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Question(s) / Instruction(s):

Acct 004-n7337 Chapter 5 Exam

When using the high-low method, after the variable cost is computed, you must use the high point to calculate the estimated fixed costs.

a.            True

 b.           False


Question 2

 

When a cost volume profit chart is created, the amount of fixed costs can be found at the line starting at zero and going outward.

a.            True

 b.           False

 

Question 3

 A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. What is the break-even point in dollar sales?

a.            $ 2,100.

 b.           $ 6,000.

 c.            $ 420,000.

 d.           $ 646,154.

 e.           $1,200,000.

 

Question 4

When a companys total contribution margin is $200,000 at the break-even point, its fixed costs are equal to $200,000.

a.            True

 b.           False

 

Question 5

 Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

a.            6%.

 b.           25%.

 c.            33%.

 d.           50%.

 e.           75%.

 

Question 6

 Which of the following is true about mixed costs?

a.            Mixed costs include both fixed and variable components.

 b.           Mixed costs cause problems in cost-volume-profit calculations and so they must be split out between the fixed and variable components.

 c.            One way to split out mixed costs (into variable and fixed components) is by using the high-low method.

 d.           All of the above.

 e.           None of the above.


Question 7

 If the cost of utilities is $1,280 for 32,000 units of power used and is $840 for 18,000 units of power used, utilities are a variable cost.

a.            True

 b.           False

 

Question 8

 If the variable costs of a product equal $55 and the selling price is $100, then the contribution margin for the product is $45.

a.            True

 b.           False

 

Question 9

 Which of the following is true with regard to fixed costs?

a.            A fixed cost remains unchanged in amount even when the volume of activity varies from period to period.

 b.           On a per-unit basis, fixed costs have an inverse relationship.

 c.            Fixed costs are used in calculating the break even point.

 d.           All of the above.

 e.           None of the above.


Question 10

 The difference between sales price per unit and variable cost per unit is the:

a.            Gross profit from sales.

b.            Gross margin per unit.

c.             Fixed cost per unit.

d.            Margin of safety per unit.

e.            Contribution margin per unit

 

Question 11

 Salaries of sales personnel who are paid on a commission only basis are which type of cost?

a.            Fixed

b.            Variable

c.             Mixed

d.            Step-wise

e.            None of the above


Question 12

 Fixed costs, on a per-unit basis, have a directly proportional relationship with changes in sales or production.

a.            True

b.            False


Question 13

 A company currently has fixed cost of $770,500, which will increase by $103,500 if the company expands its production facilities. Currently, it sells its product for $47. The product has a variable cost per unit of $24. How many more units must the company sell to break even, at the current sales price per unit, than it did to break even prior to the increase in fixed cost?

a.            3,500

b.            4,000

c.             4,500

d.            5,000

e.            6,000

 

Question 14

 Variable costs (on a per-unit basis) remain constant in proportion to changes in volume.

a.            True

b.            False


Question 15

 A graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart.

a.            True

b.            False


Question 16

 Which of the following is true about contribution margin income statements?

a.            It is also referred to as a variable costing income statement.

b.            It takes components of a traditional income statement and splits them up into variable and fixed components.

c.             It can help management make decisions regarding such issues as short term pricing.

d.            All of the above

e.            None of the above.


 

Question 17

 Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

a.            True

b.            False


Question 18

 To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and sales price.

a.            True

b.            False


Question 19

 A company with current sales of $730,000 and a break-even point of $750,000 has a $20,000 margin of safety.

a.            True

b.            False


 

Question 20

 Which of the following is true about variable costs?

a.            Variable costs are constant in total even when activity levels change.

b.            Variable costs are fixed in total but vary on a per unit basis.

c.             Variable costs on a per-unit basis have an inverse relationship.

d.            Variable costs vary in total but are fixed per unit.

e.            All of the above.

 

Question 21

 A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

a.            6,500.

 b.           6,000.

 c.            500.

 d.           5,000.

 e.           5,500.

 

Question 22

 The excess of expected sales over the sales level at the break-even point is known as the:

a.            Sales turnover.

b.            Profit margin.

c.             Contribution margin.

d.            Relevant range.

e.            Margin of safety.


Question 23

 Cost-volume-profit analysis provides approximate, but not precise, answers to questions about the relations among costs, volume, and profits.

a.            True

b.            False


Question 24

 If a firms margin of safety is 15% on sales of $420,000, what will be its margin of safety on sales of $375,000 (assume fixed costs, the variable cost per unit, and the sales price per unit do not change)?

a.            $ 45,000

b.            $ 18,000

c.             $ 56,250

d.            $ 63,000

e.            None of the above

 

Question 25

 A cost that can be separated into fixed and variable components is called a:

a.            Mixed cost.

b.            Step-variable cost.

c.             Composite cost.

d.            Composite cost.

e.            Differential cost.

