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Fantasmas Incorporated had the following information:
 
Activity Driver                    Unit Variable Cost            Level of Activity Driver
Units sold                            $20
Setups                                 1,200                                    60
Engineering hours              52                                         1,500
 
Other data:
Total fixed costs (traditional)        $             600,000
Total fixed costs (ABC)                 $             360,000
Unit selling price                               $           60
 
How many units need to be sold to produce a before-tax profit of $80,000 using ABC?
 
14,750 units
 
($360,000 + $72,000 + $78,000 + $80,000)/$40 = 14,750 units
 

 Assume the following information:
 
Selling price per unit                  $  180
Contribution margin ratio              48%
Total fixed costs                          $  270,000
 
How many units must be sold to generate a before-tax profit of $54,000?
 
3,750 units
(270,000 + 54,000) / (180 × 0.48) = 3,750 units  Nonesuch Company sells only one product at a regular price of $7.50 per unit.
Variable expenses are 60 percent of sales and fixed expenses are $30,000.
Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.
 
What sales dollar level is needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per unit?
 
$360,000
 
7.50 × 0.6 = 4.50
(6.00 − 4.50) / 6.00 = 25%
(30,000 + 60,000) / 0.25 = 360,000
  In 2018, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500.
The annual sales volume required for Samantha's to have a before-tax income of $18,000 is?
 
$108,011
 
CM rate = (40,500 − 27,000) / 40,500 = 33.33%
(18,000 + 18,000) / 33.33% = 108,011
   
Jamie Quinn, a sole proprietor, has the following projected figures for next year:
 
Selling price per unit                                      $150.00
Contribution margin per unit                       $45.00
Total fixed costs                                                 $630,000
 
What selling price per unit is needed to obtain a before-tax profit of $270,000 at a volume of 4,000 units?
 
$330.00
 
Total contribution margin = $630,000 + $270,000 = $900,000
Contribution margin per unit = $900,000 / 4,000 = $225
Price = $225 + ($150 − $45) = $330  
Jamie Quinn, a sole proprietor, has the following projected figures
for next year:
 
Selling price per unit                                   $150.00
Contribution margin per unit                       $45.00
Total fixed costs                                           $630,000
 
How many units must be sold to obtain a target before-tax profit of $270,000?
 
20,000 units
 
($630,000 + $270,000) / $45 = 20,000 units
   
Biscuit Company sells its product for $50. In addition, it has a
variable cost ratio of 55 percent and total fixed costs of $6,875. How
many units must be sold in order to obtain a before-tax profit of $12,000?
 
839 units
 
50 × 0.55 = 27.5
12,000 = 50x − (6,875 + 27.5x)
12,000 = 50x − 6,875 − 27.5x
12,000 + 6,875 = 22.5x term-9
x = (12,000 + 6,875) / 22.5
x = ($6,875 + $12,000) / $22.50 = 838.889 units
   
 Summersville Production Company had the following projected information for the current year:
 
Selling price per unit                      $150
Variable cost per unit                     $90
Total fixed costs                              $300,000
 
What level of sales dollars is needed to obtain a target before-tax profit of $75,000?
 
$937,500
 
CM rate = ($150 - $90) / $150 = 40%
($300,000 + $75,000) / 0.4 = $937,500
   
Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent and total fixed costs of $6,875.
 
What is the break-even point in units for Biscuit Company?
 
250 units
 
$6,875 / ($50 × 0.55) = 250 units
   
The following data pertain to the three products produced by Beta Corporation:
 
A                             B                            C
Selling price per unit                                       $6.00                  $  8.00                 $  9.00
Variable costs per unit                                    4.00                       4.00                      4.00
Contribution margin per unit                       $  2.00                    $ 4.00                  $  5.00
 
Fixed costs are $77,000 per month.
 
Twenty percent of all units sold are Product A, fifty-five percent are Product B, and twenty-five percent are Product C.
What is the monthly break-even point for total units?
 
