ACCT ch. 11

The graph of a variable cost when plotted against its related activity base appears as a

Straight line.

If fixed costs are $750,000 and variable costs are 55% of sales, what is the break-even point (in dollars)?

$1,666,667

If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if fixed costs are reduced by $50,000?

63,333 units

Which of the following activity bases would be the most appropriate for food costs of a hospital?

Number of patients who stay in the hospital

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

Salary of a factory supervisor

Given the following cost and activity observations for Pike Company's utilities, use the high-low method to calculate Pike's variable utilities costs per machine hour.

$0.40

Tucker Co. manufactures office furniture. During the most productive month of the year, 3,600 desks were manufactured at a total cost of $192,000. In its slowest month, the company made 1,200 desks at a cost of $72,000. Using the high-low method of cost estimation, total fixed costs per month are

$12,000.

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much will operating income change if sales increase by $50,000?

$12,500 increase

A firm operated at 90% of capacity for the past year during which fixed costs were $320,000, variable costs were 60% of sales, and sales were $1,200,000. Operating profit was

$160,000.

If fixed costs are $850,000 and variable costs are 70% of sales, what is the break-even point (in dollars)?

$2,833,333

If a business had sales of $4,000,000, fixed costs of $1,200,000, a margin of safety of 25%, and a contribution margin ratio of 40%, what was the break-even point?

$3,000,000

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

25%

If fixed costs are $350,000, the unit selling price is $75, and the unit variable costs are $30, what is the break-even sales (in units)?

7,778 units

If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if the variable costs are increased by $2?

81,000 units

If fixed costs are $850,000 and the unit contribution margin is $90, what amount of units must be sold in order to have a zero profit?

9,445

For purposes of analysis, mixed costs are generally

separated into their variable and fixed cost components.

Which of the following statements is TRUE regarding fixed and variable costs?

Fixed costs are fixed in total, and variable costs are fixed per unit.

Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service such as UPS?

Number of miles driven

Costs that remain constant on a per-unit level as the level of activity changes are called

variable costs.

Costs that vary in total in direct proportion to changes in an activity level are called

variable costs.

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed

There is no limit.

Which of the following conditions would cause the break-even point to increase?

Total fixed costs increase

Which of the following conditions would cause the break-even point to decrease?

Unit variable cost decreases

Which of the following conditions would cause the break-even point to increase?

Unit variable cost increases

Given the following cost and activity observations for Pike Company's utilities, use the high-low method to calculate Pike Company's variable utilities costs per machine hour.

$0.10

Vest Food Co. has the following operating data:

$125,217.

If a business had sales of $4,000,000 and a margin of safety of 25%, what was the break-even point?

$3,000,000

Winston Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are

$28,400.

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales (in units) if the unit selling price increases by $5?

18,000 units and 15,000 units

If sales are $300,000, variable costs are 60% of sales, and operating income is $40,000, what is the operating leverage?

3,000

If sales are $820,000, variable costs are 68% of sales, and operating income is $260,000, what is the contribution margin ratio?

32%

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed

cost-volume-profit analysis.

If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio?

44%

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would

increase

Rouney Co. has budgeted salary increases to factory supervisors totaling 10%. If selling prices and all other cost relationships are held constant, next year's break-even point will

increase by 10%

Foggy Co. has the following operating data for its manufacturing operations:

increase by 640 units.

The difference between the current sales revenue and the sales at the break-even point is called the

margin of safety.

The relative distribution of sales among the various products sold by a business is termed the

sales mix.

The point where the profit line intersects the horizontal axis on the profit-volume chart represents

the break-even point.

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents

the break-even point.

The point where the profit line intersects the left vertical axis on the profit-volume chart represents

the maximum possible operating loss.

Which of the following describes the behavior of the variable cost per unit?

Remains constant with changes in production

Which of the following costs is a mixed cost?

Rental costs of $5,000 per month plus $0.30 per machine hour of use

Cost behavior refers to the manner in which

a cost changes as the related activity changes

Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and Snower is in the 25% corporate tax bracket. What are the sales (in dollars) required to earn a net income (after tax) of $40,000?

$2,577,778

Given the following cost and activity observations for Merritt Company's utilities, use the high-low method to calculate Merritt's fixed costs per month.

$2,600

Knowing how costs behave is useful to management for all the following reasons EXCEPT for

predicting customer demand.

The contribution margin ratio is

the same as the profit-volume ratio.

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called

"what if" or sensitivity analysis.

Wiles Inc.'s unit selling price is $40, the unit variable costs are $30, fixed costs are $135,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units?

$50,000 increase

If the contribution margin ratio for Harrison Company is 38%, sales were $425,000 and fixed costs were $100,000, what was the income from operations?

$61,500

If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point in units if fixed costs are reduced by $80,000?

10,500

Assume that Crowson Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45, respectively. Crowson has fixed costs of $350,000. The break-even point in units is

14,000 units.

If fixed costs are $561,000 and the unit contribution margin is $10, what is the break-even point in units if variable costs are decreased by $0.50 per unit?

53,429

If fixed costs are $600,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000?

58,334

If fixed costs are $250,000, the unit selling price is $105, and the unit variable costs are $65, what is the break-even sales (in units)?

6,250 units

Which ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?

Contribution margin ratio

As production increases, what would you expect to happen to fixed costs per unit?

Decrease

Which of the following describes the behavior of the fixed cost per unit?

Decreases with increasing production

Which of the following is an example of a cost that varies in total as the number of units produced changes?

Direct materials cost

Which of the following is an example of a cost that varies in total as the number of units produced changes?

Electricity per KWH to operate factory equipment

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

decrease

Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is

expected to increase by 32%.

In cost-volume-profit analysis, all costs are classified into the following two categories:

variable costs and fixed costs.

As production increases, what should happen to the variable costs per unit?

stay the same