 

Question 26

If the margin of safety is 31% of sales, which are $570,000, what is the break-even point?

a.            Cannot be determined

b.            $176,700

c.             Less than $393,300

d.            Greater than $393,300

e.            $393,300

 

Question 27

 One of the benefits of CVP analysis is that it is possible to estimate the dollar amount of sales required to achieve a target income, after taxes.

a.            True

 b.           False


Question 28

 When the variable costs are 60% of sales dollars, the contribution ratio is also 60%.

a.            True

b.            False


Question 29

 A firm pays the same amount for its basic phone service each month as well as a per minute fee for the number of minutes of long distance calls made. This is an example of a mixed cost.

a.            True

b.            False


Question 30

 On a cost-volume-profit chart (break-even graph), where are the total fixed costs shown?

a.            As the point where the sales line intersects the vertical axis (dollars)

b.            As the point where the sales line crosses the total cost line

c.             As the point where the sales line crosses the horizontal axis (volume)

d.            As the point where the total cost line intersects the horizontal axis (volume)

e.            As the point where the total cost line intersects the vertical axis (dollars)


 

Question 31

 If the contribution margin is $49,000 and the total sales are $166,000, total variable costs must equal $117,000.

a.            True

b.            False

 

Question 32

 The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

a.            True

b.            False


Question 33

 Janet sells a product for $18.99. The variable costs are $14.38. Janets break-even units are 59,000. What is the amount of fixed costs?

a.            $ 59,000

b.            $ 271,990

c.             $ 848,420

d.            $1,120,410

e.            None of the above

 

Question 34

 With fixed costs of $46,100, and a contribution ratio of 55%, how much revenue is required to achieve a desired profit of $49,070?

a.            $173,036

b.            $95,170

c.             $ 83,818

d.            $89,218

e.            None of the above


 

Question 35

 

A company currently sells for $100 a product that has a variable cost per unit of $48. Fixed costs are $910,000 and not expected to change in the next period. If the company desires to reduce its break even point by 1,250 units, by how much must they reduce variable costs?

a.            $4.00

b.            $5.00

c.             $3.75

d.            $5.25

 e.           Cannot be determined

 

Question 36

 Scatter diagrams require estimates and judgments in analyzing cost behavior.

a.            True

b.            False

Question 37

 Data to be used in applying the high-low method shows the highest cost of $69,000 and the lowest cost of $52,000. The data shows $148,000 as the highest level of sales and $97,000 as the lowest level. What is the variable cost per sales dollar?

a.            $0.33

b.            $0.47

c.             $0.54

d.            $3.00

e.            None of the above

 

Question 38

A cost that changes in proportion to changes in volume of activity is a(n):

a.            Differential cost.

b.            Fixed cost.

c.             Incremental cost.

d.            Variable cost.

e.            Product cost

 

Question 39

 The margin of safety is the amount that sales can drop before the company incurs a loss.

a.            True

b.            False


Question 40

 The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

a.            True

b.            False


 

Question 41

 When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which one of the following is one of those assumptions?

a.            The contribution margin per unit will change as volume increases

b.            The variable cost per unit will decrease as volume increases

c.             The sales price per unit will remain constant as volume increases

d.            Fixed costs per unit will remain the same as volume increases

e.            The actual variable cost per unit must vary over the production range


Question 42

 If the variable costs to make and sell the unit are $36 and the contribution margin ratio is 25%, then the selling price of a unit is $54.

a.            True

b.            False


Question 43

 Use the following information for Harrys Seafood for this question:.

 Month    Units produced    Total costs

 June        2,000                   $40,000

 July         1,200                   $30,000

 August     1,700                   $38,000

 Sept.        1,000                   $25,000

 Using the high-low method for Harrys Seafood, calculate the variable cost per unit:

a.            $15

b.            $20

c.             $24

d.            $28

e.            Not enough information to determine.

 

Question 44

The variable cost for each blidget produced is $23. The contribution margin per unit is $8 per unit. What is the sales price per unit?

a.            $ 8

b.            $19

c.             $31

d.            $39

e.            None of the above

 

Question 45

When a company hires a new manager every time it opens a new branch office, the salaries of the branch managers would be classified as a stair-step cost.

a.            True

b.            False


 

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