Course Hero has millions of student submitted documents similar to the one

below including study guides, practice problems, reference materials, practice exams, textbook help and tutor support.

Course Hero has millions of student submitted documents similar to the one below including study guides, practice problems, reference materials, practice exams, textbook help and tutor support.

4 Chapter Cost Behavior and Cost-Volume-Profit Analysis
OBJECTIVES
Obj 1 Obj 2 Obj 3 Obj 4 Obj 5
Classify costs by their behavior as variable costs, fixed costs, or mixed costs. Compute the contribution margin, the contribution margin ratio, and the unit contribution margin, and explain how they may be useful to managers. Using the unit contribution margin, determine the break-even point and the volume necessary to achieve a target profit. Using a cost-volume-profit chart and a profit-volume chart, determine the breakeven point and the volume necessary to achieve a target profit. Compute the break-even point for a business selling more than one product, operating leverage, and the margin of safety, and explain how managers use these concepts.
QUESTION GRID
True/False No. Objective 1 19(4)-01 2 19(4)-01 3 19(4)-01 4 19(4)-01 5 19(4)-01 6 19(4)-01 7 19(4)-01 8 19(4)-01 9 19(4)-01 10 19(4)-01 11 19(4)-01 12 19(4)-01 13 19(4)-01 14 19(4)-01 15 19(4)-01 16 19(4)-01 17 19(4)-01 18 19(4)-01 19 19(4)-01
Difficulty Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy
No. 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Objective 19(4)-01 19(4)-01 19(4)-01 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03
Difficulty Easy Easy Easy Easy Easy Easy Easy Moderate Moderate Moderate Moderate Moderate Easy Easy Moderate Moderate Moderate Moderate Moderate
No. 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Objective 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-04 19(4)-04 19(4)-04 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05
Difficulty Moderate Moderate Moderate Moderate Easy Easy Easy Difficult Difficult Difficult Difficult Difficult Moderate Moderate Easy Difficult Difficult Difficult
116
117 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
Multiple Choice No. Objective 1 19(4)-01 2 19(4)-01 3 19(4)-01 4 19(4)-01 5 19(4)-01 6 19(4)-01 7 19(4)-01 8 19(4)-01 9 19(4)-01 10 19(4)-01 11 19(4)-01 12 19(4)-01 13 19(4)-01 14 19(4)-01 15 19(4)-01 16 19(4)-01 17 19(4)-01 18 19(4)-01 19 19(4)-01 20 19(4)-01 21 22 23 24 25 26 27 28 29 30 31 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01 19(4)-01
Difficulty Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Moderate Moderate Moderate Moderate Moderate Easy Easy Moderate Moderate Moderate
No. 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71
Objective 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03
Difficulty Moderate Moderate Moderate Difficult Moderate Moderate Moderate Difficult Moderate Moderate Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate
No. 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 10 0 10 1 10 2 10 3 10 4 10 5 10 6 10 7 10 8 10 9 11 0 11 1
Objective 19(4)-03 19(4)-03 19(4)-04 19(4)-04 19(4)-04 19(4)-04 19(4)-04 19(4)-04 19(4)-04 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05
Difficulty Moderate Moderate Easy Moderate Moderate Moderate Easy Moderate Easy Difficult Moderate Easy Easy Easy Easy Easy Moderate Moderate Moderate Difficult Moderate Difficult Easy Difficult Moderate Easy Easy Easy Easy Moderate Moderate
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 118
32 33 34 35 36 37 38 39 40
19(4)-01 19(4)-01 19(4)-01 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02 19(4)-02
Moderate Moderate Moderate Easy Easy Easy Easy Moderate Easy
72 73 74 75 76 77 78 79 80
19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03 19(4)-03
Moderate Easy Easy Easy Easy Easy Easy Easy Moderate
11 2 11 3 11 4 11 5 11 6 11 7 11 8 11 9
19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05 19(4)-05
Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate
119 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
Exercise/Other No. Objective 1 19(4)-01 2 19(4)-01 3 19(4)-02 4 19(4)-02 5 19(4)-03
Difficulty Moderate Moderate Moderate Moderate Moderate
No. 6 7 8 9 10
Objective 19(4)-03 19(4)-03 19(4)-03 19(4)-05 19(4)-05
Difficulty Moderate Moderate Moderate Moderate Moderate
No. 11 12 13 14
Objective 19(4)-05 19(4)-05 19(4)-05 19(4)-05
Difficulty Difficult Easy Easy Easy
Problem No. Objective Difficulty 1 19(4)-01 Moderate 2 19(4)-01 Difficult 3 19(4)-02 Easy 4 5 19(4)-02 19(4)-03 Easy Easy
No. Objective 6 19(4)-03 7 19(4)-03 8 19(4)-03 9 10 19(4)-03 19(4)-03
Difficulty Easy Easy Moderate Moderate Moderate
No. Objective 11 19(4)-03 12 19(4)-03 13 19(4)-03, 19(4)-05 14 19(4)-03, 19(4)-05 15 19(4)-05
Difficulty Moderate Difficult Moderate Moderate Difficult
Chapter 4Cost Behavior and Cost-Volume-Profit Analysis
TRUE/FALSE 1. Cost behavior refers to the methods used to estimate costs for use in managerial decision making.
DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 2. Cost behavior refers to the manner in which a cost changes as the related activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 3. The fixed cost per unit varies with changes in the level of activity. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 4. A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 5. Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 120
6.
In order to choose the proper activity base for a cost, managerial accountants must be familiar with the operations of the entity. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 7. The relevant range is useful for analyzing cost behavior for management decision-making purposes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 8. The relevant activity base for a cost depends upon which base is most closely associated with the cost and the decision-making needs of management. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 9. The range of activity over which changes in cost are of interest to management is called the relevant range. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 10. Total fixed costs change as the level of activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 11. Because variable costs are assumed to change in constant proportion with changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 12. Variable costs are costs that remain constant in total dollar amount as the level of activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 13. Variable costs are costs that remain constant on a per-unit basis as the level of activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 14. Variable costs are costs that vary in total in direct proportion to changes in the activity level. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 15. Variable costs are costs that vary on a per-unit basis with changes in the activity level. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 16. Direct materials and direct labor costs are examples of variable costs of production. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
121 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
17. Total variable costs change as the level of activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 18. Unit variable cost does not change as the number of units of activity changes. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 19. A mixed cost has characteristics of both a variable and a fixed cost. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 20. Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours is an example of a fixed cost. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 21. A rental cost of $20,000 plus $.70 per machine hour of use is an example of a mixed cost. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 22. For purposes of analysis, mixed costs can generally be separated into their variable and fixed components. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 23. The contribution margin ratio is the same as the profit-volume ratio. DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 24. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio. DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 25. The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost. DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 26. The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio. DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 27. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%. DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 122
28. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%. DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 29. The data required for determining the break-even point for a business are the total estimated fixed costs for a period, stated as a percentage of net sales. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 30. If fixed costs are $300,000 and variable costs are 70% of break-even sales, profit is zero when sales revenue is $930,000. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 31. If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when 15,000 units are sold. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 32. The point in operations at which revenues and expired costs are exactly equal is called the breakeven point. DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 33. Break-even analysis is one type of cost-volume-profit analysis. DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 34. If the property tax rates are increased, this change in fixed costs will result in a decrease in the breakeven point. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 35. If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 36. If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 37. If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
123 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