20,000 units
 
(0.20 × 2.00) + (0.55 × 4.00) + (0.25 × 5.00) = 3.85
77,000 / 3.85 = 20,000
 
   
 Nonesuch Company sells only one product at a regular price of $7.50 per unit.
Variable expenses are 60 percent of sales and fixed expenses are $30,000.
Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.
 
What is the new break-even point in units for Nonesuch Company when the selling price is $6.00?
 
20,000 units
 
7.50 × 0.6 = 4.50
6.00 − 4.50 = 1.50
30,000 / 1.50 = 20,000
   
 When a company sells more units than the break-even point,
a. there are no new variable costs incurred.
b. it moves above the relevant range.
c. profits are negative.
d. profits are positive.
   
Total contribution margin is calculated by subtracting
a. fixed costs from total revenues.
b. cost of goods sold from total revenues.
c. total variable costs from total revenues.
d. total manufacturing costs from total revenues.
   
Which of the following formulas is used to calculate break-even point in units?
a. Break-even point in units = Total fixed costs / (Price – Unit variable cost)
b. Break-even point in units = Sales / Unit variable cost
c. Break-even point in units = Total costs / Unit contribution margin
d. Break-even point in units = Sales / Fixed costs
   
Which of the following formulas is used to compute operating income?
a. Operating income = Sales revenues − Tangible expenses − Target profit
b. Operating income = Sales revenues − Depreciation expenses – Fixed expenses
c. Operating income = Sales revenues + Fixed expenses − Target profit
d. Operating income = Sales revenues − Variable expenses − Fixed expenses
   
The variable cost ratio
a. expresses variable costs as a percentage of total costs.
b. expresses variable cost in terms of sales dollars.
c. expresses the proportion of sales dollars available to cover fixed
costs and provide for a profit.
d. expresses the proportion between fixed costs and variable costs.
   
Sales × Contribution Margin is a short-cut of what formula?
a. Sales − (Variable cost ratio × Sales)
b. Sales − (Fixed Costs + Variable Costs)
c. Sales / Fixed Costs
d. Fixed Costs / Unit Contribution Margin
   
Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis?
a. the ability to conduct sensitivity analysis of cost or price changes
b. the identification of price and efficiency variances
c. how many units must be sold to break even
d. what is the impact on the break-even point of an increase or decrease
in fixed costs
   
Which of the following items would NOT be considered in
cost-volume-profit analysis?
a. units of production
b. product mix
c. gross profit margin
d. fixed costs
   
In the cost-volume-profit analysis, income taxes
a. are treated as a variable cost.
b. are treated as a fixed cost.
c. increase the sales volume required to break even.
d. increase the sales volume required to earn a desired profit.
   
The contribution margin at the break-even point
a. is zero.term-40
b. is greater than variable costs.
c. plus total fixed costs equals total revenues.
d. equals total fixed costs.
   
Which of the following refers to the relative combination of products
being sold by a firm?
a. Sales mix
b. Break-even sales
c. Margin of safety
d. Contribution margin
   
Which of the following assumptions does NOT pertain to
cost-profit-volume analysis?
a. The sales mix is constant.
b. Sales price per unit remains constant.
c. Inventories in a manufacturing entity may go up or down.
d. Fixed expenses are constant at all volumes of activities within the
relevant range.
   
A very high degree of operating leverage indicates a firm
a. has a high net income.
b. is operating close to its break-even point.
c. has high variable costs.
d. has high fixed costs.
   
Assuming all other things are the same, if there was a decrease in
the break-even point, selling price per unit must have:
a. decreased
b. increased
c. remained the same
d. increased first, then decreased
   
Assuming all other things are equal, if there was a decrease in the
break-even point, fixed costs must have:
a. remained the same
b. increased first, then decreased
c. decreased
d. increased
   
Assuming all other things are the same, if there was an increase in the
break-even point, contribution margin per unit must have:
a. increased
b. remained the same
c. decreased
d. increased first, then decreased
   
The margin of safety is
a. the use of fixed costs to extract higher percentage changes in
profits as sales volume changes.
b. the number of units that need to be sold to achieve a profit target.
c. the sales dollars needed to cover fixed costs.
d. the amount of units expected to be sold above the break-even level.
   
