Exam

Which one of the following statements is true when making decisions using CVP analysis? A. When the contribution margin is a positive number, operating income can be positive or negative. B. When the sales price per unit is greater than fixed cost per unit, operating income will be positive. C. When variable costs are more than fixed costs, operating income will be negative. D. When the contribution margin is less than fixed costs, the contribution margin ratio will be less than zero.

A. When the contribution margin is a positive number, operating income can be positive or negative. Sales less variable costs equals contribution margin. If the amount of fixed costs is greater than contribution margin, operating income will be negative. If fixed costs are less than contribution margin, the company will have a profit. Answer B does not consider the amount of variable costs which impacts operating income. Answer C does not consider sales revenue. Answer D is wrong because the CM ratio is based on sales and variable costs, not fixed costs.

Which one of the following would most likely be considered a mixed cost for a company that manufactures and sells plumbing fixtures in its retail stores? A) cost of lighting in retail stores. B) auto expenses of sales personnel C) cost of toilet flappers used to produce toilets D) cost of production supervisor's salary

B) auto expenses of sales personnel Auto expenses include fixed costs such as depreciation, and variable costs such as fuel.

Which of the following is an assumption of CVP analysis? A. Variable costs are always greater in total compared to fixed costs. B. Total variable costs vary in proportion with changes in activity levels. C. The sales mix varies in proportion with changes in activity levels. D. The fixed cost per unit is constant across all activity levels.

B. Total variable costs vary in proportion with changes in activity levels. The amount of variable and fixed costs differs amongst companies. The sales mix stays the same with changes in activity levels. Fixed cost per unit varies inversely to the change in activity.

Which of the following is true concerning the account analysis method? A) it is used to determine the break even point. B) it analyzes relationship between inputs and outputs in physical terms. C) it involves significant judgment in assigning a behavior to costs. D) it uses all data points and provides a high level of cause and effect relationship between costs and activities.

C) it involves significant judgment in assigning a behavior to costs. Management must examine each cost and to the best of their judgment, determine if the cost is variable or fixed. Account analysis is used to estimate costs ( ultimately the total cost equation.) it involves a single data point

Which statement describes a company's contribution margin ratio? A) the selling price less the full unit cost of the product sold B) the amount available to cover fixed costs and go towards profit C) the portion of every sales dollar available to cover fixed costs and go towards profits. D) the portion of every sales dollar available to cover operating costs and go towards profits. E) the total amount available to cover operating costs and to go toward profits

C) the portion of every sales dollar available to cover fixed costs and to go toward profits. A is gross profit per unit. B describes total contribution margin. D describes the gross margin ratio. E describes total gross margin

A mixed cost: A. can be fixed one period and then change to variable in a subsequent period. B. changes inversely to changes in volume. C. includes both a variable cost and a fixed cost component. D. is omitted from CVP analysis since it does not fit either fixed or variable categories

C. includes both a variable cost and a fixed cost component. Companies use regression, account analysis, scatter graphs, and the high low method to break out the fixed and variable components of mixed costs.

A variable costing statement A. reports gross margin, while a full costing statement reports contribution margin. B. omits period costs, while a full costing statement reports all costs. C. reports costs by behavior, while a full costing statement reports costs based on function. D. classifies all variable costs as product, while a full costing statement separates period and product costs.

C. reports costs by behavior, while a full costing statement reports costs based on function. Variable costing income statements report contribution margin and separates costs based on behavior. The variable cost sections include both product and period, while the fixed costs section contains both product and period costs. Period costs are reported on both statement formats, though not in the same location.

PK Sales sells buckets with a contribution margin rate of 46% and a unit contribution margin of $5 per unit. Which statement is true? A. Each bucket sold generates 46 cents to go towards covering fixed costs and towards profit. B. Each dollar of sales revenue generates $5 to go towards covering fixed costs and towards profit. C. Each bucket sold generates $5 to cover operating expenses and contribute toward profit. D. Each bucket sold generates $5 to cover fixed costs and go towards profit. E. Each dollar of sales revenue generates 46 cents to go towards covering operating costs and towards profit.

D. Each bucket sold generates $5 to cover fixed costs and go towards profit. Contribution margin is the amount available to cover any remaining costs...fixed costs, and the balance will become profit. Answer B describes the CM ratio. Answer C describes the GM per unit. Answer E describes the gross margin ratio.

Which of the following correctly describes fixed and variable cost behavior as total volume increases? A. Unit fixed costs stay the same and unit variable costs increase. B. Total fixed costs stays the same and unit variable costs increase. C. Unit fixed costs decrease and total variable costs decrease. D. Unit fixed costs decrease and total variable costs increase.

D. Unit fixed costs decrease and total variable costs increase. Unit fixed costs decrease as volume increases. Unit variable cost remain the same. Total variable costs increase when volume increases. Total fixed costs stay the same

Which of the following are valid reasons to confirm variable cost behavior? 1. The cost per unit differs at all activity levels. 2. The cost per unit remains the same when activity levels change. 3. The total cost differs at all activity levels. A) 1&2 B) 2&3 C) 1&3 D) only 1 E) only 2

E) only 2 When he unit cost is the same at all activity levels, a cost is deemed to be variable. This is the only valid reason. The total cost can differ under both variable and mixed costs.

Which of the following will increase the breakeven point in units? I. The selling price per unit increases. II. The sales volume decreases. III. The variable cost per unit increases. A. I, II, and III B. I and II C. II and III D. I and III E. III only

E. III only The components of calculating the BEP point are the variable cost per unit, the selling price per unit, and the total fixed costs. Sales volume is not one of the independent variables. When the selling price increases, the number of units to be sold will be less to obtain breakeven. An increase in the variable cost per unit causes more units to be sold to breakeven.

Ace Bakers produces two products—cakes and pies. A customer wants to buy $300 of desserts for an office party. What amount should Ace calculate in order to determine which product to 'push' to this customer in order to maximize profit? A. The contribution margin per unit B. The profit margin per unit C. The gross margin per unit D. The gross margin ratio E. The contribution margin ratio

E. The contribution margin ratio The goal is to maximize the profit out of the $300 of revenue, the contribution margin ratio. Gross profit amounts change as activity/volume changes.