38. If direct materials cost per unit increases, the break-even point will decrease. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 39. If direct materials cost per unit increases, the break-even point will increase. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 40. If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 41. If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 42. If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $30,000 are 14,000 units. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 43. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart. DIF: Easy OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 44. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart. DIF: Easy OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 45. Cost-volume-profit analysis can be presented in both equation form and graphic form. DIF: Easy OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 46. If a business sells two products, it is not possible to estimate the break-even point. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 47. If a business sells four products, it is not possible to estimate the break-even point. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 48. Even if a business sells six products, it is possible to estimate the break-even point. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 124
49. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 11,500 units. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 50. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 12,500 units. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 51. If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 25%. DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 52. If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 20%. DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 53. Companies with large amounts of fixed costs will generally have a high operating leverage. DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 54. A low operating leverage is normal for highly automated industries. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 55. DeGiaimo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 56. The reliability of cost-volume-profit analysis does NOT depend on the assumption that costs can be accurately divided into fixed and variable components. DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement MULTIPLE CHOICE 1. Cost behavior refers to the manner in which: a. a cost changes as the related activity changes b. a cost is allocated to products c. a cost is used in setting selling prices d. a cost is estimated DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
125 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
2.
The three most common cost behavior classifications are: a. variable costs, product costs, and sunk costs b. fixed costs, variable costs, and mixed costs c. variable costs, period costs, and differential costs d. variable costs, sunk costs, and opportunity costs DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 3. Costs that remain constant in total dollar amount as the level of activity changes are called: a. fixed costs b. mixed costs c. opportunity costs d. variable costs DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
4.
Which of the graphs in Figure 20-1 illustrates the behavior of a total fixed cost? a. Graph 2 b. Graph 3 c. Graph 4 d. Graph 1 DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 126
5.
Which of the graphs in Figure 20-1 illustrates the behavior of a total variable cost? a. Graph 2 b. Graph 3 c. Graph 4 d. Graph 1 DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 6. Which of the graphs in Figure 20-1 illustrates the nature of a mixed cost? a. Graph 2 b. Graph 3 c. Graph 4 d. Graph 1 DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 7. Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes? a. Direct labor b. Salary of a factory supervisor c. Units of production depreciation on factory equipment d. Direct materials DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 8. Which of the following describes the behavior of the fixed cost per unit? a. Decreases with increasing production b. Decreases with decreasing production c. Remains constant with changes in production d. Increases with increasing production DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 9. Which of the following activity bases would be the most appropriate for food costs of a hospital? a. Number of cooks scheduled to work b. Number of x-rays taken c. Number of patients who stay in the hospital d. Number of scheduled surgeries DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 10. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service? a. Number of trucks employed b. Number of miles driven c. Number of trucks in service d. Number of packages delivered DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
127 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
11. Most operating decisions of management focus on a narrow range of activity called the: a. relevant range of production b. strategic level of production c. optimal level of production d. tactical operating level of production DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 12. Costs that vary in total in direct proportion to changes in an activity level are called: a. fixed costs b. sunk costs c. variable costs d. differential costs DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 13. Which of the following is an example of a cost that varies in total as the number of units produced changes? a. Salary of a production supervisor b. Direct materials cost c. Property taxes on factory buildings d. Straight-line depreciation on factory equipment DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 14. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes? a. Electricity per KWH to operate factory equipment b. Direct materials cost c. Straight-line depreciation on factory equipment d. Wages of assembly worker DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 15. Which of the following is NOT an example of a cost that varies in total as the number of units produced changes? a. Electricity per KWH to operate factory equipment b. Direct materials cost c. Insurance premiums on factory building d. Wages of assembly worker DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 16. Which of the following describes the behavior of the variable cost per unit? a. Varies in increasing proportion with changes in the activity level b. Varies in decreasing proportion with changes in the activity level c. Remains constant with changes in the activity level d. Varies in direct proportion with the activity level DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 128
17. The graph of a variable cost when plotted against its related activity base appears as a: a. circle b. rectangle c. straight line d. curved line DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 18. A cost that has characteristics of both a variable cost and a fixed cost is called a: a. variable/fixed cost b. mixed cost c. discretionary cost d. sunk cost DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 19. Which of the following costs is a mixed cost? a. Salary of a factory supervisor b. Electricity costs of $2 per kilowatt-hour c. Rental costs of $5,000 per month plus $.30 per machine hour of use d. Straight-line depreciation on factory equipment DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 20. For purposes of analysis, mixed costs are generally: a. classified as fixed costs b. classified as variable costs c. classified as period costs d. separated into their variable and fixed cost components DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 21. Ingram 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: a. $56,000 b. $28,400 c. $17,600 d. cannot be determined from the data given DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
129 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
22. Given the following cost and activity observations for Wondrous Companys utilities, use the highlow method to calculate Wondrous variable utilities costs per machine hour. Cost Machine Hours March $3,100 15,000 April 2,700 10,000 May 2,900 12,000 June 3,500 18,000 a. b. c. d. ANS: NAT: $10.00 $.67 $.63 $.10 D DIF: Moderate OBJ: 19(4)-01 AACSB Analytic | IMA-Performance Measurement
23. Given the following cost and activity observations for Johnson Companys utilities, use the high-low method to calculate Johnsons fixed costs per month. Cost Machine Hours January $52,600 20,000 February 75,100 29,000 March 57,000 22,000 April 64,000 24,500 a. b. c. d. ANS: NAT: $2,600 $50,000 $12,500 $5,000 A DIF: Moderate OBJ: 19(4)-01 AACSB Analytic | IMA-Performance Measurement
24. Given the following cost and activity observations for Sanchez Companys utilities, use the high-low method to calculate Sanchezs variable utilities costs per machine hour. Cost Machine Hours May $8,300 15,000 June 10,400 20,000 July 7,200 12,000 August 9,500 18,000 a. b. c. d. ANS: NAT: $10.00 $.60 $.40 $.52 C DIF: Moderate OBJ: 19(4)-01 AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 130
25. Lanley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are: a. $61,875 b. $33,875 c. $24,750 d. cannot be determined from the data given DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 26. Which of the following statements is true regarding fixed and variable costs? a. Both costs are constant when considered on a per unit basis. b. Both costs are constant when considered on a total basis. c. Fixed costs are fixed in total, and variable costs are fixed per unit. d. Variable costs are fixed in total, and fixed costs vary in total. DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 27. As production increases, what would you expect to happen to fixed cost per unit? a. Increase b. Decrease c. Remain the same d. Either increase or decrease, depending on the variable costs DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 28. Knowing how costs behave is useful to management for all the following reasons except for a. predicting customer demand. b. predicting profits as sales and production volumes change. c. estimating costs. d. changing an existing product production. DIF: Easy OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 29. The manufacturing cost of Lancer Industries for three months of the year are provided below: April May June Total Cost $ 61,900 80,920 100,300 Production 1,200 Units 1,800 2,400
Using the high-low method, the variable cost per unit, and the total fixed costs are: a. $32.30 per unit and $77,520 respectively. b. $32 per unit and $23,500 respectively. c. $32 per unit and $76,800 respectively. d. $32.30 per unit and $22,780 respectively. DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