Which of the following is a TRUE statement about sales mix?
a. Profits may decline with an increase in total dollars of sales if the sales mix shifts to sell more of the lower contribution margin product.
b. Profits will remain constant with an increase in total dollars of
sales if the total sales in units remains constant.
c. Profits will remain constant with a decrease in total dollars of
sales if the sales mix also remains constant.
d. Profits may decline with an increase in total do.
   
The income statement for Symbiosis Manufacturing Company for 2018 is as follows:
 
Sales (10,000 units)                        $    120,000
Variable expenses                                72,000
Contribution margin                        $    48,000
Fixed expenses                                      36,000
Operating income                            $    12,000
 
If sales increase by $60,000, what will happen to profit?
a. increase by $60,000
b. increase by $6,000
c. increase by $36,000
d. increase by $24,000
 
$60,000 × 0.4 = $24,000
 

The Cumberland Company provides the following information:
Sales (250,000 units)                      $625,000
 
Manufacturing costs:
Variable                                                212,500
Fixed                                                      37,500
 
Selling and administrative costs:
Variable                                                100,000
Fixed                                                      25,000
 
What is the total contribution margin for Cumberland?
 
$312,500
 
SP $2.50 − VC $1.25
CM $1.25 × 250,000 = 312,500
   
The Des Maris Company had the following income statement for the month of
November 2018:
 
Des Maris Company Income Statement
For the Month of November 2018
 
Sales                                                                      $600,000
Cost of goods sold:
Direct materials                                                     $120,000
Direct labor                                                               90,000
Variable factory overhead                                       75,000
Fixed factory overhead                                           120,000               405,000
Gross profit                                                              $195,000
 
Selling and administrative expenses:
Variable                                                                 $ 15,000
Fixed                                                                         90,000                 105,000
Operating income                                                    $90,000
 
If the monthly sales volume increases by 450 units, Des Maris Company's monthly profits will increase by
 
$13,500.00
 
450 × ($60.00 − $12.00 − $9.00 − $7.50 − $1.50) = $13,500
   
Cain Company and Abel Corporation have the following income
statements for the current year:
 
Cain Company Abel Corporation
 
Sales                                                 $50,000               $50,000
Variable expenses                            10,000                 25,000
Contribution margin                         $40,000               $25,000
Fixed expenses                                   25,000             10,000
Operating income                            $15,000               $15,000
 
What is the degree of operating leverage for Cain Company for the current year?
 
2.667
 
$40,000/$15,000 = 2.667
   
The income statement for Symbiosis Manufacturing Company for the current year is as follows:
 
Sales (10,000 units)                         $    120,000
Variable expenses                                72,000
Contribution margin                        $    48,000
Fixed expenses                                      36,000
Operating income                            $    12,000
 
What is the contribution margin per unit?
 
$4.80
 
$48,000/10,000 = $4.80
   
Variable costs are costs that:
a. vary in total directly and proportionately with changes in the activity level.
b. remain the same per unit at every activity level.
c. Neither of the above.
d. Both (a) and (b) above.
   
The relevant range is:
a. the range of activity in which variable costs will be curvilinear.
b. the range of activity in which fixed costs will be curvilinear.
c. the range over which the company expects to operate during a year.
d. usually from zero to 100% of operating capacity.
   
Mixed costs consist of a:
a. variable-cost element and a fixed-cost element.
b. fixed-cost element and a product-cost element.
c. period-cost element and a product-cost element.
d. variable-cost element and a period-cost element.
   
Your cell phone service provider offers a plan that is classified as a
mixed cost. The cost per month for 1,000 minutes is $50. If you use
2,000 minutes this month, your cost will be:
a. $50.
b. $100.
c. more than $100
d. between $50 and $100.
   
