Chapter 3 Cost Accouning TB

All else being equal, a reduction in selling price will ________. A) increase contribution margin B) reduce fixed costs C) increase variable costs D) reduce operating income

D

All else being equal, an increase in advertising expenditures will ________. A) reduce operating income B) reduce contribution margin C) increase variable costs D) increase selling price

A

At breakeven point, ________. A) operating income is equal to zero B) contribution margin minus fixed costs is equal to profits earned C) revenues equal fixed costs minus variable costs D) breakeven revenues equal fixed costs divided by the variable cost per unit

A

Fixed costs ________. A) are considered variable costs over the long run B) provide less operating leverage C) reduce the risk of loss D) are graphed as a steeply sloped line

A

Globus Autos sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. If a change is made in one parameter of CVP analysis, it is an example of ________. A) sensitivity analysis B) incremental budgeting C) variance analysis D) multiple cost drivers

A

Which of the following will increase a company's breakeven point? A) increasing variable cost per unit B) increasing contribution margin per unit C) reducing its total fixed costs D) increasing the selling price per unit

A

Breakeven point in units is ________. A) total costs divided by profit margin per unit B) contribution margin per unit divided by total cost per unit C) fixed costs divided by contribution margin per unit D) the sum of fixed and variable costs divided by contribution margin per unit

C

Contribution margin equals ________. A) revenues minus period costs B) revenues minus product costs C) revenues minus variable costs D) revenues minus fixed costs Answer:

C

In CVP analysis, focusing on target net income rather than operating income ________. A) will increase the breakeven point B) will decrease the breakeven point C) will not change the breakeven point D) will help managers construct a better capital policy

C

Multiple cost drivers ________. A) have only one revenue driver B) can utilize the simple CVP formula C) have no unique breakeven point D) are the result of multiple products

C

) The breakeven point is the activity level where ________. A) revenues equal fixed costs B) revenues equal variable costs C) contribution margin equals total and fixed costs costs D) revenues equal the sum of variable

D

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________. A) total fixed costs increase B) total fixed costs decrease C) variable costs per unit increase D) variable costs per unit decrease Answer:

D

In a company with low operating leverage, ________. A) fixed costs are more than the contribution margin B) contribution margin and operating income are inversely related C) there is a higher possibility of net loss than a higher-leveraged firm D) less risk is assumed than in a highly leveraged firm Answer:

D

The contribution margin income statement ________. A) reports gross margin B) is allowed for external reporting to shareholders C) categorizes costs as either direct or indirect D) can be used to predict future profits at different levels of activity

D

The selling price per unit less the variable cost per unit is the ________. A) fixed cost per unit B) gross margin C) margin of safety D) contribution margin per unit

D

) If breakeven point is 1,000 units, each unit sells for $30, and fixed costs are $10,000, then on a graph the ________. A) total revenue line and the total cost line will intersect at $30,000 of revenue B) total cost line will be zero at zero units sold C) revenue line will start at $10,000 D) total revenue line and the total cost line will intersect at $40,000 of revenue

A

In the merchandising sector ________. A) only variable costs are subtracted to determine gross margin B) fixed overhead costs are subtracted to determine gross margin C) fixed overhead costs are subtracted to determine contribution margin D) all operating costs are subtracted to determine contribution margin

A

Option one: Fixed costs of $10,000 and a breakeven point of 500 units. Option two: Fixed costs of $20,000 and a breakeven point of 700 units. Which option should you choose if you are expecting to produce 600 units? A) Option one as sales is higher than breakeven B) Option two as sales is lower than breakeven C) Option two as it would lead to a higher operating income D) Option one as fixed costs is more

A

To apply CVP analysis in the hotel industry, which of the following is the most important measure of output? A) number of room-nights occupied B) number of visitors C) number of dishes on the menu D) number of employees

A

Which of the following is an assumption of CVP analysis? A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. B) When graphed, total costs curve upward. C) The unit-selling price is variable as it is subject to demand and supply. D) Total costs can be divided into inventoriable and period costs with respect to the level of output.