131 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
30. Which of the following statements is correct concerning variable and fixed costs? a. Both costs are constant when considered on a per unit basis. b. Variable costs vary in total and fixed costs are constant on a per unit basis. c. Fixed costs are constant in total and variable costs are constant on a per unit basis. d. Variable costs are constant in total and fixed costs are constant on a per unit basis. DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 31. As production increases, what should happen to the fixed costs per unit? a. Stay the same. b. Increase. c. Decrease. d. Either increase or decrease, depending on the variable costs. DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 32. As production increases, what should happen to the variable costs per unit? a. Stay the same. b. Increase. c. Decrease. d. Either increase or decrease, depending on the fixed costs. DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 33. Sanchez Company manufactures and sells commercial air conditioners. Because of current trends, it expects to increase sales by 15 percent next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next years total amounts for the following costs. Variable Costs Fixed Costs a. increase increase b. increase no change c. no change no change d. decrease increase DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement Mixed Costs increase increase increase increase
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 132
34. Given the following costs and activities for Downing Company electrical costs, use the high-low method to calculate Downingss variable electrical costs per machine hour. April May June a. b. c. d. ANS: NAT: Costs $11,700 $13,200 $11,400 Machine Hours 15,000 17,500 14,500
2.08 6.00 .60 1.20 C DIF: Moderate OBJ: 19(4)-01 AACSB Analytic | IMA-Performance Measurement
35. The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed: a. contribution margin analysis b. cost-volume-profit analysis c. budgetary analysis d. gross profit analysis DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 36. In cost-volume-profit analysis, all costs are classified into the following two categories: a. mixed costs and variable costs b. sunk costs and fixed costs c. discretionary costs and sunk costs d. variable costs and fixed costs DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 37. Contribution margin is: a. the excess of sales revenue over variable cost b. another term for volume in the "cost-volume-profit" analysis c. profit d. the same as sales revenue DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 38. The contribution margin ratio is: a. the same as the variable cost ratio b. the same as profit c. the portion of equity contributed by the stockholders d. the same as the profit-volume ratio DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement
133 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
39. If sales are $820,000, variable costs are 62% of sales, and operating income is $260,000, what is the contribution margin ratio? a. 53.1% b. 38% c. 62% d. 32% DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 40. What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit? a. Margin of safety ratio b. Contribution margin ratio c. Costs and expenses ratio d. Profit ratio DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 41. A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 65% of sales, and sales were $1,000,000. Operating profit was: a. $140,000 b. $150,000 c. $310,000 d. $200,000 DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 42. If sales are $425,000, variable costs are 63% of sales, and operating income is $50,000, what is the contribution margin ratio? a. 37% b. 26.8% c. 11.8% d. 63% DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 43. 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 $40,000? a. $10,000 increase b. $10,000 decrease c. $30,000 decrease d. $30,000 increase DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 134
44. Salter Inc.'s unit selling price is $50, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units? a. $150,000 decrease b. $175,000 increase c. $75,000 increase d. $150,000 increase DIF: Difficult OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 45. If sales are $820,000, variable costs are $524,800, and operating income is $260,000, what is the contribution margin ratio? a. 53.1% b. 33% c. 64% d. 36% DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 46. A firm operated at 80% of capacity for the past year, during which fixed costs were $220,000, variable costs were 66% of sales, and sales were $1,000,000. Operating profit was: a. $140,000 b. $120,000 c. $340,000 d. $220,000 DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 47. If sales are $525,000, variable costs are 64% of sales, and operating income is $50,000, what is the contribution margin ratio? a. 36% b. 26.5% c. 9.5% d. 64% DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 48. Halter Inc.'s unit selling price is $70, the unit variable costs are $45, fixed costs are $150,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units? a. $125,000 decrease b. $175,000 increase c. $75,000 increase d. $125,000 increase DIF: Difficult OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement
135 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
49. Bailey Company sells 25,000 units at $15 per unit. Variable costs are $8 per unit, and fixed costs are $35,000. The contribution margin ratio and the unit contribution margin, (rounding to two decimal points) are: a. 47% and $7 per unit b. 53% and $7 per unit c. 47% and $8 per unit d. 53% and $8 per unit DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 50. If the contribution margin ratio for Lyndon Company is 37%, sales were $425,000. and fixed costs were $100,000, what was the income from operations? a. $167,750 b. $57,250 c. $54,730 d. $125,310 DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 51. 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 (units)? a. 3,846 units b. 2,381 units c. 10,000 units d. 6,250 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 52. If fixed costs are $750,000 and variable costs are 70% of sales, what is the break-even point (dollars)? a. $1,071,429 b. $525,000 c. $2,500,000 d. $1,275,000 DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 53. If fixed costs are $1,400,000, the unit selling price is $220, and the unit variable costs are $120, what is the amount of sales required to realize an operating income of $200,000? a. 14,000 units b. 12,000 units c. 16,000 units d. 13,333 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 136
54. If fixed costs are $300,000, the unit selling price is $25, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are reduced by $40,000? a. 60,000 units b. 52,000 units c. 62,000 units d. 64,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 55. If fixed costs are $300,000, the unit selling price is $25, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are increased by $40,000? a. 52,000 units b. 60,000 units c. 68,000 units d. 62,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 56. If fixed costs are $300,000, the unit selling price is $25, and the unit variable costs are $20, what is the break-even sales (units) if the variable costs are decreased by $2? a. 42,857 units b. 17,143 units c. 60,000 units d. 100,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 57. 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 (units) if the unit selling price increases by $5? a. 6,000 units and 5,250 units b. 18,000 units and 6,000 units c. 18,000 units and 15,000 units d. 9,000 units and 15,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 58. Morino Corporation sells product W for $125 per unit, the variable cost per unit is $90, the fixed costs are $450,000, and Morino is in the 30% corporate tax bracket. What are the sales (dollars) required to earn a net income (after tax) of $25,000? a. $1,249,020 b. $674,625 c. $1,734,693 d. $1,904,750 DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
137 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
59. Scher Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and Scher is in the 25% corporate tax bracket. What are the sales (dollars) required to earn a net income (after tax) of $40,000? a. $2,533,350 b. $2,577,777 c. $2,933,400 d. $2,400,000 DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 60. If fixed costs are $200,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit? a. 25,000 b. 20,000 c. 200,000 d. 10,000 DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 61. If fixed costs are $500,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000? a. 5,000 b. 41,667 c. 50,000 d. 58,333 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement If 62. fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000? a. 25,000 b. 29,000 c. 4,000 d. 21,000 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 63. If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $80,000? a. 14,500 b. 12,500 c. 8,333 d. 9,667 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 138
64. If fixed costs are $561,000 and the unit contribution margin is $8.00, what is the break-even point in units if variable costs are decreased by $.50 a unit? a. 66,000 b. 70,125 c. 74,800 d. 60,000 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 65. If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would: a. decrease b. increase c. remain the same d. increase or decrease, depending upon the percentage increase in wage rates DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 66. If variable costs per unit decreased because of a decrease in utility rates, the break-even point would: a. decrease b. increase c. remain the same d. increase or decrease, depending upon the percentage increase in utility rates DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 67. If fixed costs increased and variable costs per unit decreased, the break-even point would: a. increase b. decrease c. remain the same d. increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable cost DIF: Difficult OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 68. Which of the following conditions would cause the break-even point to decrease? a. Total fixed costs increase b. Unit selling price decreases c. Unit variable cost decreases d. Unit variable cost increases DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 69. Which of the following conditions would cause the break-even point to increase? a. Total fixed costs decrease b. Unit selling price increases c. Unit variable cost decreases d. Unit variable cost increases DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
