Managerial accounting chapter 20

22) The high-low method is used to ________. A) determine the highest price that can be charged for a product B) separate mixed costs into their variable and fixed components C) identify the relevant and irrelevant costs of a business D) determine the sales level at highest capacity

B Diff: 2

64) When the total fixed costs decreases, the breakeven point ________. A) increases B) decreases C) remains the same D) increases proportionately

B Diff: 1

37) Which of the following is a period cost? A) manufacturing overhead B) direct labor cost C) direct materials cost D) administrative cost

D Diff: 1

10) Which of the following costs does not change in total despite changes in volume? A) fixed cost B) variable cost C) mixed cost D) total production cost

A Diff: 1

26) Winslow Inc., a tennis equipment manufacturer, has variable costs of $0.60 per unit of product. In August, the volume of production was 24,000 units and units sold were 20,000. The total production costs incurred were $31,900. What are the fixed costs per month? A) $17,500 B) $19,900 C) $9,600 D) $14,400

A Explanation: A) Total production costs incurred in Aug. $31,900.00 Variable cost per unit $0.60 Number of units produced in Aug. 24,000.00 Total variable costs incurred in Aug. ($24,000 × 0.60) $14,400.00 Total fixed costs($31,900 - $14,400) $17,500.00 Diff: 1

61) When the total fixed costs increases, the contribution margin per unit ________. A) increases B) decreases C) increases proportionately D) remains the same

D Diff: 1

76) Operating leverage predicts the effects fixed costs have on changes in operating income when ________. A) production is discontinued B) there are no sales returns C) variable costs change D) sales volume changes

D Diff: 1

78) A company's proportion of fixed costs to variable costs is called its ________. A) target profit B) relevant range C) mixed cost D) cost structure

D Diff: 1

LO: 20-1 AACSB: Concept AICPA Functional: Measurement 31) When the total variable costs are deducted from total mixed costs, we obtain ________. A) mixed cost per unit B) variable cost per unit C) total high-low costs D) total fixed costs

D Diff: 1

12) Which of the following costs changes in total in direct proportion to a change in volume? A) fixed cost B) variable cost C) mixed cost D) period cost

B Diff: 1

21) Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would ________. A) increase by 20% B) remain the same C) increase by an amount less than 20% D) decrease by 20%

B Diff: 1

38) A ________ groups cost by behavior; costs are classified as either variable costs or fixed costs. A) balance sheet B) contribution margin income statement C) traditional income statement D) absorption costing income statement

B Diff: 1

47) Which of the following formulae is the right formula for calculating contribution margin ratio? A) Contribution margin ratio = Contribution margin + Net sales revenue B) Contribution margin ratio = Contribution margin ÷ Net sales revenue C) Contribution margin ratio = Contribution margin × Net sales revenue D) Contribution margin ratio = Contribution margin - Net sales revenue

B Diff: 1

27) Which of the following costs remains the same irrespective of the changes in production? A) total mixed costs B) total operating costs C) total variable costs D) total fixed costs

D Diff: 1

67) Which of the following statements is true if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant? A) The breakeven point decreases. B) The contribution margin increases. C) The breakeven point remains the same. D) The breakeven point increases.

D Diff: 2

73) A company that sells multiple products will always set selling prices such that all products have the same contribution margin.

FALSE Diff: 1

75) The Purely Pizza Company sells pizzas in two different sizes—medium and large. The number of medium pizzas sold is twice the number of large pizzas sold. The contribution margin of a medium pizza is $10 and the contribution margin of a large pizza is $16. The weighted average contribution margin is $15.

FALSE Explanation: Contribution margin of medium pizza = $10 × 2 = $20 Contribution margin of large pizza = $16 × 1 = $16 Total contribution = $20 + $16 = $36 Weighted-average contribution margin per unit = ($20 + $16) ÷ 3 = $12 Diff: 1

48) Pluto Hand blenders Company sells a product for $80 per unit. Variable costs are $25 per unit and fixed costs are $4,000 per month. Pluto sold 2,000 units in October, 2014. Prepare an income statement for October using the contribution margin format.