A

Managers use cost-volume-profit (CVP) analysis to ________. A) forecast the cost of capital for a given period of time B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income C) estimate the risks associated with a given job D) analyse a firm's profitability and help to decide wealth distribution among its stakeholders

B

) The planned operating income is calculated by ________. A) dividing net income by tax rate B) dividing net income by 1 − tax rate C) multiplying net income by tax rate D) multiplying net income by 1 − tax rate

B

A revenue driver is defined as ________. A) any factor that affects costs and revenues B) any factor that affects revenues C) the only factor that can influence a change in selling price D) the only factor that can influence a change in demand

B

Gross margin is ________. A) sales revenue less variable costs B) sales revenue less cost of goods sold C) contribution margin less fixed costs D) contribution margin less variable costs

B

In the manufacturing sector, ________. A) only variable costs are subtracted to determine gross margin B) fixed overhead costs are subtracted to determine gross margin C) fixed overhead costs are subtracted to determine contribution margin D) all operating costs are subtracted to determine contribution margin

B

One of the first steps to take when using CVP analysis to help make decisions is ________. A) calculating the break-even point B) identifying the variable and fixed costs C) calculation of the degree of operating leverage for the company D) estimating the volume of sales to make a good profit

B

The breakeven point decreases if ________. A) the variable cost per unit increases B) the total fixed costs decrease C) the contribution margin per unit decreases D) the selling price per unit decreases

B

The breakeven point revenues is calculated by dividing ________. A) fixed costs by total revenues B) fixed costs by contribution margin percentage C) total revenues by fixed costs D) contribution margin percentage by fixed costs

B

The margin of safety is the difference between ________. A) budgeted expenses and breakeven expenses B) budgeted revenues and breakeven revenues C) actual operating income and budgeted operating income D) actual sales margin and budgeted sales margin

B

When a greater proportion of costs are fixed costs, then ________. A) a small increase in sales results in a small decrease in operating income B) when demand is low the risk of loss is high C) a decrease in sales reduces the total fixed cost per unit D) a decrease in sales reduces the cost per unit

B

Which of the following is true of CVP analysis? A) Costs may be separated into separate inventoriable and period components with respect to the level of output. B) Total revenues and total costs are linear in relation to output units. C) Unit selling price, unit variable costs, and unit fixed costs are known and remain constant. D) Proportion of different products will vary according to demand and supply when multiple products are sold.

B

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision. A) The graph method B) A sensitivity analysis C) The degree of operating leverage D) Sales mix

B

) Which of the following is true about the assumptions underlying basic CVP analysis? A) Selling price varies with demand and supply of the product. B) Only selling price and variable cost per unit are known and constant. C) Only selling price, variable cost per unit, and total fixed costs are known and constant. D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

C

As per CVP, operating income calculations use ________. A) net income and dividends B) income tax expense and net income C) contribution margins and fixed costs D) nonoperating revenues and nonoperating expenses

C

Which of the following forms a part of decision making in CVP analysis? A) selection of inventory method for financial reporting purposes B) decision to form a capital policy C) decision to advertise D) decision to improve the efficiency of the work force

C

Which of the following is an output measure for a hospital? A) number of doctors needed to cater to patients B) number of patients admitted every day in a hospital C) number of days spent by a patient in a hospital D) charges applicable on the number of days spent by a patient in a hospital

C

Which of the following statements about net income (NI) is true? A) NI = operating income plus nonoperating revenue. B) NI = operating income plus operating costs. C) NI = operating income less income taxes. D) NI = operating income less cost of goods sold. Answer:

C

Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then ________. A) fixed costs increases by $6 per unit B) operating profits decreases by $6 per unit C) fixed costs decreases by $6 per unit D) operating profits increases by $6 per unit

D

If a company would like to increase its degree of operating leverage it should ________. A) increase its sales relative to its fixed costs B) increase its sales relative to its variable costs C) increase its variable costs relative to its fixed costs D) increase its fixed costs relative to its variable costs

D

If unit outputs exceed the breakeven point ________. A) there will be an increase in fixed costs B) total sales revenue will exceed fixed costs C) total sales revenue will exceed variable costs D) there will be a profit

D

To apply CVP analysis in not-for profit organization ________. A) managers need to focus on the customer base rather than the cost drivers B) managers need to focus on measuring their output, which is the same as tangible units sold by manufacturing and merchandising companies C) managers need to focus on measuring their input, which is different from the tangible units consumed by manufacturing and merchandising companies D) managers need to focus on measuring their output, which is different from the tangible units sold by manufacturing and merchandising companies

D

Which of the following is true of cost-volume-profit analysis? A) The theory assumes that all costs are variable. B) The theory assumes that units manufactured equal units sold. C) The theory states that total variable costs remain the same over a relevant range. D) The theory states that total costs remain the same over the relevant range.

b