139 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
70. Which of the following conditions would cause the break-even point to increase? a. Total fixed costs increase b. Unit selling price increases c. Unit variable cost decreases d. Total fixed costs decrease DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 71. Cialini 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: a. decrease by 10% b. increase by 10% c. not be determined from the data given d. increase at a rate greater than 10% DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 72. Flynn Co. has the following operating data for its manufacturing operations: Unit selling price Unit variable cost Total fixed costs 250 100 $840,000 $
The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flynn Co. will be: a. increased by 640 units b. increased by 400 units c. decreased by 640 units d. increased by 800 units DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 73. If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point (dollars)? a. $1,875,000 b. $300,000 c. $2,500,000 d. $1,250,000 DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 140
74. If fixed costs are $240,000, the unit selling price is $36, and the unit variable costs are $20, what is the break-even sales (units)? a. 12,000 units b. 27,000 units c. 15,000 units d. 6,667 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 75. If fixed costs are $1,500,000, the unit selling price is $250, and the unit variable costs are $130, what is the amount of sales required to realize an operating income of $200,000? a. 14,166 units b. 12,500 units c. 16,000 units d. 11,538 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 76. If fixed costs are $490,000, the unit selling price is $35, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are reduced by $40,000? a. 32,667 units b. 14,000 units c. 30,000 units d. 24,500 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 77. If fixed costs are $400,000, the unit selling price is $25, and the unit variable costs are $15, what is the break-even sales (units) if the variable costs are increased by $2? a. 50,000 units b. 30,770 units c. 40,000 units d. 26,667 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 78. If fixed costs are $240,000, the unit selling price is $32, and the unit variable costs are $20, what are the old and new break-even sales (units) if the unit selling price increases by $4? a. 7,500 units and 6,667 units b. 20,000 units and 30,000 units c. 20,000 units and 15,000 units d. 12,000 units and 15,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
141 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
79. When the fixed costs are $80,000 and the contribution margin is $20, the break-even point is a. 16,000 units b. 8,000 units c. 7,998 units d. 4,000 units DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 80. If fixed costs are $39,600, the unit selling price is $42, and the variable costs are $24, what is the break-even sales (units)? a. 2,500 b. 943 c. 1,650 d. 2,200 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 81. If fixed costs are $39,600, the unit selling price is $42, and the variable costs are $24, what is the break-even sales (dollars)? a. $52,800 b. $92,400 c. $132,000 d. $124,000 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 82. If fixed costs are $39,600, the unit selling price is $42, and the variable costs are $24, what is the break-even sales (unit ) if the variable costs are decreased by $2? a. 1,650 b. 990 c. 1,980 d. 1,350 DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 83. The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents: a. the maximum possible operating loss b. the maximum possible operating income c. the total fixed costs d. the break-even point DIF: Easy OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 142
84. The point where the total costs line intersects the left-hand vertical axis on the cost-volume-profit chart represents: a. the minimum possible operating loss b. the maximum possible operating income c. the total fixed costs d. the break-even point DIF: Moderate OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 85. The point where the profit line intersects the horizontal axis on the profit-volume chart represents: a. the maximum possible operating loss b. the maximum possible operating income c. the total fixed costs d. the break-even point DIF: Moderate OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 86. The point where the profit line intersects the left vertical axis on the profit-volume chart represents: a. the maximum possible operating loss b. the maximum possible operating income c. the total fixed costs d. the break-even point DIF: Moderate OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 87. 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: a. "What if" or sensitivity analysis b. vary the data analysis c. computer aided analysis d. data gathering DIF: Easy OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 88. In a cost-volume-Profit chart, the a. total cost line begins at zero. b. slope of the total cost line is dependent on the fixed cost per unit. c. total cost line begins at the total fixed cost value on the vertical axis. d. total cost line normally begins at zero. DIF: Moderate OBJ: 19(4)-04 NAT: AACSB Analytic | IMA-Performance Measurement 89. The relative distribution of sales among the various products sold by a business is termed the: a. business's basket of goods b. contribution margin mix c. sales mix d. product portfolio DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
143 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
90. 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: a. two b. three c. fifteen d. there is no limit DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 91. Assume that Crowley 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. Crowley has fixed costs of $350,000. The break-even point in units is: a. 14,000 units b. 25,278 units c. 8,000 units d. 10,769 units DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement Phipps Co. sells two products, Arks and Bins. Last year Phipps sold 12,000 units of Arks and 28,000 units of Bins. Related data are: Product Arks Bins Unit Selling Price $120 80 Unit Variable Cost $80 60 Unit Contribution Margin $40 20
92. What was Phipps Co.'s sales mix last year? a. 30% Arks, 70% Bins b. 12% Arks, 28% Bins c. 70% Arks, 30% Bins d. 40% Arks, 20% Bins DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 93. What was Phipps Co.'s total unit selling price? a. $200 b. $100 c. $ 80 d. $ 92 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 144
94. What was Phipps Co.'s overall unit variable cost? a. $140 b. $ 70 c. $ 66 d. $ 60 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 95. What was Phipps Co.'s overall unit contribution margin? a. $26 b. $60 c. $92 d. $20 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 96. Assuming that last year's fixed costs totaled $910,000, what was Phipps Co.'s break-even point in units? a. 40,000 units b. 12,000 units c. 35,000 units d. 28,000 units DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 97. 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? a. 25% b. 18% c. 33.3% d. 15% DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 98. 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? a. $3,000,000 b. $2,800,000 c. $4,800,000 d. $1,000,000 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
145 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
99. If a business had sales of $4,000,000 and a margin of safety of 20%, what was the break-even point? a. $5,000,000 b. $3,200,000 c. $12,000,000 d. $1,000,000 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 100. Forde Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is: a. unaffected b. expected to increase by 2% c. expected to increase by 32% d. expected to increase by 4 times DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 101. If sales are $300,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage? a. 0 b. 7.500 c. 1.875 d. 1.333 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 102. If a business had a margin of safety ratio of 20%, variable costs of 75% of sales, fixed costs of $240,000, a break-even point of $960,000, and operating income of $60,000 for the current year, what are the current year's sales? a. $1,200,000 b. $1,040,000 c. $1,260,000 d. $1,020,000 DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 103. The difference between the current sales revenue and the sales at the break-even point is called the: a. contribution margin b. margin of safety c. price factor d. operating leverage DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 104. Cost-volume-profit analysis cannot be used if which of the following occurs? a. Costs cannot be properly classified into fixed and variable costs b. The total fixed costs change c. The per unit variable costs change d. Per unit sales prices change DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 146
105. Assume that Growley 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 $30 and $60 respectively. Growley has fixed costs of $378,000. The break-even point in units is: a. 8,000 units b. 6,300 units c. 12,600 units d. 10,500 units DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement Shipley Co. sells two products, Orks and Zins. Last year Shipley sold 14,000 units of Orks and 21,000 units of Zins. Related data are: Product Orks Zins Unit Selling Price $120 80 Unit Variable Cost $80 60 Unit Contribution Margin $40 20