Pluto Company Contribution Margin Income Statement Month ended October 31, 2014 Net sales revenue $160,000 Variable costs -50,000 Contribution margin 110,000 Fixed costs -4,000 Operating income $106,000 Diff: 1

60) Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. Jenna wishes to earn an operating income of $25,000. Using the contribution martin ratio, calculate the total revenue. (Round intermediate calculations to five decimal places.)

Required sales in dollars = (Fixed costs + Target profit) ÷ Contribution margin ratio Unit contribution margin = Net sales revenue per unit - Variable costs per unit Selling price $75.00 Less: variable cost -35.00 Contribution margin 40.00 Contribution margin ratio (A) 0.53333 Target profit + Fixed costs (B) 35,000 Required sales in dollars (B ÷ A) $65,625 Diff: 2

34) Arturo Company's Model A generator sells for $456 and Model B sells for $390. The variable cost of Model A is $404 and of Model B is $320. The company will generate lower revenues but a higher net income if it sells more of Model B than Model A. True or False

TRUE Explanation: Model A Model B Selling price $456 $390 Less: variable cost -404 -320 Contribution margin $ 52 $ 70 Diff: 2

74) The Purely Pizza Company sells pizzas in two different sizes—medium and large. The two products sell in equal numbers. The contribution margin of a medium pizza is $12 and the contribution margin of a large pizza is $18. The weighted average contribution margin is $15.

TRUE Explanation: Total contribution = $12 + $18 = $30 Weighted-average contribution margin per unit = $30 ÷ 2 = $15 Diff: 1

36) Contribution margin ratio is the ratio of contribution margin to ________. A) net sales revenue B) cost of goods sold C) total variable costs D) total fixed costs

A Diff: 1

5) Which of the following statements is true of the behavior of total fixed costs, within the relevant range? A) They will remain the same as production levels change. B) They will increase as production decreases. C) They will decrease as production decreases. D) They will decrease as production increases.

A Diff: 1

62) When the total fixed costs increases, the breakeven point ________. A) increases B) decreases C) decreases proportionately D) remains the same

A Diff: 1

65) When the selling price per unit decreases, the breakeven point ________ A) increases B) decreases C) remains the same D) decreases proportionately

A Diff: 1

77) The degree of operating leverage can be measured by ________. A) dividing the contribution margin by operating income B) dividing the fixed costs by the sales price per unit C) multiplying the contribution margin to sales revenue D) dividing the fixed costs by contribution margin

A Diff: 1

6) The fixed costs per unit will ________. A) increase as production decreases B) decrease as production decreases C) remain the same as production levels change D) increase as production increases

A Diff: 2

81) Divine Foods produces a gourmet condiment which sells for $16.00 per unit. Variable costs are $6 per unit, and fixed costs are $5,000 per month. If Divine expects to sell 1,500 units, compute the margin of safety in dollars. A) $16,000 B) $15,000 C) $10,000 D) $6,000

A Explanation: A) Sales price per unit $16 Less variable cost per unit -6 Contribution margin per unit $10 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Required sales in units = ($5,000 + 0) ÷ $10 = 500 units Margin of safety in units × Sales price per unit = Margin of safety in dollars (1,500 units - 500 units) × $16 per unit = $16,000 Diff: 2

82) Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen, and collectors. The cost data are as follows: Price per unit $720 Variable costs per unit 470 Fixed costs per month 8,000 If Antique expects to sell 40 units per month, what is his margin of safety expressed in units per month? A) 8 units B) 6 units C) 4 units D) 2 units

A Explanation: A) Sales price per unit $720 Less variable cost per unit -470 Contribution margin per unit $250 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Required sales in units = ($8,000 + 0) ÷ $250 = 32 units Expected sales - Breakeven sales = Margin of safety in units 40 units - 32 units = 8 units Diff: 2

44) The Perfect Fit Company sells hand sewn shirts at $40 per shirt. It incurs monthly fixed costs of $5,000. The contribution margin ratio is calculated to be 20%. What is the variable cost per shirt? A) $32 per shirt B) $48 per shirt C) $40 per shirt D) $38 per shirt