Kendra Corporation's total utility costs during the past year were
$1,200 during its highest month and $600 during its lowest month. These
costs corresponded with 10,000 units of production during the high month
and 2,000 units during the low month. What are the fixed and variable
components of its utility costs using the high-low method?
a. $0.075 variable and $450 fixed.
b. $0.120 variable and $0 fixed.
c. $0.300 variable and $0 fixed.
d. $0.060 variable and $600 fixed.
   
Which of the following is NOT involved in CVP analysis?
a. sales mix.
b. Unit selling prices.
c. Fixed costs per unit.
d. Volume or level of activity.
   
When comparing a traditional income statement to a CVP income statement:
a. net income will always be greater on the traditional statement.
b. net income will always be less on the traditional statement.
c. net income will always be identical on both.
d. net income will be greater or less depending on the sales volume.
   
Contribution margin:
a. is revenue remaining after deducting variable costs.
b. may be expressed as unit contribution margin.
c. is selling price less cost of goods sold.
d. Both (a) and (b) above.
   
Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000 and net income is $200,000. What should be reported as variable expenses in the CVP income statement?
 
a. $700,000.
b. $900,000.
c. $500,000.
d. $1,000,000.
   
Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%.
If Gossen will break even at this level of sales, what are the fixed costs.

a. $100,000.
b. $160,000.
c. $200,000.
d. $300,000.
   
Brownstone Company's contribution margin ratio is 30%. If Brownstone's sales revenue is $100 greater than its break-even sales in dollars, its net income:
a. will be $100.
b. will be $70.
c. will be $30.
d. cannot be determined without knowing fixed costs.
   
The mathematical equation for computing required sales to obtain target
net income is Sales =
a. Variable costs + Target net income.
b. Variable costs + Fixed costs + Target net income
c. Fixed costs + Target net income.
d. No correct answer is given.
   
Margin of safety is computed as:
a. Actual sales - Break even sales
b. Contribution margin - Fixed costs
c. Break even sales - Variable costs
d. Actual sales - Contribution margin
   
Marshall Company had actual sales of $600,000 when break-even sales were
$420,000. What is the margin of safety ratio?
a. 25%
b. 30%
c. 33 1/3%
d. 45%
   
The range over which a company is expected to operate is called the relevant range of the activity index.
True
   
A mixed cost contains both selling and administrative cost elements.
False
   
Variable costs are costs that remain the same per unit at every level of activity.
True
   
If a salesperson incurs 2,000 CHF of expenses in servicing two customers and 4,000 CHF of expenses in
servicing four customers, the fixed costs are 1,000 CHF.
False
   
If revenue = $80 and variable cost = 40% of revenue, then contribution margin = $48.
True
   
The contribution margin is the amount of revenue remaining after deducting fixed costs.
False
   
Sales mix is the percentage that each product represents of total sales.
True
   
If the unit contribution margin is 300 CHF and fixed costs are 240,000 CHF then the break-even point in units would be 800 units.
True
   
In a CVP income statement, contribution margin is reported in the body of the statement.
True
   
Margin of safety is the difference between actual sales and contribution margin.
False
   
Which of the following is a false statement regarding assumptions of CVP analysis?
Changes in volume or level of activity increase variable costs per unit.
   
Mixed costs may be separated into fixed costs and variable costs by using
the high-low method.
   
If the unit selling price is 500 CHF, the unit variable cost is 300 CHF, and the total monthly fixed costs are 300'000 CHF, then the contribution margin ratio is
 40%
   
Costs will not change in total within the relevant range of activity.
False
   
The high-low method is used in classifying a mixed cost into its variable and fixed elements.
True
   
A mixed cost has both selling and administrative cost elements.
False
   
The fixed cost element of a mixed cost is the cost of having a service available.
True
   
For an activity base to be useful in cost behavior analysis,
there should be a correlation between changes in the level of activity and changes in costs.
 
A cost which remains constant per unit at various levels of activity is a
variable cost.
 
A variable cost is a cost that
varies in total in proportion to changes in the level of activity.
 
A fixed cost is a cost which
remains constant in total with changes in the level of activity
 
Fixed costs normally will not include
direct labor.
 
The increased use of automation and less use of the work force in companies has caused
fixed costs and a decrease in variable costs.
 