106. What was Shipleys Co.'s sales mix last year? a. 60% Orks, 40% Zins b. 30% Orks, 70% Zins c. 70% Orks, 30% Zins d. 40% Orks, 60% Zins DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 107. What was Shipleys Co.s unit selling price? a. $200 b. $96 c. $120 d. $80 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 108. What was Shipleys Co.s overall unit contribution margin? a. $20 b. $40 c. $28 d. $24 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
147 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
109. Assuming that last years fixed costs totaled $159,992, what was Shipleys Co.s breakeven point in units? a. 5,714 units b. 4,000 units c. 8,000 units d. 2,667 units DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 110. If a business had a capacity of $8,000,000 of sales, actual sales of $5,000,000, break-even sales of $3,500,000, fixed costs of $1,400,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales? a. 25% b. 18% c. 28% d. 30% DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 111. If sales are $400,000, variable costs are 75% of sales, and operating income is $50,000, what is the operating leverage? a. 0 b. 1.25 c. 2.2 d. 2 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 112. The Zucker Company reports the following data. Sales $600,000 Variable costs $300,000 Fixed costs $100,000 Zucker Companys operating leverage is: a. 3.0 b. 2.0 c. 1.0 d. 1.5 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement Knotley Co. sells two products, X and Y. Last year Knotley sold 14,000 units of Xs and 21,000 units of Ys. Related data are: Product X Y Unit Selling Price Price $110 70 Unit Variable Cost $70 50 Unit contribution Margin $40 $20
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 148
113. What was Knotley Co.s sales mix last year? a. 58% Xs, 42% Ys b. 60% Xs, 40% Ys c. 30% Xs, 70% Ys d. 40% Xs, 60% Ys DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 114. What was Knotley Co.s overall unit selling price? a. $180 b. $86 c. $100 d. $110 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 115. What was Knotley Co.s overall unit variable cost? a. $58 b. $48 c. $70 d. $50 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 116. What was Knotley Co.s unit contribution margin? a. $30 b. $20 c. $40 d. $28 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 117. Assuming that last years fixed costs totaled $588,000. What was Knotley Co.s break-even point in units? a. 35,000 units b. 30,100 units c. 21,000 units d. 14,000 units DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 118. If sales are $400,000, variable costs are 75% of sales, and operating income is $50,000, what is the operating leverage? a. 2.500 b. 7.500 c. 2.000 d. 0 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
149 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
119. Which of the following is not an assumption underlying cost-volume-profit analysis? a. The break-even point will be passed during the period. b. Total sales and total costs can be represented by straight lines. c. Costs can be accurately divided into fixed and variable components. d. The sales mix is constant. DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement EXERCISE/OTHER 1. The manufacturing cost of Lancer Industries for three months of the year are provided below: April May June Total Cost $ 63,100 80,920 100,300 Production 1,200 Units 1,800 2,400
Using the high-low method, determine the (a) variable cost per unit, and (b) the total fixed costs. ANS: (a) $31 per unit = ($100,300 - $61,900) / (2,400 - 1,200) (b) $25,900 = $100,300 - ($31 2,400) DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement 2.
TOP:
Example Exercise 19(4)-1
The manufacturing cost of Spencer Industries for the first three months of the year are provided below: January February March Total Cost $ 93,300 115,500 81,900 Production 2,300 Units 3,100 1,900
Using the high-low method, determine the (a) variable cost per unit, and (b) the total fixed cost. ANS: (a) $28 per unit = ($115,500 - $81,900) / (3,100 - 1,900) (b) $28,700 = $115,500 - ($28 3,100) DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
TOP:
Example Exercise 19(4)-1
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 150
3.
Halley Company sells 30,000 units at $15 per unit. Variable costs are $9 per unit, and fixed costs are $42,000. Determine the (a) contribution margin ratio, (b) unit contribution margin, and (c) income from operations. ANS: (a) 40% = ($450,000 - $270,000) / $450,000 (b) $6 per unit = $15 - $9 (c) Sales $450,000 (30,000 units $15) Variable costs 270,000 (30,000 units $9) Contribution margin 180,000 [30,000 units (15 - $9)] Fixed costs 42,000 Income from operations $138,000 DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement TOP: Example Exercise 19(4)-2 4. Halley Company sells 25,000 units at $15 per unit. Variable costs are $9 per unit, and fixed costs are $32,000. Determine the (a) contribution margin ratio, (b) unit contribution margin, and (c) income from operations. ANS: (a) 40% = ($375,000 - $225,000) / $375,000 (b) $6 per unit = $15 - $9 (c) Sales Variable costs Contribution margin Fixed costs Income from operations $375,000 (25,000 units $15) 225,000 (25,000 units $9) 150,000 [25,000 units (15 - $9)] 32,000 $118,000 TOP: Example Exercise 19(4)-2
DIF: Moderate OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 5.
Madstorm Enterprises sells a product for $50 per unit. The variable cost is $30 per unit, while fixed costs are $80,000. Determine the (a) break-even point in sales units, and (b) break-even point if the selling price was increased to $55 per unit. ANS: (a) 4,000 units = $80,000 / ($50 - $30) (b) 3,200 units = $80,000 / ($55 - $30) DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
TOP:
Example Exercise 19(4)-3
151 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
6.
Maddy Enterprises sells a product for $80 per unit. The variable cost is $40 per unit, while fixed costs are $70,000. Determine the (a) break-even point in sales units, and (b) break-even point if the selling price was increased to $90 per unit. ANS: (a) 1,750 units = $70,000 / ($80 - $40) (b) 1,400 units = $70,000 / ($90 - $40) DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 7.
TOP:
Example Exercise 19(4)-3
The Jamestown Company sells a product for $150 per unit. The variable cost is $60 per unit, and fixed costs are $270,000. Determine the (a) break-even point in sales units, and (b) break-even points in sales units if the company desires a target profit of $36,000. ANS: (a) 3,000 units = $270,000 / ($150 - $60) (b) 3,400 units = ($270,000 + $36,000) / ($150 - $60) DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 8.
TOP:
Example Exercise 19(4)-4
The Jamestown Company sells a product for $120 per unit. The variable cost is $40 per unit, and fixed costs are $270,000. Determine the (a) break-even point in sales units, and (b) break-even points in sales units if the company desires a target profit of $36,000. ANS: (a) 3,375 units = $270,000 / ($120 - $40) (b) 3,825 units = ($270,000 + $36,000) / ($120 - $40) DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 9.
TOP:
Example Exercise 19(4)-4
James Company has fixed costs of $160,000. The unit selling price, variable cost per unit, and contribution margin per unit for the companys two products are provided below. Product Selling Price Variable Cost per unit Contribution Margin per unit X $180 $100 $80 Y $100 $60 $40
The sales mix for product X and Y is 60% and 40% respectively. Determine the break-even point in units of X and Y. ANS: Unit selling price of sales mix = $148 = ($180 .60) + ($100 .40) Unit variable cost of sales mix = $84 = ($100 .60) + ($60 .40) Unit contribution margin of sales mix = $64 = ($80 .60) + ($40 .40) Break-even sales (units) = 2,500 = $160,000 / $64 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement
TOP:
Example Exercise 19(4)-5
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 152
10. Jonus Company has fixed costs of $160,000. The unit selling price, variable cost per unit, and contribution margin per unit for the companys two products are provided below. Product Selling Price Variable Cost per unit Contribution Margin per unit X $180 $80 $100 Y $100 $50 $50 The sales mix for product X and Y is 60% and 40% respectively. Determine the break-even point in units of X and Y. ANS: Unit selling price of sales mix = $148 = ($180 .60) + ($100 .40) Unit variable cost of sales mix = $68 = ($80 .60) + ($50 .40) Unit contribution margin of sales mix = $80 = ($100 .60) + ($50 .40) Break-even sales (units) = 2,000 = $160,000 / $80 DIF: Moderate OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 11. The Zucker Company reports the following data. Sales $800,000 Variable costs $500,000 Fixed costs $250,000 Determine Zucker Companys operating leverage. ANS: 6.0 = ($800,000 - $500,000) / ($800,000 - $500,000 - $250,000) DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement TOP: 12. The Zucker Company reports the following data. Sales $600,000 Variable costs $400,000 Fixed costs $100,000 Determine Zucker Companys operating leverage. ANS: 2.0 = ($600,000 - $400,000) / ($600,000 - $400,000 - $100,000) DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement TOP:
TOP:
Example Exercise 19(4)-5
Example Exercise 19(4)-6
Example Exercise 19(4)-6
13. The Nachez Company has sales of $500,000, and the break-even point in sales dollars of $300,000. Determine the companys margin of safety. ANS: 40% = ($500,000 - $300,000)/$500,000 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement TOP: Example Exercise 19(4)-7
153 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
14. The Sanchez Company has sales of sales of $300,000, and the break-even point in sales dollars if $210,000. Determine the companys margin of safety. ANS: 30% = ($300,000 - $210,000)/$300,000 DIF: Easy OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement TOP: Example Exercise 19(4)-7 PROBLEM 1. The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable, fixed, or mixed cost for units produced and sold. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) Lubricants used to oil machinery. Warehouse rent of $6,000 per month plus $.50 per square foot of storage used. Thread. Electricity costs of $.025 per kilowatt-hour. Janitorial costs of $2,000 per month. Advertising costs of $10,000 per month. Sales salaries. Color dyes for producing different colors of sweatshirts. Salary of the production supervisor. Straight-line depreciation on sewing machines. Patterns for different designs. Patterns typically last many years before being replaced. Hourly wages of sewing machine operators. Property taxes on factory, building, and equipment. Cotton and polyester cloth. Maintenance costs with sewing machine company. The cost is $2,000 per year plus $.001 for each machine hour of use. (i) (j) (k) (l) (m) (n) (o) fixed fixed fixed variable fixed variable mixed