A Explanation: A) Contribution margin 20% Selling price per shirt $40 Contribution margin = $40 × 20% 8 Variable cost per shirt $32 Diff: 2

55) Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. If Jenna's managers create a CVP graph from volume levels of zero to 500 units, at what sales level (in units) will the revenue and total cost lines intersect? A) 250 units B) 190 units C) 240 units D) 275 units

A Explanation: A) Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Unit contribution margin = Net sales revenue per unit - Variable costs per unit Selling price $75 Less: variable cost -35 Contribution margin 40 Fixed costs 10,000 Required sales in units ($10,000 ÷ $40) $250 Diff: 2

43) Garcia's, a company that sells fishing nets provides the following information about its product: Targeted operating income $ 50,000 Selling price per unit 6.00 Variable cost per unit 1.50 Total fixed costs 125,000 What is the contribution margin ratio? A) 75% B) 100% C) 125% D) 25%

A Explanation: A) Unit contribution margin = Net sales revenue per unit - Variable costs per unit Net sales revenue per unit $6.00 Less: Variable costs per unit -1.50 Unit contribution margin 4.50 Contribution margin ratio = Contribution margin ÷ Net sales revenue Unit contribution margin $4.50 Divided by net sales revenue per unit 6.00 Contribution margin ratio 75% Diff: 2

41) Young Company has provided the following information: Price per unit $40 Variable cost per unit 12 Fixed costs per month $10,000 Calculate the contribution margin per unit. A) $28 B) $40 C) $52 D) $16

A Explanation: A) Unit contribution margin = Net sales revenue per unit - Variable costs per unit Selling price $40 Less: variable cost -12 Contribution margin $28 Diff: 1

19) The phone bill for a company consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. Minutes Total Bill January 460 $3,000 February 200 $2,675 March 160 $2,625 April 300 $2,800 What is the variable cost per minute? A) $1.25 B) $0.67 C) $1.08 D) $0.58

A Explanation: A) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) ÷ (Highest volume - Lowest volume) Change in total cost ($3,000 - $2,625) $375.00 Change in minutes (460 - 160) 300.00 Variable cost per minute ($375 ÷ 300) 1.25 Diff: 2

84) Mist Beverages Company sells two products, A and B. Mist predicts that it will sell 2,500 units of A and 1,500 units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively. What is the weighted-average unit contribution margin? A) $3.99 per product B) $5.18 per product C) $2.18 per product D) $3.11 per product

A Explanation: A) Weighted contribution = ($3.50 × 2,500 units) + ($4.80 × 1,500 units) = $8,750 + $7,200 = $15,950 Weighted-average contribution margin per unit = $15,950 ÷ 4,000 units = $3.99 per unit Diff: 2

80) Divine Foods produces a gourmet condiment which sells for $16 per unit. Variable costs are $6 per unit, and fixed costs are $5,000 per month. If Divine expects to sell 1,500 units, compute the margin of safety in units. A) 500 units B) 1,000 units C) 1,500 units D) 8,000 units

B Explanation: B) Sales price per unit $16 Less variable cost per unit -6 Contribution margin per unit $10 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Required sales in units = ($5,000 + 0) ÷ $10 = 500 units Expected sales - Breakeven sales = Margin of safety in units 1,500 units - 500 units = 1,000 units Diff: 2

45) Pluto Hand blenders Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per unit. Calculate the total contribution margin. A) $70,000 B) $30,000 C) $40,000 D) $20,000

B Explanation: B) Selling price per unit $35 Less variable cost per unit -20 Contribution margin per unit (A) $15 Number of units sold (B) 2,000 Total contribution margin (A × B) $30,000 Diff: 1

79) Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of safety in dollars? A) $4,500 B) $1,950 C) $3,870 D) $6,450

B Explanation: B) Margin of safety = (4,300 - 3,000) × $1.50 = $1,950 Diff: 2

LO: 20-3 AACSB: Application AICPA Functional: Measurement 58) Colin was a professional classical guitarist until a motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows: Rent and utilities $1,000 Wages and benefits to luthier 2,500 Other expenses 481 Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit. What is the amount of revenue Colin should earn each month to break even? A) $9,952 B) $6,635 C) $4,968 D) $5,833

