ACCT2813 CH 11

Consider the following information for Optimist Inc.: Production(units) Total Cost October 1,000 $42,000 November 2,000 $55,000 December 1,500 $46,000 January 2,500 $67,500 February 1,800 $50,000 Calculate the variable cost per unit using the high-low method of cost estimation. A. $42 B. $17 C. $35 D. $25

B. $17

Which of the following is a characteristic of fixed costs? A. Fixed cost per unit changes inversely to changes in the activity base. B. Fixed cost per unit remains the same irrespective of changes in the activity base. C. Total fixed costs change inversely to changes in the activity base. D. Total fixed costs change in direct proportion to changes in the activity base.

A. Fixed cost per unit changes inversely to changes in the activity base.

Which of the following statements is true of variable costing? A. Fixed factory overhead is treated as an expense for the period in which it is incurred. B. Variable factory overhead is not considered while calculating total cost. C. Variable factory overhead is treated as an expense for the period in which it is incurred. D. Fixed factory overhead is included in the product cost.

A. Fixed factory overhead is treated as an expense for the period in which it is incurred.

The difference between contribution margin and operating income is _____. A. fixed costs B. the margin of safety C. break-even sales D. variable costs

A. fixed costs

A break-even point is the level of operations at which a company's: A. revenues and expenses are equal. B. revenues and variables costs are equal. C. fixed costs and variable costs are equal. D. revenues and fixed costs are equal.

A. revenues and expenses are equal.

From the information given below, calculate percentage change in operating income for the year 2017. Sales for 2016- $300,000 Contribution margin- $150,000 Fixed costs- $100,000 Operating income- $50,000 Assume that sales for the current year increased by 15%. A. 52% B. 45% C. 50% D. 48%

B. 45%

From the information given below, calculate the margin of safety expressed in units. Actual sales- $500,000 Sales at the break-even point- $375,000 Variable cost per unit- $12 Unit selling price- $20 A. 5,750 units B. 6,250 units C. 7,250 units D. 6,750 units

B. 6,250 units

Which of the following statements is true about the effect of changes in unit variable cost on the break-even point? A. A change in the unit selling price does not affect the break-even point. B. An increase in the unit variable cost decreases the contribution margin and increases the break-even point. C. A decrease in the unit variable cost increases the contribution margin and increases the break-even point. D. A decrease in the unit variable cost decreases the contribution margin and decreases the break-even point.

B. An increase in the unit variable cost decreases the contribution margin and increases the break-even point.

Which of the following statements is true of operating leverage? A. Companies with high operating leverage generate less revenue. B. Companies with high fixed costs will normally have a high operating leverage. C. Companies with low contribution margin have a high operating leverage. D. Companies with low fixed costs will normally have a high operating leverage.

B. Companies with high fixed costs will normally have a high operating leverage.

Which of the following is an underlying assumption of cost-volume-profit analysis? A. The sales mix is variable. B. Within the relevant range of operating activity, the efficiency of operations does not change. C. The inventory quantities change twice during the relevant period. D. Total sales and total costs cannot be represented by straight lines.

B. Within the relevant range of operating activity, the efficiency of operations does not change.

Any additional contribution margin after covering fixed costs increases _____. A. unrealized income B. operating income C. opportunity income D. gross income

B. operating income

A cost-volume-profit graph constructed for a company indicates that operating profits are earned if: A. the sales levels are on the break-even point. B. the sales levels are to the right of the break-even point. C. the total cost levels are on the break-even point. D. the sales levels are to the left of the break-even point.

B. the sales levels are to the right of the break-even point.

Calculate the break-even point in sales units for Olive Inc. from the information given below: Unit contribution margin- $10 Contribution margin ratio- 40% Fixed costs- $80,000 Sales- 30,000units A. 3,200 units B. 4,000 units C. 8,000 units D. 3,000 units

C. 8,000 units

_____ is the excess of sales over variable costs. A. Incremental margin B. Gross profit C. Contribution margin D. Net profit

C. Contribution margin

Which of the following is an underlying assumption of cost-volume-profit analysis? A. Costs are either fixed costs or variable costs but not both. B. All costs are variable costs. C. Costs can be divided into fixed and variable components. D. All costs are fixed costs.

C. Costs can be divided into fixed and variable components.

Which of the following statements is true of the margin of safety? A. If the margin of safety is high, even a small decline in sales revenue may result in an operating loss. B. It indicates the operating loss that would result due to an increase in variable cost. C. If the margin of safety is low, even a small decline in sales revenue may result in an operating loss. D. It indicates the decrease in fixed costs necessary to achieve the target profit.

C. If the margin of safety is low, even a small decline in sales revenue may result in an operating loss.

The _____ indicates a possible decrease in sales that may occur before an operating loss occurs. A. break-even point B. degree of operating leverage C. margin of safety D. contribution margin

C. margin of safety

Mixed costs have characteristics of both: A. material costs and conversion costs. B. opportunity costs and sunk costs. C. variable costs and fixed costs. D. sunk costs and replacement costs.

C. variable costs and fixed costs.

Consider the following information for Peach Inc. for the year 2016: Sales price per unit- $15 Variable cost per unit- $9 Target profit per unit- $4 Calculate the unit contribution margin for Peach Inc. A. $11 B. $5 C. $13 D. $6

D. $6

How do changes in fixed costs affect the break-even point? A. A decrease in per-unit fixed costs increases the break-even point. B. An increase in total fixed costs decreases the break-even point. C. Any change in fixed costs does not affect the break-even point. D. An increase in total fixed costs increases the break-even point.

D. An increase in total fixed costs increases the break-even point.

The _____ indicates the percentage of each sales dollar available to cover fixed costs and to provide operating income. A. net profit margin ratio B. operating profit margin ratio C. cash flow coverage ratio D. contribution margin ratio

D. contribution margin ratio

The margin of safety is computed by: A. deducting variable costs from current sales. B. deducting budgeted sales from current sales. C. deducting target profit from current sales. D. deducting breakeven sales from current sales.

D. deducting breakeven sales from current sales.

The relationship of a company's contribution margin to operating income is measured by _____. A. margin of operations B. the operating income ratio C. the break-even point D. operating leverage

D. operating leverage

The _____ plots only the difference between total sales and total costs. A. break-even graph B. gross profit graph C. total cost function graph D. profit-volume graph

D. profit-volume graph