ANS: (a) variable (b) mixed (c) variable (d) variable (e) fixed (f) fixed (g) fixed (h) variable
DIF: Moderate OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 154
2.
The cost graphs in the illustration below shows various types of cost behaviors.
For each of the following costs, identify the cost graph that best describes its cost behavior as the number of units produced and sold increases: (a) Sales commissions of $5,000 plus $.05 for each item sold. (b) Rent on warehouse of $10,000 per month. (c) Insurance costs of $2,500 per month. (d) Per-unit cost of direct labor. (e) Total salaries of quality control supervisors. One supervisor must be added for each additional work shift. (f) Total employer pension costs of $.30 per direct labor hour. (g) Per-unit straight-line depreciation costs. (h) Per-unit cost of direct materials. (i) Total direct materials cost. (j) Electricity costs of $5,000 per month plus $.0004 per kilowatt-hour. (k) Per-unit cost of plant superintendent's salary. (l) Per-unit cost of direct labor. (m) Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine usage. (n) Total direct labor cost. (o) Straight-line depreciation on factory equipment. ANS: Graph Graph (a) 2 (i) 1 (b) 3 (j) 2 (c) 3 (k) 4 (d) 3 (l) 3 (e) 5 (m) 5 (f) 1 (n) 1 (g) 4 (o) 3 (h) 3 DIF: Difficult OBJ: 19(4)-01 NAT: AACSB Analytic | IMA-Performance Measurement
155 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
3.
Barrack Inc. manufactures laser printers within a relevant range of production of 50,000 to 70,000 printers per year. The following partially completed manufacturing cost schedule has been prepared: Number of Printers Produced 70,000 90,000 100,000 Total costs: Total variable costs Total fixed costs Total costs Cost per unit: Variable cost per unit Fixed cost per unit Total cost per unit $350,000 630,000 $980,000 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o)
Complete the preceding cost schedule, identifying each cost by the appropriate letter (a) through (o). ANS: (a) $5.00 ($350,000/70,000 printers) (b) $9.00 ($630,000/70,000 printers) (c) $14.00 ($980,000/70,000 printers) (d) $450,000 ($5.00 90,000 printers) (e) $630,000 (f) $1,080,000 ($450,000 + $630,000) (g) $5.00 (h) $7.00 ($630,000/90,000 printers) (i) $12.00 ($1,080,000/90,000 printers) (j) $500,000 ($5.00 100,000 printers) (k) $630,000 (l) $1,130,000 ($500,000 + $630,000) (m) $5.00 (n) $6.30 ($630,000/100,000 units) (o) $11.30 ($1,130,000/100,000 units) DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement 4. (a) (b) If Bart Company's budgeted sales are $800,000, fixed costs are $350,000, and variable costs are $640,000, what is the budgeted contribution margin ratio? If the contribution margin ratio is 30% for Gray Company, sales are $900,000, and fixed costs are $180,000, what is the operating profit?
ANS: (a) $160,000/$800,000 = 20% (b) $900,000 - (70% of $900,000) variable costs - $180,000 fixed costs = $90,000 or ($900,000 30%) - $180,000 = $90,000
DIF: Easy OBJ: 19(4)-02 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 156
5.
For the current year ending April 30, Phillip Company expects fixed costs of $70,000, a unit variable cost of $60, and a unit selling price of $95. (a) (b) Compute the anticipated break-even sales (units). Compute the sales (units) required to realize an operating profit of $8,000.
ANS: (a) $70,000/$35 = 2,000 (b) $78,000/$35 = 2,229 (rounded)
DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 6. For the current year ending January 31, Bell Company expects fixed costs of $178,500 and a unit variable cost of $41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per unit is expected to remain the same. (a) (b) Compute the break-even sales (units) for the current year. Compute the anticipated break-even sales (units) for the coming year, assuming the new wage contract is signed.
ANS: (a) $178,500/$8.50 = 21,000 units (b) $178,500/$5 = 35,700 units
DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 7. Currently, the unit selling price is $30, the variable cost, $14, and the total fixed costs, $96,000. A proposal is being evaluated to increase the selling price to $34. (a) (b) Compute the current break-even sales (units). Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
ANS: (a) $96,000/$16 = 6,000 units (b) $96,000/$20 = 4,800 units
DIF: Easy OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
157 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
8.
For the coming year, Swain Company estimates fixed costs at $90,000, the unit variable cost at $20, and the unit selling price at $80. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $150,000, and (c) the probable operating income if sales total $500,000. ANS: (a) S = $90,000/$60 = 1,500 units (b) (c) S = ($90,000 + $150,000)/$60 = 4,000 units $500,000 - $90,000 - (25% $500,000) = $285,000
DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 9. For the past year, Chandler Company had fixed costs of $70,000, unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs, except that property taxes are expected to increase by $10,000. Determine the break-even sales (units) for (a) the past year and (b) the coming year. ANS: (a) S = $70,000/$8 = 8,750 units (b) S = $80,000/$8 = 10,000 units
DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 10. For the past year, Holcomb Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price of $600. For the coming year, no changes are expected in revenues and costs, except that a new wage contract will increase variable costs by $6 per unit. Determine the break-even sales (units) for (a) the past year and (b) the coming year. ANS: (a) S = $6,552,000/$156 = 42,000 units (b) S = $6,552,000/$150 = 43,680 units
DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 11. Mega Stampers makes and sells aftermarket hub caps. The variable cost for each hub cap is $4.75 and the hub cap sells for $9.95. Mega Stampers has fixed costs per month of $2,750.00. Compute the contribution margin per unit and break-even sales in units and in dollars for the month. ANS: Contribution margin is $9.95 selling price less $4.75 variable cost = $5.20 Break even sales in units is $2,750.00 fixed costs / $5.20 contribution margin = 529 units. Break even sales in dollars is $9.95 selling price 529 units = $5,263.55 Note: You would not expect to sell part of a hub cap so round the partial unit up regardless of its partial value. DIF: Moderate OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis 3 158
12. Mega Stampers has collected new data over the last three months for evaluation of their budgeting and cost computations. Their average production labor cost is $5,500.00 per month, the average raw materials consumed per month is $1,475.00, the average utilities expense is $500.00, which is all production, depreciation, other overhead items, and indirect items are averaging $1,950.00 per month. Stampers has been producing an average of 1,925 hub caps per month which it sells at $9.95 each. Compute the unit variable cost and the contribution margin per unit. If fixed costs are $2,750.00 per month, what is the break-even point in units? ANS: Total variable costs are: Production labor cost is $5,500.00 per month Raw materials consumed per month is 1,475.00 Utilities expense is 500.00 Depreciation and other items 1,950.00 per month Total variable costs (average per month) $9,425.00 Unit variable costs = Total (average) production costs $9,425.00 / 1,925 hub caps = $4.8961 per hub cap. Contribution Margin= Selling price per unit- variable unit costs = $9.95-$4.90= $5.05 Break-even point in units is $2,750.00 per month / ($9.95 - $4.90) = 545 units DIF: Difficult OBJ: 19(4)-03 NAT: AACSB Analytic | IMA-Performance Measurement 13. A company with a break-even point at $900,000 in sales revenue and had fixed costs of $225,000. When actual sales were $1,000,000 variable costs were $750,000. Determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income. ANS: (a) $1,000,000 - $900,000 = $100,000 (b) (c) (d) $100,000/$1,000,000 = 10% Contribution margin ratio = $1,000,000 - $750,000 $1,000,000 = 25.0%
$1,000,000 - $225,000 - $750,000 = $25,000 or $100,000 25.0% = $25,000
DIF: Moderate OBJ: 19(4)-03 | 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 14. A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000. (a) (b) (c) What was the break-even point? What was the operating income? If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how much additional operating income can be earned by increasing sales by $110,000?
159 3 Chapter 4 Cost Behavior and Cost-Volume-Profit Analysis
ANS: (a) Margin of safety = $1,000,000 25% = $250,000 Break-even point = $1,000,000 - $250,000 = $750,000 (b) $250,000 (margin of safety) 30% (contribution margin ratio) = $75,000 Alternate computation: Sales Less fixed costs* Variable costs ($1,000,000 70%**) Operating income *Break-even point (a) Less variable costs ($750,000 70%**) Fixed costs **100% - 30% (contribution margin ratio) = 70% (variable costs) (c) $110,000 30% = $33,000 $1,000,000 $225,000 700,000 $750,000 525,000 $225,000 925,000 $ 75,000
DIF: Moderate OBJ: 19(4)-03 | 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement 15. Hitch Company sells Products S and T and has made the following estimates for the coming year: Product S T Unit Selling Price $30 70 Unit Variable Cost $24 56 Sales Mix 60% 40
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year. ANS: Unit selling price of E* = ($30 60%) + ($70 40%) = $46.00 Unit variable cost of E = ($24 60%) + ($56 40%) = $36.80 Unit contribution margin = $46 - $36.80 = $9.20 Sales = $202,400/$9.20 = 22,000 units *Overall product S: 13,200 units (22,000 units 60%) T: 8,800 units (22,000 units 40%) Sales = ($202,400 + $119,600)/$9.20 = 35,000 units DIF: Difficult OBJ: 19(4)-05 NAT: AACSB Analytic | IMA-Performance Measurement

