Chapter 5 Multiple Choice Sample Questions Accounting 102

Which of the following is not a fixed cost? a. Direct materials b. Depreciation c. Lease charge d. Property taxes

a. Direct materials

To which function of management is CVP analysis most applicable? a. Planning b. Motivating c. Directing d. Controlling

a. Planning

Which of the following would be the least controllable fixed costs? a. Property taxes b. Rent c. Research and development d. Management training programs

a. Property taxes

A mixed cost contains a. a variable element and a fixed element. b. both selling and administrative costs. c. both retailing and manufacturing costs. d. both operating and nonoperating costs.

a. a variable element and a fixed element.

he graph of variable costs that behave in a curvilinear fashion will a. approximate a straight line within the relevant range. b. be sharply kinked on both sides of the relevant range. c. be downward sloping. d. be a stair-step pattern.

a. approximate a straight line within the relevant range.

CVP analysis is not important in a. calculating depreciation expense. b. setting selling prices. c. determining the product mix. d. utilizing production facilities.

a. calculating depreciation expense.

An activity index might be referred to as a cost a. driver. b. multiplier. c. element. d. correlation.

a. driver.

For analysis purposes, the high-low method usually produces a(n) a. reasonable estimate. b. precise estimate. c. overstated estimate. d. understated estimate

a. reasonable estimate.

Cost-volume-profit analysis includes all of the following assumptions except a. the behavior of costs is curvilinear throughout the relevant range. b. costs can be classified accurately as either variable or fixed. c. changes in activity are the only factors that affect costs. d. all units produced are sold.

a. the behavior of costs is curvilinear throughout the relevant range.

A CVP graph does not include a a. variable cost line. b. fixed cost line. c. sales line. d. total cost line

a. variable cost line.

A cost which remains constant per unit at various levels of activity is a a. variable cost. b. fixed cost. c. mixed cost. d. manufacturing cost

a. variable cost.

Which one of the following is not an assumption of CVP analysis? a. All units produced are sold. b. All costs are variable costs. c. Sales mix remains constant. d. The behavior of costs and revenues are linear within the relevant range.

b. All costs are variable costs.

Why is identification of a relevant range important? a. It is required under GAAP. b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis. c. It directly impacts the number of units of product a customer buys. d. It is a cost that is incurred by a company that must be accounted fo

b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.

Which of the following is not a cost classification? a. Mixed b. Multiple c. Variable d. Fixed

b. Multiple

Which of the following would not be an acceptable way to express contribution margin? a. Sales minus variable costs b. Sales minus unit costs c. Unit selling price minus unit variable costs d. Contribution margin per unit divided by unit selling price

b. Sales minus unit costs

Firms operating at 100% capacity a. are common. b. are the exception rather than the rule. c. have no fixed costs. d. have no variable costs.

b. are the exception rather than the rule.

Contribution margin is a. the amount of revenue remaining after deducting fixed costs. b. available to cover fixed costs and contribute to income for the company. c. sales less fixed costs. d. unit selling price less unit fixed costs.

b. available to cover fixed costs and contribute to income for the company.

The break-even point is where a. total sales equal total variable costs. b. contribution margin equals total fixed costs. c. total variable costs equal total fixed costs. d. total sales equal total fixed costs

b. contribution margin equals total fixed costs.

Fixed costs normally will not include a. property taxes. b. direct labor. c. supervisory salaries. d. depreciation on buildings and equipment

b. direct labor.

CVP analysis does not consider a. level of activity. b. fixed cost per unit. c. variable cost per unit. d. sales mix.

b. fixed cost per unit.

The increased use of automation and less use of the work force in companies has caused a trend towards an increase in a. both variable and fixed costs. b. fixed costs and a decrease in variable costs. c. variable costs and a decrease in fixed costs. d. variable costs and no change in fixed costs

b. fixed costs and a decrease in variable costs.

In evaluating the margin of safety, the a. break-even point is not relevant. b. higher the margin of safety ratio, the greater the margin of safety. c. higher the dollar amount, the lower the margin of safety. d. higher the margin of safety ratio, the lower the fixed costs

b. higher the margin of safety ratio, the greater the margin of safety.

The high-low method is often employed in analyzing a. fixed costs. b. mixed costs. c. variable costs. d. conversion costs

b. mixed costs.

Within the relevant range, the variable cost per unit a. differs at each activity level. b. remains constant at each activity level. c. increases as production increases. d. decreases as production increases.

b. remains constant at each activity level.

For an activity base to be useful in cost behavior analysis, a. the activity should always be stated in dollars. b. there should be a correlation between changes in the level of activity and changes in costs. c. the activity should always be stated in terms of units. d. the activity level should be constant over a period of time

b. there should be a correlation between changes in the level of activity and changes in costs.

Which of the following is not an underlying assumption of CVP analysis? a. Changes in activity are the only factors that affect costs. b. Cost classifications are reasonably accurate. c. Beginning inventory is larger than ending inventory. d. Sales mix is constant.

c. Beginning inventory is larger than ending inventory.

Which of the following is not a mixed cost? a. Car rental fee b. Electricity c. Depreciation d. Telephone Expense

c. Depreciation

Which is the true statement? a. In a CVP income statement, costs and expenses are classified only by function. b. The CVP income statement is prepared for both internal and external use. c. The CVP income statement shows contribution margin instead of gross profit. d. In a traditional income statement, costs and expenses are classified as either variable or fixed

c. The CVP income statement shows contribution margin instead of gross profit.

Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion? a. Labor specialization b. Overtime wages c. Total variable costs are constant within the relevant range d. Availability of quantity discounts

c. Total variable costs are constant within the relevant range

At the break-even point, a. sales equal total variable costs. b. contribution margin equals total variable costs. c. contribution margin equals total fixed costs. d. sales equal total fixed costs

c. contribution margin equals total fixed costs.

The CVP income statement a. is distributed internally and externally. b. classifies costs by functions. c. discloses contribution margin in the body of the statement. d. will reflect a different net income than the traditional income statement

c. discloses contribution margin in the body of the statement.

Required sales in dollars to meet a target net income is computed by dividing a. fixed costs plus target net income by contribution margin per unit. b. variable costs plus target net income by contribution margin per unit. c. fixed costs plus target net income by contribution margin ratio. d. total costs plus target net income by contribution margin ratio.

c. fixed costs plus target net income by contribution margin ratio.

The high-low method is criticized because it a. is not a graphical method. b. is a mathematical method. c. ignores much of the available data by concentrating on only the extreme points. d. doesn't provide reasonable estimates.

c. ignores much of the available data by concentrating on only the extreme points.

In CVP analysis, the term "cost" a. includes only manufacturing costs. b. means cost of goods sold. c. includes manufacturing costs plus selling and administrative expenses. d. excludes all fixed manufacturing costs

c. includes manufacturing costs plus selling and administrative expenses.

Changes in activity have a(n) _________ effect on fixed costs per unit. a. positive b. negative c. inverse d. neutral

c. inverse

The relevant range of activity refers to the a. geographical areas where the company plans to operate. b. activity level where all costs are curvilinear. c. levels of activity over which the company expects to operate. d. level of activity where all costs are constant

c. levels of activity over which the company expects to operate.

The amount by which actual or expected sales exceeds break-even sales is referred to as a. contribution margin. b. unanticipated profit. c. margin of safety. d. target net income

c. margin of safety.

The break-even point cannot be determined by a. computing it from a mathematical equation. b. computing it using contribution margin. c. reading the prior year's financial statements. d. deriving it from a CVP graph

c. reading the prior year's financial statements.

Cost behavior analysis is a study of how a firm's costs a. relate to competitors' costs. b. relate to general price level changes. c. respond to changes in the level of business activity. d. respond to changes in the gross national product.

c. respond to changes in the level of business activity.

An example of a mixed cost is a. direct materials. b. supervisory salaries. c. utility costs. d. property taxes.

c. utility costs.

The contribution margin ratio increases when a. fixed costs increase. b. fixed costs decrease. c. variable costs as a percentage of sales decrease. d. variable costs as a percentage of sales increase

c. variable costs as a percentage of sales decrease.

Cost activity indexes might help classify costs as a. temporary. b. permanent. c. variable. d. transient

c. variable.

A variable cost is a cost that a. varies per unit at every level of activity. b. occurs at various times during the year. c. varies in total in proportion to changes in the level of activity. d. may or may not be incurred, depending on management's discretion

c. varies in total in proportion to changes in the level of activity.

Which one of the following is a name for the range over which a company expects to operate? a. Mixed range b. Fixed range c. Variable range d. Relevant range

d. Relevant range

The equation which reflects a CVP income statement is a. Sales = Cost of goods sold + Operating expenses + Net income. b. Sales + Fixed costs = Variable costs + Net income. c. Sales - Variable costs + Fixed costs = Net income. d. Sales - Variable costs - Fixed costs = Net income.

d. Sales - Variable costs - Fixed costs = Net income.

Which of the following is not true about the graph of a mixed cost? a. It is possible to determine the amount of the fixed cost from the graph. b. There is a total cost line on the graph. c. The fixed cost portion of the graph is the same amount at all levels of activity. d. The variable cost portion of the graph is rectangular in shape

d. The variable cost portion of the graph is rectangular in shape

If Qualls Quality Airline cuts its domestic fares by 30%, a. its fixed costs will decrease. b. profit will increase by 30%. c. a profit can only be earned by decreasing the number of flights. d. a profit can be earned either by increasing the number of passengers or by decreasing variable costs

d. a profit can be earned either by increasing the number of passengers or by decreasing variable costs

Cost behavior analysis applies to a. retailers. b. wholesalers. c. manufacturers. d. all entities

d. all entities

Contribution margin a. is always the same as gross profit margin. b. excludes variable selling costs from its calculation. c. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. d. equals sales revenue minus variable costs

d. equals sales revenue minus variable costs

If the activity level increases 10%, total variable costs will a. remain the same. b. increase by more than 10%. c. decrease by less than 10%. d. increase 10%

d. increase 10%

In using the high-low method, the fixed cost a. is determined by subtracting the total cost at the high level of activity from the total cost at the low activity level. b. is determined by adding the total variable cost to the total cost at the low activity level. c. is determined before the total variable cost. d. may be determined by subtracting the total variable cost from either the total cost at the low or high activity level

d. may be determined by subtracting the total variable cost from either the total cost at the low or high activity level

A fixed cost is a cost which a. varies in total with changes in the level of activity. b. remains constant per unit with changes in the level of activity. c. varies inversely in total with changes in the level of activity. d. remains constant in total with changes in the level of activity

d. remains constant in total with changes in the level of activity

If a firm increases its activity level, a. costs should remain the same. b. most costs will rise. c. no costs will remain the same. d. some costs will change, others will remain the same

d. some costs will change, others will remain the same

If graphed, fixed costs that behave in a curvilinear fashion resemble a(n) a. S-curve. b. inverted S-curve. c. straight line. d. stair-step pattern.

d. stair-step pattern.