B Explanation: B) Required sales in dollars = (Fixed costs + Target profit) ÷ Contribution margin ratio Contribution margin ratio = 60% Total fixed costs = $1,000 + $2,500 + $481 = $3,981 Required sales in dollars = ($3,981 + 0) ÷ 60% = $6,635 Diff: 2

53) Young Company has provided the following information: Price per unit $40 Variable cost per unit 12 Fixed costs per month $12,600 What is the amount of sales in dollars required for Young to break even? A) $1,050 B) $18,000 C) $5,400 D) $12,600

B Explanation: B) Required sales in dollars = (Fixed costs + Target profit) ÷ Contribution margin ratio Contribution margin ratio = Contribution margin ÷ Net sales revenue Selling price $40 Less: variable cost -12 Contribution margin $28 Contribution margin ratio = ($28 ÷ $40) × 100 = 70% Required sales in dollars = ($12,600 + 0) ÷ 70% = $18,000 Diff: 2

51) Maywood Company sells hand-knit scarves.. Each scarf sells for $25. The company pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. What total revenue amount does the company need to earn to break even? A) $85 B) $75 C) $50 D) $100

B Explanation: B) Required sales in dollars = (Fixed costs + Target profit) ÷ Contribution margin ratio Contribution margin ratio = Contribution margin ÷ Net sales revenue Unit contribution margin = $25 - $15 = $10 per scarf Contribution margin ratio = ($10 ÷ $25) × 100 = 40% Required sales in dollars = ($30 + 0) ÷ 40% = $75 Diff: 1

54) Roberts Tobacco Company has fixed costs of $10,000. Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%. What is the breakeven point in sales dollars? A) $50,000 B) $25,000 C) $4,000 D) $2,000

B Explanation: B) Required sales in dollars = (Fixed costs + Target profit) ÷ Contribution margin ratio Required sales in dollars = ($10,000 + 0) ÷ 40% = $25,000 Diff: 2

50) Maywood Company sells hand-knit scarves.. Each scarf sells for $25. The company pays $30 to rent vending space for one day. The variable costs are $15 per scarf. How many scarves should the company sell each day in order to break even? A) 4 scarves B) 3 scarves C) 5 scarves D) 2 scarves

B Explanation: B) Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Unit contribution margin = Net sales revenue per unit - Variable costs per unit Unit contribution margin = $25 - $15 = $10 per scarf Required sales in units = ($30 + 0) ÷ $10 = 3 scarves Diff: 1

1) Which of the following is a variable cost? A) property taxes B) salary of plant manager C) direct materials cost D) straight-line depreciation expense

C Diff: 1

11) Costs that have both variable and fixed components are called ________. A) fixed cost B) variable cost C) mixed cost D) contribution cost

C Diff: 1

3) Variable cost per unit, within the relevant range, will ________. A) increase as production decreases B) decrease as production decreases C) remain the same as production levels change D) decrease as production increases

C Diff: 1

32) Which of the following is the right formula for calculating total mixed cost? A) Total mixed cost = (Variable cost per unit ÷ Number of units) + Total fixed cost B) Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost D) Total mixed cost = (Variable cost per unit ÷ Number of units) - Total fixed cost

C Diff: 1

35) The dollar amount that provides for covering fixed costs and then provides for operating income is called ________. A) variable cost B) total cost C) contribution margin D) margin of safety

C Diff: 1

4) Which of the following statements is true of the behavior of total variable costs, within the relevant range? A) They will decrease as production increases. B) They will remain the same as production levels change. C) They will decrease as production decreases. D) They will increase as production decreases.