**Find millions of documents on Course Hero - Study Guides, Lecture Notes, Reference Materials, Practice Exams and more. Course Hero has millions of course specific materials providing students with the best way to expand their education.**

Below is a small sample set of documents:

UC Riverside - ACC - ACC 101A

Chapter 5Variable Costing For Management AnalysisOBJECTIVESObj1 Obj 2 Obj 3 Obj 4 Obj 5 Obj 6Describe and illustrate income reporting under variable costing and absorption costing. Describe and illustrate income analysis under variable costing and abs

UC Riverside - ACC - ACC 101A

Chapter 6 BudgetingOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4 Obj 5Describe budgeting, its objectives, and its impact on human behavior. Describe the basic elements of the budget process, the two major types of budgeting, and the use of computers in budgeting.

UC Riverside - ACC - ACC 101A

Chapter 7 Performance Evaluation Using Variances From Standard CostsOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4 Obj 5 Obj 6Describe the types of standards and how they are established for businesses. Explain and illustrate how standards are used in budgeting. Ca

UC Riverside - ACC - ACC 101A

Chapter 8 Performance Evaluation for Decentralized OperationsOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4 Obj 5List and explain the advantages and disadvantages of decentralized operations. Prepare a responsibility accounting report for a cost center. Prepare res

UC Riverside - ACC - ACC 101A

Chapter 9 Differential Analysis and Product PricingOBJECTIVESObj 1Obj 2 Obj 3Prepare a differential analysis report for decisions involving leasing or selling equipment, discontinuing an unprofitable segment, manufacturing or purchasing a needed part,

UC Riverside - ACC - ACC 101A

Chapter 10 Capital Investment AnalysisOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4Explain the nature and importance of capital investment analysis. Evaluate capital investment proposals, using the following methods: average rate of return, cash payback, net prese

UC Riverside - ACC - ACC 101A

Chapter 11 Cost Allocation and Activity-Based CostingOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4 Obj 5 Obj 6Identify three methods used for allocating factory overhead costs to products. Use a single plantwide factory overhead rate for product costing. Use multi

UC Riverside - ACC - ACC 101A

Chapter 12 Cost Management for Just-In-Time EnvironmentsOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4 Obj 5Compare and contrast just-in-time (JIT) manufacturing practices with traditional manufacturing practices. Apply just-in-time manufacturing practices to a tra

UC Riverside - ACC - ACC 101A

Chapter 13 Statement of Cash FlowsOBJECTIVESObj 1 Obj 2 Obj 3Summarize the types of cash flow activities reported in the statement of cash flows. Prepare a statement of cash flows, using the indirect method. Prepare a statement of cash flows, using the

UC Riverside - ACC - ACC 101A

Chapter 14 Financial Statement AnalysisOBJECTIVESObj 1 Obj 2 Obj 3 Obj 4List basic financial statement analytical procedures. Apply financial statement analysis to assess the solvency of a business. Apply financial statement analysis to assess the prof

École Normale Supérieure - BUS - Busi307

StratSim Industry 1/Firm AAffordable Cars business strategyThe business dictionary defines a business as an economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Businesses require inv

Academy of Design Tampa - CHEM - che 435

UC Davis - CHEM 2B - 993029

UC Davis - CHEM 2B - 993029

Lecture 2 Internal Energy First Law of Thermodynamics State Functions versus Path Functions Heat Transfer during a Physical Change Heat Transfer During a Chemical Change At constant volume (qv) At constant pressure (qp) Standard State and Standard Enthal

UC Davis - CHEM 2B - 993029

Lecture 3 Using Thermochemical Equations. Hesss Law. Standard Enthalpy of Formation of a Substance. Determination of Ho : A summary. Indirect determination of Ho : A summary.TOUPADAKIS Chapter 7 Lecture 3Using Thermochemical Equations Enthalpy and the

UC Davis - CHEM 2B - 993029

Chapter 12 Why study liquids and solids?In order to answer questions like: Why is carbon dioxide normally a gas, whereas water is normally a liquid? Why do any liquids form anyway? Why do liquids freeze to solids as the temperature is lowered? Why ice fl

UC Davis - CHEM 2B - 993029

Lecture 5! ! ! ! ! ! ! ! ! Phase Diagrams and their Features. The Phase Diagrams of H2O and CO2. Types of Structures. Crystal Structure. Seven Crystal Systems or Shapes of Unit Cells. Cubic Unit Cell. Three Forms of Cubic Unit Cell. Occupancy. The Crysta

UC Davis - CHEM 2B - 993029

Chapter 13Why study solutions?In order to answer questions like: How does antifreeze work at the molecular level? How does salt work in melting ice on the roads? Why does sea water has higher boiling point than spring water? Why does a swimmers fingers

UC Davis - CHEM 2B - 993029

Lecture 7 Solution Formation as a Process Towards Equilibrium. Solubility Curves. Henrys Law: Solubility of Gases. Raoult's Law: Vapor Pressure Lowering. Fractional Distillation. Azeotropic Solutions.TOUPADAKIS Lecture 7 Chapter 13Solution Formation as

UC Davis - CHEM 2B - 993029

Lecture 8 Colligative Properties of a Solution. Solutions of Nonelectrolytes. Pure Solvent and Solution Phase Diagram. Osmotic Pressure. Osmotic Pressure in Biology. Reverse Osmosis Desalination. Solutions of Electrolytes. Vant Hoff Factor (i).TOUPADAKI

UC Davis - CHEM 2B - 993029

Lecture 9 Interionic Interactions: Debye and Hckel. Colloidal Mixtures. Summary. Problems.TOUPADAKIS Lecture 9 Chapter 13Interionic Interactions: Debye and Hckel Ions in solution do not behave independently from each other. Each ion is surrounded by o

UC Davis - CHEM 2B - 993029

Chapter 15Why study chemical equilibrium ?In order to answer questions like: How do we increase the yield of a chemical reaction in industry? Why aspirin and alcohol should not be taken together. Why and how stalagmites and stalactites form? How do we c

UC Davis - CHEM 2B - 993029

Lecture 11 Using Keq to predict the extent of a reaction.What does the size of Keq really tell us? Using Keq to calculate the extent of a reaction.Calculating equilibrium concentrations in order to find the yield of a reaction. Using Keq and Q to pre

UC Davis - CHEM 2B - 993029

Lecture 12 Le Chtelliers Principle. Factors that Alter the Composition of an Equilibrium Mixture. Concentration Pressure and Volume Temperature The No Effect of a Catalyst on the Composition of an Equilibrium Mixture.TOUPADAKIS Lecture 12 Chapter 15Wha

UC Davis - CHEM 2B - 993029

Chapter 16Why study Acids and Bases?In order to answer questions like: What makes a substance behave as an acid or as a base? How do acids and bases function in plant and animal cells for the survival of individual organisms? What are the characteristi

UC Davis - CHEM 2B - 993029

Lecture 14 Strong acids versus weak acids and strong bases versus weak bases. Percent ionization. Various ways to describe acid strength. Problems Calculating the pH of a strong acid and the pH of a weak acid solution. Calculating the pH of a strong base

UC Davis - CHEM 2B - 993029

Lecture 15Ions as Acids and Bases. The Conjugate Seesaw. Hydrolysis and the pH of Salt Solutions. Molecular Structure and Acid-Base Behavior. Lewis Acids and Bases. Complex Ions. Acid Rain.TOUPADAKIS Lecture 15 Chapter 16Ions as Acids and BasesNH4+ +

UC Davis - CHEM 2B - 993029

Lecture 16 The Common-Ion Effect in Acid-Base Equilibria. Suppression of Ionization of a Weak Acid. Suppression of Ionization of a Weak Base.TOUPADAKIS Lecture 16 Chapter 17The Common-Ion Effect in Acid-Base Equilibria The Common-Ion Effect describes t

UC Davis - CHEM 2B - 993029

Lecture 17 Buffer Solutions. Solutions of Weak Acids and Their Salts. Solutions of Weak Bases and Their Salts. How a Buffer Works. The Henderson - Hasselbalch Equation. Calculating the pH of a Buffer Solution.TOUPADAKIS Lecture 17 Chapter 17Buffer Solu

UC Davis - CHEM 2B - 993029

Lecture 18 Calculating the pH of a Buffer Solution After the Addition of a Strong Base. Buffer Capacity. Preparing a Buffer Solution. Acid-Base Indicators.TOUPADAKIS Lecture 18 Chapter 17Calculating pH Changes in Buffer SolutionsTOUPADAKIS Lecture 18

UC Davis - CHEM 2B - 993029

Lecture 19 Neutralization Reactions and Titration Curves: Terminology Titration of a Strong Acid with a Strong Base. Titration of a Strong Base with a Strong Acid. Titration of a Weak Acid with a Strong Base. Titration of a Weak Base with a Strong Acid.