Cost behavior analysis is a study of how a firm's costs
respond to changes in the level of business activity.
 
Cost behavior analysis applies to
all entities
 
If a firm increases its activity level,
some costs will change, others will remain the same
 
An activity index might be referred to as a cost
driver.
 
Cost activity indexes might help classify costs as
variable.
 
Which of the following is not a cost classification?
Multiple
 
If the activity level increases 10%, total variable costs will
increase 10%
 
Changes in activity have a(n) _________ effect on fixed costs per unit.
inverse
 
Which of the following is not a fixed cost?
Direct materials
 
Dewey, Cheatum & Howe, LLP, is a legal firm. The lawyers are paid $150 per hour and overhead is allocated at a rate of $100 per direct labor hour.
A Salt & Buttery, Inc., is a client that was charged for 19 direct labor hours and $1,000 for materials used. Calculate the price of the job given Dewey,
Cheatum & Howe markup its costs by 60%.
 
9,200
150*19 = 2850+
100*19 = 1,900+
1,000 + = 5750 * .6 =  3450
3450 + 5750 = 9,200
   
When companies are price setters, their products and services ______.
Tend to be unique
   
Dewey, Cheatum & Howe, LLP, is a legal firm. The lawyers are paid $150 per hour and overhead is allocated at a rate of $100 per direct labor hour.
A Salt & Buttery, Inc., is a client that was charged for 17 direct labor hours and $1,000 for materials used. Calculate the price of the job given Dewey,
Cheatum & Howe markup its costs by 60%.
 
8400

(17150) + (17100) + 1000
5250 + (0.60 * 5250)
   
Simple T's, Inc. sells plain T-shirts in a very competitive market and thus needs to price its T-shirts at $12 each to maximize sales.
It expects to sell 12,000 T-shirts. Its total current costs to make 12,000 T-shirts is $120,000.
How much must its target total costs equal to reach its desired profit of $30,000?
 
114,000
   
A manager is considering replacing a piece of old equipment for a more efficient one.
It expected that annual maintenance cost for the new equipment will be $2,000, $10,000 less than the cost currently
being incurred to maintain the old equipment. If the new equipment is purchased, the old equipment will be sold for scrap.
Which of the following costs is NOT relevant to this decision?
 
The original cost of the old equipment.
   
When making decisions, managers should consider ______.
 
costs that differ between alternatives
   
Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced.
For each of the following items, indicate if it is relevant or irrelevant to the decision.

1. Cost of having the printing done by the printing company
2. Salary of the accounting manager of Impress, Inc.
3. Original price of the printing equipment owned by Impress, Inc.
 
1. Relevant
2. Irrelevant
3. Irrelevant
   
Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced.
For each of the following items, indicate whether it is a quantitative or qualitative factor.

1. Cost of having the printing done by the printing company
2. Quality of pages printed by the outside printing company
3. Labor rate for printing
4. Laying off employees by outsourcing
5. Sale price of books
6. Direct labor costs
7. Cost of paper
8. Reliability of delivery
 
1. Quantitative
2. Qualitative
3. Quantitative
4. Qualitative
5. Quantitative
6. Quantitative
7. Quantitative
8. Qualitative
   
Match the type of company and its most likely pricing approach given the company sells products that are not unique and faces significant competition.
 
Type of Company                                             Price taker
Pricing approach                                              Target costing
   
Quiche & Tell, Inc., is a catering business. Direct labor costs are $15 per hour and overhead is allocated to jobs at a rate of $10 per direct labor hour.
Catering for the Eggsetera, Inc. party cost $1,000 for direct materials and took 2 direct labor hours.
Given Quiche & Tell uses a cost-plus pricing approach and marks up its jobs by 40%, calculate the price for the Eggsetera's party.
 
1,470

 
Which of the following costs are irrelevant to business decisions?
 
sunk costs
   
Big Seats has the capacity to produce 100,000 sofas per year but only produces 80,000 sofas per year.
The sale price is $1,000 each. Direct materials equals $100 per sofa, direct labor equals $200 per sofa,
and allocated overhead equals $100,000 per year.
Buy & Large offers to buy an additional 2,000 sofas but is only willing to pay $800 per sofa.
What is the additional profit (loss) of accepting the offer?
 