C Diff: 1

40) Which of the following appears as a line item in a contribution margin income statement? A) Gross profit B) Cost of goods sold C) Operating income D) Selling and administrative expenses

C Diff: 1

49) One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in the ________. A) accounts payable B) cash balance C) inventory levels D) accounts receivables

C Diff: 1

63) When the total fixed costs decreases, the contribution margin per unit ________. A) increases B) decreases C) remains the same D) decreases proportionately

C Diff: 1

23) Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total costs would ________. A) increase by 20% B) remain the same C) increase by an amount less than 20% D) decrease by 20%

C Diff: 2

20) The phone bill for a corporation consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. Minutes Total Bill January 460 $3,000 February 200 $2,675 March 160 $2,625 April 300 $2,800 If the company uses 380 minutes in May, how much will the total bill be? A) $2,425 B) $2,478 C) $2,900 D) $3767

C Explanation: C) Change in total cost ($3,000 - $2,625) $375.00 Change in minutes (460 - 160) 300.00 Variable cost per minute ($375 ÷ 300) 1.25 Variable cost for January = 460 minutes × $1.25 per minute = $575 Total fixed costs = Total mixed cost - Total variable cost Total fixed costs = $3,000 - $575 = $2,425 For 380 minutes: Total cost = (380 minutes × 1.25) + $2,425 Total cost = $475 + $2,425 = $2,900 Diff: 2

7) A cellphone service provider charges $5.00 per month and $0.10 per minute per call. If a customer's current bill is $50.00, how many calling minutes did the customer use? A) 500 minutes B) 550 minutes C) 450 minutes D) 400 minutes

C Explanation: C) Current bill 50.00 Less monthly charges -5.00 Call charges (A) 45.00 Charge per minute per call (B) 0.10 Number of minutes used (A) ÷ (B) 450.00 Diff: 1

25) First Buy Television Antennas Company provided the following manufacturing costs for the month of June. Direct labor cost $136,000 Direct materials cost 80,000 Equipment depreciation (straight-line) 24,000 Factory insurance 19,000 Factory manager's salary 12,800 Janitor's salary 5,000 Packaging costs 18,800 Property taxes 16,000 From the above information, calculate First Buy's total variable costs. A) $311,600 B) $62,300 C) $234,800 D) $38,400

C Explanation: C) Direct materials cost $80,000 Direct labor cost 136,000 Packaging costs 18,800 Total variable costs $234,800 Diff: 2

56) Jupiter Company sells glass vases at a wholesale price of $3 per unit. The variable cost of manufacture is $1.75 per unit. The fixed costs are $7,500 per month. It sold 5,500 units during this month. Calculate Jupiter's operating income (loss) for this month. A) $9,000 B) $625 C) ($625) D) ($7,500)

C Explanation: C) Net sales revenue $16,500 Variable costs -9,625 Contribution margin 6,875 Fixed costs -7,500 Operating loss $625 Diff: 2

46) Pluto Hand blenders Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per unit. The monthly fixed costs are $10,000. What is the operating income earned in October? A) $30,000 B) $70,000 C) $20,000 D) $40,000

C Explanation: C) Selling price $70,000 Less variable cost -40,000 Contribution margin 30,000 Less: fixed costs -10,000 Operating income $20,000 Diff: 1

14) Venus Inc. has fixed costs of $300,000. Total costs, both fixed and variable, are $450,000 when 30,000 units are produced. Calculate the total costs if the volume increases to 60,000 units. A) $750,000 B) $1,200,000 C) $600,000 D) $450,000

C Explanation: C) Total costs $450,000 Less: fixed costs -300,000 Variable costs (A) $150,000 Number of units (B) 30,000 Variable cost per unit (A) ÷ (B) $5.00 Number of units after increase in production 60,000 Variable costs of production 300,000 Fixed costs 300,000 Total costs after increase in production $600,000 Diff: 2

70) A small business produces a single product and reports the following data: Price $8.00 per unit Variable cost $5.00 per unit Fixed cost $21,000 per month Volume 10,000 per month The company believes that the volume will go up to 11,000 units if the company reduces its price to $7.50.How would this change affect operating income? A) It will go up by $2,500. B) It will go up by $9,000. C) It will go down by $2,500. D) It will go down by $9,000.