UC Davis - CHEM 2B - 993029

Chapter 18Why Study Solubility and Complex-Ion Equilibria?In order to answer questions like: How does tooth enamel dissolves on acidic solutions causing tooth decay? How does fluoride in toothpaste prevent tooth decay? How does the precipitation of cer

UC Davis - CHEM 2B - 993029

Lecture 21 The Salt Effect. Salt Effect Versus Common Ion Effect. Ion Pair Formation: Incomplete Dissociation. Criteria for Precipitation: The Ion Product Qsp. Fractional Precipitation. The pH of the Solution Can Affect Solubility.TOUPADAKIS Lecture 2

UC Davis - CHEM 2B - 993029

Lecture 22Complex Ions: Definitions. Formation Constant of Complex Ions. Formation of Complex Ions Affects Solubility. Study Example 18-11. Qualitative Cation Analysis. Tooth Decay. Study Example 18-12.TOUPADAKIS Lecture 22 Chapter 18Complex Ions Comp

UC Davis - CHEM 2B - 993029

Chapter 19 Why Study Entropy and Free Energy?In order to answer questions like: Why physical and chemical changes under specified conditions tend to be favored one direction over another? What is the connection between energy and the extent of a reactio

UC Davis - CHEM 2B - 993029

Lecture 24 Determination of Stotal for a Chemical Change. Free Energy (G) and Free Energy Change (G). Criterion for Spontaneous Change based on Gsystem.TOUPADAKIS Lecture 24 Chapter 19Determination of Stotal for a Chemical ChangeStotal = Ssystem + Ssu

UC Davis - CHEM 2B - 993029

Lecture 26 Free Energy Change and Spontaneity Spontaneity of a Chemical Change at Nonstandard Conditions: G = G + RT ln Q Relationship of G to the Equilibrium Constant: G = - RT ln KeqTOUPADAKIS Lecture 26 Chapter 19Free Energy Change and Spontaneity

Baltimore Hebrew University - PHILOSOPHY - 1230uh

AN EXISTENTIAL READING OF CAMUS AND DOSTOEVSKY FOCUSING ON CAMUSS NOTION OF THE ABSURD AND SARTREAN AUTHENTICITYA Thesisby JI HYUN PARKSubmitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for th

Wilson - MBA - mba

Supply Chain ManagementNetwork Design in the Supply Chain5-1OutlineA strategic framework for facility location x Multi-echelon networks x Gravity methods for location x Plant location modelsx5 -2Network Design DecisionsFacility role x Facility loc

Ohio State - STAT - 620

Chapter 1Probability TheoryIf any little problem comes your way, I shall be happy, if I can, to give you a hint or two as to its solution. Sherlock Holmes The Adventure of the Three Students 1.1 a. Each sample point describes the result of the toss (H o

Ohio State - STAT - 620

Chapter 2Transformations and Expectations2.1 a. fx (x) = 42x5 (1 x), 0 < x < 1; y = x3 = g (x), monotone, and Y = (0, 1). Use Theorem 2.1.5. fY (y ) = fx (g 1 (y ) = d 1 g (y ) dy = fx (y 1/3 ) d 1/3 1 (y ) = 42y 5/3 (1 y 1/3 )( y 2/3 ) dy 314y (1 y 1/

Ohio State - STAT - 622

Chapter 12Regression Models12.1 The point ( , y ) is the closest if it lies on the vertex of the right triangle with vertices (x , y ) x and (x , a + bx ). By the Pythagorean theorem, we must have (x x ) + y (a + bx ) 2 2+ (x x ) +( y ) y22= (x x )

Ohio State - STAT - 622

Chapter 11Analysis of Variance and Regression11.1 a. The rst order Taylors series approximation is Var[g (Y )] [g ()]2 VarY = [g ()]2 v (). b. If we choose g (y ) = g (y ) =y a1v (x)dx, then adg () d = d d1 v (x)dx =1 v (),by the Fundamental

Ohio State - STAT - 622

Chapter 10Asymptotic Evaluations10.1 First calculate some moments for this distribution. EX = /3, E X 2 = 1/3, VarX = 1 2 . 3 9 So 3Xn is an unbiased estimator of with variance Var(3Xn ) = 9(VarX )/n = (3 2 )/n 0 as n . So by Theorem 10.1.3, 3Xn is a c

Ohio State - STAT - 622

Chapter 9Interval Estimation9.1 Denote A = cfw_x : L(x) and B = cfw_x : U (x) . Then A B = cfw_x : L(x) U (x) and 1 P cfw_A B = P cfw_L(X ) or U (X ) P cfw_L(X ) or L(X ) = 1, since L(x) U (x). Therefore, P (A B ) = P (A)+ P (B ) P (A B ) = 1 1 +1 2 1

Ohio State - STAT - 622

Chapter 8Hypothesis Testing8.1 Let X = # of heads out of 1000. If the coin is fair, then X binomial(1000, 1/2). So1000P (X 560) =x=5601000 x1 2x1 2nx .0000825,where a computer was used to do the calculation. For this binomial, E X = 1000p = 50

Ohio State - STAT - 622

Chapter 7Point Estimation 7.1 For each value of x, the MLE is the value of that maximizes f (x|). These values are in the following table. x01 2 34 1 1 2 or 3 3 3 At x = 2, f (x|2) = f (x|3) = 1/4 are both maxima, so both = 2 or = 3 are MLEs. 7.2 a. L(

Ohio State - STAT - 622

Chapter 6Principles of Data Reduction6.1 By the Factorization Theorem, |X | is sucient because the pdf of X is f (x| 2 ) = 2 2 2 2 1 1 ex /2 = e|x| /2 = g ( |x| 2 ) 1 . 2 2h(x)6.2 By the Factorization Theorem, T (X ) = mini (Xi /i) is sucient because

Ohio State - STAT - 622

Chapter 5Properties of a Random Sample5.1 Let X = # color blind people in a sample of size n. Then X binomial(n, p), where p = .01. The probability that a sample contains a color blind person is P (X > 0) = 1 P (X = 0), where P (X = 0) = n (.01)0 (.99)n

Ohio State - STAT - 622

Chapter 4Multiple Random Variables4.1 Since the distribution is uniform, the easiest way to calculate these probabilities is as the ratio of areas, the total area being 4. a. The circle x2 + y 2 1 has area , so P (X 2 + Y 2 1) = . 4 2 b. The area below

Ohio State - STAT - 622

Chapter 3Common Families of Distributions3.1 The pmf of X is f (x) =1 N1 N0 +1 , N1x = N0 , N0 + 1, . . . , N1 . ThenN1 N0 1EX=x=N 0x1 1 = N1 N 0 +1 N1 N 0 +1xx=1 x=1x= =1 N1 N 0 +1 N1 + N0 . 2N 1N1 (N 1 +1) (N 0 1)(N 0 1 + 1) 2 2Similar

Ohio State - ESL - 104

Ohio State - STAT - 665

=P(z<=z* if H0 true)p-value = P(Y<=344 if p=1/2) = P(Y=344)+P(Y=343)+. < 0.0001p-values=cfw_1, 0.11, 0.006, 0.0002, 2.3x10^-6, 1.8x10^-8, 6.4x10^-11=P(Y=0)+P(Y=1)and close to the nominal level of 95%.

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101

This datasheet has been download from: www.datasheetcatalog.com Datasheets for electronics components.

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101

"카이스트, 한국과학기술원" - ARCH - Arch 101