1,000,000

 
Murphy's Paw produces and sells 1,000 units of a single product per year (with excess capacity of 400 units).
The cost of producing and selling a single unit is: The normal selling price is $50.00 per unit.
An order has been received from an overseas company for 100 units at the special price of $40.00 per unit.
What would be the additional income (or loss) of taking on this special order?
 
2,500
 
Wok Around the Clock, Inc., sells specialty woks.
In the current year it expects to incur $720,000 in variable costs and $130,000 in fixed costs to make and sell 10,000 woks at $100 each.
If Wok Around the Clock accepts a special order from Hard Wok Cafe to purchase 1,000 woks at $75 each,
how much would it make or lose on this special order?
 
3,000
   
Which of the following statements is true concerning the allocation of overhead?
indirect costs are allocated to cost objects to determine a more accurate cost
   
Buy & Large, Inc.'s, Purchasing Department's estimated annual costs are $400,000 and the number of purchase orders written is 800,000.
The Shoe Department has requested 300,000 purchases during the year for a total of $4,000,000 in purchases.
How much of the Purchasing Department's cost should be allocated to the Shoe Department?
 
150,000
   
Piece of Pizza Company is preparing its master budget for its first year of business.
 It expects to sell 6,000 pizzas at $8 per pizza per month. It expects to collect 95% of the sales in the month of the sale and 5% in the following month.
Calculate its Accounts Receivable balance at the end of its first month.
 
2,400
 
Accounts Receivable = Sales in the month x (100% - 95% Collected in the month)
   
You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment.
You plan to work 310 hours per month and charge your customers $20 per hour. Your anticipated costs include:
 
Advertising                                          $56.00 per month
Gas                                                         $1.30 per hour
Depreciation                                      $31.00 per month
Assistant's Wages                             $8.00 per hour
Miscellaneous Expenses                $30.00 per month
 
Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business.
Do not include $ or negative signs in your answer.
 
438
   
Sea the World Cruises sells 4,000 tickets on its deluxe yacht:
 
Selling price per customer $5,000
Variable cost per customer $1,000
Annual fixed cost $500,000
 
What is the company's breakeven point in units, i.e., customers?
Round to the nearest whole unit.
 
125
   
If Rich & Sweet Candy Company produces and sells 5,000 units, its projected revenues and costs would be as follows:

Total Sales Revenue        $              90,000
Total Variable Costs                         30,000
Total Fixed Costs                              20,000

If the units sold increases by 30%, what would the total contribution margin equal?
Do not include $ sign in your answer.
 
78,000
 
Total Contribution Margin = (Sales - Total Variable Cost) x (100% + percentage increase)
   
You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment.
You plan to work 360 hours per month and charge your customers $20 per hour. Your anticipated costs include:

Advertising                                         $41 per month
Gas                                                         $1.20 per hour
Depreciation                                      $25 per month
Assistant's Wages                             $10.00 per hour
Miscellaneous Expenses               $20 per month

Calculate your budgeted Sales for the month.
Do not include a $ sign in your answer.
 
7,200
   
Leaning Tower of Pizza, Inc., is preparing its master budget for its first quarter of business.
It expects to sell 6,000 pizzas at $7 per pizza per month.
It expects to collect 90% of the sales in the month of the sale and 10% in the following month.
Calculate its Accounts Receivable balance at the end of its first quarter.
Do not include $ in your answer.
 
4,200
   
Pasta Disasta, Inc., is preparing its master budget for its first month of business.
It expects to sell 4,000 pizzas per month. It will purchase enough pizzas so that 100 pizzas are in inventory at all times.
The pizza is expected to cost $4 per pizza. It expects to pay 70% in the month of purchase and the remainder in the following month.
Calculate the amount of budgeted purchases for its first month.
Do not include $ in your answer.
 