C Explanation: C) Contribution margin (before reduction in selling price) = $8.00 - $5.00 = $3.00 Operating income (before reduction in selling price) = (10,000 × $3.00) - $21,000 = $9,000 Contribution margin (after reduction in selling price) = $7.50 - $5.00 = $2.50 Operating income (after reduction in selling price) = (11,000 × $2.50) - $21,000 = $6,500 Decrease in operating income due to reduction in selling price = $9,000 - $6,500 = $2,500 Diff: 2

87) Popeye's, a local convenience store, sells soft drinks. It sells two large drinks for every small drink. A large drink sells for $1.50 with a variable cost of $0.60. A small drink sells for $1.00 with a variable cost of $0.50. The weighted average contribution margin is: (Round your intermediate calculations and final answer to two decimal places.) A) $1.15 per drink. B) $2.30 per drink. C) $0.77 per drink. D) $0.60 per drink.

C Explanation: C) Large Small drink drink Sales price per unit $1.50 $1.00 Less variable cost per unit -0.60 -0.50 Contribution margin per unit 0.90 0.50 Number of units × 2 × 1 Weighted contribution margin $1.80 $0.50 Total weighted contribution = $1.80 + $0.50 = $2.30 Weights = 2 large drinks + 1 small drink = 3 drinks Weighted-average contribution margin per unit = $2.30 ÷ 3 drinks = $0.77 per drink Diff: 2

83) Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen, and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows: Price per unit $720 Variable costs per unit 470 Fixed costs per month 8,000 If Antique expects to sell 40 units per month, how much is his margin of safety expressed in sales revenue? A) $2,000 B) $3,760 C) $5,760 D) $2,760

C Explanation: C) Sales price per unit $720 Less variable cost per unit -470 Contribution margin per unit $250 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Required sales in units = ($8,000 + 0) ÷ $250 = 32 units Expected sales - Breakeven sales = Margin of safety in units 40 units - 32 units = 8 units Margin of safety in units × Sales price per unit = Margin of safety in dollars 8 units × $720 per unit = $5,760 Diff: 2

9) Ron Moss, a manager of Waterworks Inc., was reviewing the water bills of a dog daycare and spa. He determined that its highest and lowest bills of $3,800 and $2,400 were incurred in the months of May and November, respectively. If 400 dogs were washed in May and 200 dogs were washed in November, what was the fixed cost per dog associated with the company's water bill? A) $2,400 B) $3,800 C) $1,000 D) $1,400

C Explanation: C) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = ($3,800 - $2,400) ÷ (400 - 200) = $1,400 ÷ 200 Variable cost per unit = $7 per dog Number of dogs washed in May 400 Variable cost incurred in May $2,800 Fixed cost incurred in May $1,000 Diff: 2

18) The phone bill for a company consists of both fixed and variable costs. Refer to the 4-month data below and apply the high-low method to answer the question. (Round your intermediate calculations to two decimal places) Minutes Total Bill January 460 $3,000 February 200 $2,675 March 160 $2,625 April 300 $2,800 What is the fixed portion of the total cost? A) $1,850 B) $2,225 C) $2,425 D) $2,625

C Explanation: C) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) ÷ (Highest volume - Lowest volume) Change in total cost ($3,000 - $2,625) $375.00 Change in minutes (460 - 160) 300.00 Variable cost per minute ($375 ÷ 300) $1.25 Variable cost for January = 460 minutes × $1.25 per minute = $575 Total fixed costs = Total mixed cost - Total variable cost Total fixed costs = $3,000 - $575 = $2,425 Diff: 2

15) The highest value of total cost was $75,000 in June for Mantilla Beverages Inc. Its lowest value of total cost was $50,000 in December. The company makes a single product. The production volume in June and December were 13,000 and 8,000 units, respectively. What is the fixed cost per month? A) $50,000 B) $20,000 C) $10,000 D) $8,000

C Explanation: C) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) ÷ (Highest volume - Lowest volume) Change in total cost (A) $25,000 Change in volume of activity (B) 5,000 Variable cost per unit (A ÷ B) $5 Total costs for June Total variable costs for June (5 × 13,000) 65,000 Fixed costs for June $10,000 Diff: 2

16) The highest value of total cost was $75,000 in June for Mantilla Beverages Inc. Its lowest value of total cost was $50,000 in December. The company makes a single product. The production volume in June and December were 13,000 and 8,000 units, respectively. What is the variable cost per month? A) $9.38 per unit B) $6.25 per unit C) $5.00 per unit D) $5.77 per unit

