Lemon Inc. are 80% current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?

$8,000 increase

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: ProductUnit SellingPriceUnit VariableCostUnit ContributionMarginArks$120$80$40Bins 80 60 20 What was Carter Co.'s weighted average unit selling price?

$88

A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 70% of sales, and sales were $1,000,000. Operation profit is

$90,000

A rental cost of $20,000 plus $0.70 per machine hour of use is an example of a mixed cost.

True

Contribution Margin - X = Income from Operations

Fixed Costs

Variable costing is useful to managers for all but the following:

Reporting to the public in certified financial statements

A mixed cost has characteristics of both variable and a fixed costs.

True

Which of the following would cause the break-even point to decrease?

Unit variable costs decrease

Which of the following conditions would cause break-even pint to increase?

Unit variable costs increase

Sales - X = Manufacturing Margin

Variable Cost of Goods Sold

When units manufactured exceed units sold:

Variable Costing is less than absorption cost income

Manufacturing Margin - X = Contribution Margin

Variable Selling and Administrative Expenses

Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: ProductUnit SellingPriceUnit VariableCostUnit ContributionMarginArks$120$80$40Bins 80 60 20 What was Carter Co.'s weighted average unit contribution margin?

$24

Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?

$247,500 increase