Chapter 18 Multiple Choice Questions

If a firm's margin of safety is 15% on sales of $420,000, what will be its margin of safety on sales of $375,000 (assume fixed costs, the variable cost per unit, and the sales price per unit do not change)? A) $ 45,000 B) $ 18,000 C) $ 56,250 D) $ 63,000 E) None of the above

B) $ 18,000

The sales mix for Emory's Hardware is as follows: Product A: 12 units @ $5.25 sales price; $4.85 variable cost per unit. Product B: 10 units @ $7.50 sales price; $6.95 variable cost per unit. Product C: 6 units @ $12.25 sales price; $10.35 variable cost per unit. Emory's fixed costs are $75,950. What are the composite break-even units? A) 1,500 B) 2,000 C) 2,500 D) 3,500 E) 4,000

D) 3,500

Which of the following is true about contribution margin income statements? A) It is also referred to as a variable costing income statement. B) It takes components of a traditional income statement and splits them into variable and fixed components. C) It can help management make decisions regarding such issues as short-term pricing. D) All of the above. E) None of the above.

D) All of the above.

Data to be used in applying the high-low method shows the highest cost of $69,000 and the lowest cost of $52,000. The data shows $148,000 as the highest level of sales and $97,000 as the lowest level. What is the variable cost per sales dollar? A) $0.33 B) $0.47 C) $0.54 D) $3.00 E) None of the above

A) $0.33

A firm's fixed costs are $94,000. The firm sold 900 units at $172 each and its total variable costs were $79,000. What is the net income or loss of the firm? A) $60,800 loss B) $18,200 loss C) $60,800 income D) $75,800 income E) $18,200 income

B) $18,200 loss

Company A's fixed costs were $135,000, its variable costs were $72,000, and its sales were $288,000. What is the company's break-even point in sales dollars? A) $135,000 B) $180,000 C) $253,125 D) $288,000 E) None of the above

B) $180,000

Data from a company's last period of operations shows sales of 6,000 units and total contribution margin of $150,000. The company's pretax income, after subtracting fixed costs of $90,000, is $60,000. Should the company experience sales of 7,200 units (within the relevant range and no sales price increase), what will its pretax income be? A) $120,000 B) $90,000 C) $60,000 D) $30,000 E) None of the above

B) $90,000

A scatter diagram can be created to help show variable and fixed costs. Where would fixed costs be located on a scatter diagram? A) Fixed costs would be found where the line intersects the horizontal axis. B) Fixed costs would be found where the line intersects the vertical axis. C) Fixed costs would be located where the revenue and cost lines intersect. D) Fixed costs cannot be determined using a scatter diagram. E) All of the above.

B) Fixed costs would be found where the line intersects the vertical axis.

Company A's fixed costs were $35,380, its variable costs were $86,020, and its sales were $127,500 for 34,000 units. What is the company's break-even point in units? A) 34,000 B) 31,000 C) 29,000 D) 27,000 E) None of the above

C) 29,000

When using conventional cost-volume-profit (CVP) analysis, some assumptions about costs and sales prices are made. Which one of the following is one of those assumptions? A) The contribution margin will change as volume increases. B) The variable cost per unit will decrease as volume increases. C) The sales price per unit will remain constant as volume increases. D) Fixed costs per unit will remain the same as volume increases. E) The actual variable cost per unit must vary over the production range.

C) The sales price per unit will remain constant as volume increases.

Which of the following will cause a decrease in the break-even level? A) A $2.00 increase in sales price and a $2.65 increase in variable costs. B) A $1.00 decrease in sales price and a $0.48 decrease in variable costs. C) A $3.00 decrease in sales price and a $0.10 increase in variable costs. D) A $2.50 increase in sales price and a $1.75 increase in variable costs. E) None of the above.

D) A $2.50 increase in sales price and a $1.75 increase in variable costs.

Which of the following is true about mixed costs? A) Mixed costs include both fixed and variable components. B) Mixed costs cause problems in cost-volume-profit calculations and so they must be split out between the fixed and variable components. C) One way to split out mixed costs (into variable and fixed components) is by using the high-low method. D) All of the above. E) None of the above.

D) All of the above.

Which of the following is true with regard to fixed costs? A) A fixed cost remains unchanged in amount even when the volume of activity varies from period to period. B) On a per-unit basis, fixed costs have an inverse relationship. C) Fixed costs are used in calculating the break-even point. D) All of the above. E) None of the above.

D) All of the above.

Which of the following is true about variable costs? A) Variable costs are constant in total even when activity levels change. B) Variable costs are fixed in total but vary on a per unit basis. C) Variable costs on a per-unit basis have an inverse relationship. D) Variable costs vary in total but are fixed per unit. E) All of the above.

D) Variable costs vary in total but are fixed per unit.

On a cost-volume-profit chart (break-even graph), where are the total fixed costs shown? A) At the point where the sales line intersects the vertical axis (dollars) B) At the point where the sales line crosses the total cost line C) At the point where the sales line crosses the horizontal axis (volume) D) At the point where the total cost line intersects the horizontal axis (volume) E) At the point where the total cost line intersects the vertical axis (dollars)

E) At the point where the total cost line intersects the vertical axis (dollars)