16,400
   
the expense of buying and preparing merchandise
 
cost of goods sold
   
An activity index identifies the activity that has a causal relationship with a particular cost.
 
True
   
A variable cost remains constant per unit at various levels of activity.
 
True
   
A fixed cost remains constant in total and on a per unit basis at various levels of activity.
 
False
   
If volume increases, all costs will increase.
 
False
   
If the activity index decreases, total variable costs will decrease proportionately.
 
True
   
Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.
 
False
   
For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.
 
True
   
The relevant range of activity is the activity level where the firm will earn income.
 
False
   
For planning purposes, mixed costs are generally grouped with fixed costs.
 
False
   
The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.
 
False
   
When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.
 
True
   
In using the high-low method, the fixed cost
 
may be determined by subtracting the total variable cost from either the total cost at the low or high activity level
   
If Qualls Quality Airline cuts its domestic fares by 30%,
 
a profit can be earned either by increasing the number of passengers or by decreasing variable costs
   
For analysis purposes, the high-low method usually produces a(n)
 
reasonable estimate.
   
The high-low method is criticized because it
 
ignores much of the available data by concentrating on only the extreme points.
   
The high-low method is often employed in analyzing
 
mixed costs.
   
In CVP analysis, the term "cost"
 
includes manufacturing costs plus selling and administrative expenses.
   
Which one of the following is not an assumption of CVP analysis?
 
All costs are variable costs.
   
CVP analysis does not consider
 
fixed cost per unit.
   
Which of the following is not an underlying assumption of CVP analysis?
 
Beginning inventory is larger than ending inventory.
   
CVP analysis is not important in
calculating depreciation expense.
 
To which function of management is CVP analysis most applicable?
 
Planning
   
Contribution margin
 
equals sales revenue minus variable costs
   
Which of the following would not be an acceptable way to express contribution margin?
 
Sales minus unit costs
   
Which is the true statement?
 
The CVP income statement shows contribution margin instead of gross profit.
   
The equation which reflects a CVP income statement is
 
Sales - Variable costs - Fixed costs = Net income.
   
The CVP income statement
 
discloses contribution margin in the body of the statement.
   
The break-even point is where
 
contribution margin equals total fixed costs.
   
The break-even point cannot be determined by
 
reading the prior year's financial statements.
   
A CVP graph does not include a
 
variable cost line.
   
The amount by which actual or expected sales exceeds break-even sales is referred to as
 
margin of safety.
   
In evaluating the margin of safety, the
 
higher the margin of safety ratio, the greater the margin of safety.
   
Within the relevant range, the variable cost per unit
 
remains constant at each activity level.
   
An example of a mixed cost is
 
utility costs.
   
Cost-volume-profit analysis includes all of the following assumptions except
 
the behavior of costs is curvilinear throughout the relevant range.
   
The contribution margin ratio increases when
 
variable costs as a percentage of sales decrease.
   
Contribution margin is
 
available to cover fixed costs and contribute to income for the company.
   
At the break-even point,
 
contribution margin equals total fixed costs.
   
Required sales in dollars to meet a target net income is computed by dividing
 
fixed costs plus target net income by contribution margin ratio.
   
Why is identification of a relevant range important?
 
Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
   
The relevant range of activity refers to the
 
levels of activity over which the company expects to operate.
   
Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?
 
Total variable costs are constant within the relevant range
   
Firms operating at 100% capacity
 
are the exception rather than the rule.
   
Which of the following would be the least controllable fixed costs?
 
Property taxes
   
Which one of the following is a name for the range over which a company expects to operate?
 
Relevant range
   
If graphed, fixed costs that behave in a curvilinear fashion resemble a(n)
 
stair-step pattern.
   
The graph of variable costs that behave in a curvilinear fashion will
 
approximate a straight line within the relevant range.
   
A mixed cost contains
 
a variable element and a fixed element.
   
Which of the following is not true about the graph of a mixed cost?
 
The variable cost portion of the graph is rectangular in shape
   
Which of the following is not a mixed cost?
 
Depreciation

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