C Explanation: C) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) ÷ (Highest volume - Lowest volume) Variable cost per unit = ($75,000 - $50,000) ÷ (13,000 - 8,000) = $25,000 ÷ 5,000 Variable cost per unit = $5 per unit Diff: 2

2) A 15% increase in production volume will result in a ________. A) 15% increase in the variable cost per unit B) 15% increase in total mixed costs C) 15% increase in total administration costs D) 15% increase in total variable costs

D Diff: 1

39) Contribution margin ratio is equal to ________. A) fixed costs divided by contribution margin per unit B) net sales revenue per unit minus variable costs per unit C) net sales revenue minus variable costs D) contribution margin divided by net sales revenue

D Diff: 1

66) When the selling price per unit decreases, the contribution margin per unit ________. A) increases proportionately B) increases C) remains the same D) decreases

D Diff: 1

69) Which of the following will lower the breakeven point? A) a decrease in the sales price per unit B) an increase in total fixed costs C) an increase in the variable costs per unit D) an increase in the sales price per unit

D Diff: 1

17) The relevant range of Orleans Trailers Inc. is between 100,000 units and 180,000 units per month. If the company produces beyond 180,000 units per month, ________. A) the fixed costs will remain the same, but the variable cost per unit may change B) the fixed costs may change, but the variable cost per unit will remain the same C) the fixed costs and the variable cost per unit will not change D) both the fixed costs and the variable cost per unit may change

D Diff: 2

68) Which of the following statements is true if total fixed costs decreases while the sales price per unit and variable costs per unit remain constant? A) The contribution margin increases. B) The breakeven point increases. C) The contribution margin decreases. D) The breakeven point decreases.

D Diff: 2

13) Jupiter Inc. incurred fixed costs of $300,000. Total costs, both fixed and variable, are $450,000 when 50,000 units are produced. It sold 35,000 units during the year. Calculate the variable cost per unit. A) $9 B) $12 C) $6 D) $3

D Explanation: D) Total costs $450,000 Less: fixed costs -300,000 Variable costs (A) 150,000 Number of units (B) 50,000 Variable cost per unit (A) ÷ (B) $3 Diff: 1

24) First Buy Television Antenna Company provided the following manufacturing costs for the month of June. Direct labor cost $136,000 Direct materials cost 80,000 Equipment depreciation (straight-line) 24,000 Factory insurance 19,000 Factory manager's salary 12,800 Janitor's salary 5,000 Packaging costs 18,800 Property taxes 16,000 From the above information, calculate First Buy's total fixed costs. A) $311,600 B) $52,800 C) $71,600 D) $76,800

D Explanation: D) Janitor's salary $5,000 Property taxes 16,000 Equipment depreciation (straight-line) 24,000 Factory insurance 19,000 Factory manager's salary 12,800 Total fixed costs $76,800 Diff: 2

42) Young Company has provided the following information: Price per unit $40 Variable cost per unit 12 Fixed costs per month $10,000 What is the contribution margin ratio? A) 12% B) 60% C) 40% D) 70%

D Explanation: D) Contribution margin ratio = Contribution margin ÷ Net sales revenue Selling price $40 Less: variable cost -12 Contribution margin $28 Contribution margin ratio = ($28 ÷ $40) × 100 = 70% Diff: 2

86) Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.00, with a variable cost of $2.00. A large muffin sells for $5.00 with a variable cost of $2.50. What is the weighted-average contribution margin? (Round your intermediate calculations to one decimal place.) A) $1.93 per muffin B) $1.75 per muffin C) $1.25 per muffin D) $1.90 per muffin

D Explanation: D) Large Small muffin muffin Sales price per unit $5.00 $3.00 Less variable cost per unit (2.50) (2.00) Contribution margin per unit $2.50 $1.00 Number of units × 3 × 2 Weighted contribution margin $7.50 $2.00 Total weighted contribution = $7.50 + $2.00 = $9.50 Weights = 3 large muffins + 2 small muffins = 5 muffins Weighted-average contribution margin per unit = $9.50 ÷ 5 muffins = $1.90 per muffin Diff: 2

