Chapter 20

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 $3,600 and $2,800 were incurred in the months of May and November, respectively. If 500 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? (Round your answer to the nearest cent.) Select one: A. $2.67 B. $4.00 C. $7.20 D. $14.00

A. $2.67

Jupiter, Inc. incurred fixed costs of $300,000. Total costs, both fixed and variable, are $500,000 when 59,000 units are produced. It sold 35,000 units during the year. Calculate the variable cost per unit. (Round your answer to the nearest cent.) Select one: A. $3.39 B. $8.47 C. $5.08 D. $14.29

A. $3.39

Young Company has provided the following information: Sales price per unit $52Variable cost per unit 16Fixed costs per month $14,000 Calculate the contribution margin per unit. Select one: A. $36.00 B. $16.00 C. $52.00 D. $68.00

A. $36.00

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

A. contribution margin income statement

When the total fixed costs decrease, the breakeven point ________. Select one: A. decreases B. increases C. remains the same D. increases proportionately

A. decreases

Which of the following costs change in total in direct proportion to a change in volume? Select one: A. variable costs B. period costs C. fixed costs D. mixed costs

A. variable costs

Which of the following is not an assumption of cost-volume-profit (CVP) analysis? Select one: A. The price per unit does not change as volume changes. B. The price per unit changes as volume changes. C. The only factor that affects total costs is a change in volume, which increases or decreases variable and mixed costs. D. Fixed costs do not change.

B. The price per unit changes as volume changes.

Which of the following will lower the breakeven point? Select one: A. an increase in the variable cost per unit B. an increase in the sales price per unit C. an increase in total fixed costs D. a decrease in the sales price per unit

B. an increase in the sales price per unit

Costs that have both variable and fixed components are called ________. Select one: A. fixed costs B. mixed costs C. variable costs D. contribution costs

B. mixed costs

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

B. sales volume changes

Maywood Company sells hand-knit scarves. Each scarf sells for $40. The company pays $60 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? (Round your answer up to the nearest whole scarf.) Select one: A. 2 scarves B. 4 scarves C. 3 scarves D. 20 scarves

C. 3 scarves

________ is a "what if" technique that estimates profit or loss results if sales price, costs, volume, or underlying assumptions change. Select one: A. Contribution margin B. Operating leverage C. Sensitivity analysis D. High-low method of analysis

C. Sensitivity analysis

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

C. They will remain the same as production levels change.

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

C. dividing the contribution margin by operating income

Winter Wonderland sells hand-knit scarves. Each scarf sells for $50. The company pays $30 to rent a vending space for one day. The variable costs are $10 per scarf. What total revenue amount does the company need to earn to break even? (Round any percentages to two decimal places and your final answer to the nearest cent.) Select one: A. $50.00 B. $12.50 C. $66.67 D. $37.50

D. $37.50

Pluto Hand Blenders Company sold 3,000 units in October at a sales price of $45 per unit. The variable cost is $25 per unit. Calculate the total contribution margin. Select one: A. $37,500 B. $75,000 C. $135,000 D. $60,000

D. $60,000

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

D. contribution margin divided by net sales revenue

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

D. direct materials cost

When the sales price per unit decreases, the breakeven point ________. Select one: A. decreases B. decreases proportionately C. remains the same D. increases

D. increases

When the total fixed costs increase, the contribution margin per unit ________. Select one: A. decreases B. increases C. increases proportionately D. remains the same

D. remains the same

T/F If fixed costs increase, and all other factors remain the same, the margin of safety will become larger.

False

T/F If all other factors remain constant, an increase in fixed costs will increase the breakeven point.

T

T/F The breakeven point represents the sales level at which the company's operating income is zero.

T

T/F CVP analysis assumes that the sales price per unit does not change as volume changes.

True

T/F Contribution margin is the amount that contributes to covering the fixed costs and then to providing operating income.

True

T/F Contribution margin is the difference between net sales revenue and variable costs.

True

T/F Emara Company sells two generatorsModel A and Model Bfor $456 and $394, respectively. The variable cost of Model A is $406 and of Model B is $304. The company will generate lower revenues but a higher net income if it sells more of Model B than Model A.

True

T/F Fixed costs divided by contribution margin per unit equals the breakeven point in unit sales.

True

T/F Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

True

T/F Fixed costs per unit is inversely proportional to the volume of units produced.

True

T/F If the volume of activity doubles in the relevant range, total variable costs will also double.

True

T/F If variable costs increase, and all other factors remain the same, the margin of safety will become smaller.

True

T/F Managers can use CVP relationships to conduct sensitivity analysis.

True

T/F Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

True

T/F Target profit is the operating income that results when sales revenue minus variable and fixed costs equals management's profit goal.

True

T/F The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.

True

T/F The sales level at which operating income is zero is called the breakeven point.

True

T/F Total fixed costs can change from one relevant range to another.

True

T/F When the variable cost per unit increases, the contribution margin on each unit decreases.

True

T/F When the variable cost per unit increases, the total number of units required to break even also increases.

True