57) Colin was a professional classical guitarist until a motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows: Rent and utilities $ 800 Wages and benefits to luthier 2,500 Other expenses 480 Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit. How many guitars does Colin have to sell each month to break even? A) 6 guitars B) 14 guitars C) 7 guitars D) 9 guitars

D Explanation: D) Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Contribution margin per unit = $700 × 0.60 = $420 Total fixed costs = $800 + $2,500 + $480 = $3,780 Required sales in units = ($3,780 + 0) ÷ $420 = 9 guitars Diff: 2

52) Young Guns Company, which sells tents, has provided the following information: Price per unit $40 Variable cost per unit 12 Fixed costs per month $12,600 What are the required sales in units for Young to break even? A) 252 units B) 1,050 units C) 315 units D) 450 units

D Explanation: D) Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Unit contribution margin = Net sales revenue per unit - Variable costs per unit Selling price $40 Less: variable cost -12 Contribution margin $28 Required sales in units = ($12,600 + 0) ÷ $28 = 450 units Diff: 2

8) Ron Moss, a manager of Waterworks Inc., was reviewing the water bills of a dog daycare and spa. He determined that its highest and lowest bills of $3,800 and $2,400 were incurred in the months of May and November, respectively. If 400 dogs were washed in May and 200 dogs were washed in November, what was the variable cost per dog associated with the company's water bill? A) $6.00 B) $12.00 C) $9.50 D) $7.00

D Explanation: D) Variable cost per unit = Change in total cost ÷ Change in volume of activity Variable cost per unit = ($3,800 - $2,400) ÷ (400 - 200) = $1,400 ÷ 200 Variable cost per unit = $7 per dog Diff: 1

85) McDaniel Company sells two products—J and B. McDaniel predicts that it will sell 7,200 units of J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively. What is the weighted-average unit contribution margin? A) $9.96 per product B) $4.58 per product C) $7.75 per product D) $4.36 per product

D Explanation: D) Weighted contribution = (7,200 × $2.85) + (5,600 × $6.30) = $55,800 Weights = 7,200 units + 5,600 units = 12,800 units Weighted-average contribution margin per unit = $55,800 ÷ 12,800 = $4.36 Diff: 2

33) Arturo Company sells two generators—Model A and Model B—for $456 and $390, respectively. The variable cost of Model A is $404 and of Model B is $320. If Arturo Company's sales incentives reward sales of the goods with the highest contribution margin, the sales force will be motivated to push sales of Model A more aggressively than Model B.

FALSE Explanation: Model A Model B Selling price $456 $390 Less: variable cost -404 -320 Contribution margin $ 52 $ 70 The contribution margin of Model B ($70) is more than that of Model A ($52). The sales team will be motivated to push sales of Model B more aggressively than Model A. Diff: 1

71) Grantham Company sells two products, X and Y. For the coming year, Grantham predicts the sale of 5,000 units of X and 10,000 units of Y. The contribution margins of the two products are $5 and $3, respectively. The weighted-average contribution margin would be $5.50.

FALSE Explanation: Total contribution per unit of the X and Y = ($5 × 1) + ($3 × 2) = $11.00 Weighted-average contribution margin per unit = $11 per unit ÷ 3 units = $3.67 Diff: 2

59) Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. How many units should Jenna sell in order to earn $10,000 as operating income?

Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit Unit contribution margin = Net sales revenue per unit - Variable costs per unit Selling price $75 Less: variable cost -35 Contribution margin 40 Fixed costs 10,000 Target profit 10,000 Required sales in units ($20,000 ÷ $40) 500 units Diff: 2

72) For the next year, Hall & Co. predicts the sale of 15,000 units of a product with a contribution margin of $6 per unit and 30,000 units of another product with a contribution margin of $9 per unit. The weighted-average contribution margin per unit is $8.

TRUE Explanation: Total contribution = ($6 × 15,000) + ($9 × 30,000) = $90,000 + $270,000 = $360,000 Weighted-average contribution margin per unit = $360,000 ÷ 45,000 = $8 Diff: 2