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Accounting
Q:
If Willco Inc. expects to operate the machines for a total of 32,000 hours in the next month, calculate the expected maintenance costs?
A. $31,232
B. $32,512
C. $64,755
D. $63,947
E. $65,227
Q:
Using the high-low method and the Willco data above, what is the approximate fixed cost component of the monthly maintenance costs?
A. $33,860
B. $24,500
C. $32,755
D. $32,715
E. $30,686
Q:
Using the high-low method and the Willco data, calculate the variable maintenance cost per machine hour (round to three decimal places).
A. $1.016/hr.
B. $0.976/hr.
C. $1.863/hr.
D. $1.250/hr.
E. $0.907/hr.
Q:
A method that estimates cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line is called the:
A. Scatter method.
B. High-low method.
C. Least-squares method.
D. Break-even method.
E. Step-wise method.
Q:
A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:
A. Margin of safety line.
B. Break-even line.
C. Contribution margin line.
D. Estimated line of cost behavior.
E. Standard cost line.
Q:
The least-squares regression method is:
A. A graphical method to identify cost behavior.
B. An algebraic method to identify cost behavior.
C. A statistical method to identify cost behavior.
D. The only identify cost estimation method allowed by GAAP.
E. A cost estimation method that only uses the two extreme values.
Q:
A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:
A. Least-squares diagram.
B. Step-wise diagram.
C. Scatter diagram.
D. Break-even diagram.
E. Composite diagram.
Q:
A statistical method for deriving an estimated line of cost behavior is the:
A. Scatter diagram method.
B. High-low method.
C. Composite method.
D. CVP charting method.
E. Least-squares regression method.
Q:
Total contribution margin in dollars divided by pretax income is the:
A. Degree of operating leverage.
B. Contribution margin ratio.
C. Margin of safety.
D. Sales mix.
E. Break-even point in units.
Q:
Management of a company is evaluating two potential orders. Due to limited capacity only one of these orders can be accepted. Incremental fixed costs are the same for either option. Based on the information in the table below, which of the following statements is true? Option A
Option B Number of units
30
40 Contribution margin ratio
35%
45% Selling price per unit
$400
$300 A. Option B has the highest contribution margin per unit.
B. Option A has the highest total contribution margin.
C. Option B has the lowest contribution margin ratio.
D. Option B has the highest total contribution margin.
E. Option A has the highest amount per dollar of sales to contribute to contribution margin and profit.
Q:
During the past year a company had total fixed costs of $70,000. Its product sold for $9 per unit. Variable costs during this time equaled $5 per unit. Next year the company is anticipating a 4% increase in total fixed costs and a $1 per unit decrease in variable costs but would like to maintain its current selling price per unit. How many units must the company sell next year to earn $1 million? (Round answer to complete units.)
A. 119,200
B. 200,000
C. 214,560
D. 268,200
E. 18,200
Q:
During the past year a company had total fixed costs of $700,000. Its product sold for $93 per unit. Variable costs during this time equaled $45 per unit. Next year the company is anticipating a 10% increase in total fixed costs and a $3 per unit decrease in variable costs but would like to maintain its current selling price per unit. How many units must the company sell next year to earn $1 million? (Round answer to complete units.)
A. 19,608
B. 34,706
C. 36,875
D. 20,833
E. 19,033
Q:
A company wishes to earn a pretax income equal to 35% of total fixed costs. Its product sells for $50.75 per unit. Total fixed costs equal $156,800 and variable costs per unit are $32.50. How many units must this company sell to meet its goal? (Round answer to complete units.)
A. 11,599
B. 8,592
C. 4,171
D. 6,513
E. 11,047
Q:
Use the following information to determine the margin of safety in dollars: Unit sales
50,000
units Dollar sales
$500,000 Fixed costs
$204,000 Variable costs
$187,500 A. $88,500
B. $108,500
C. $173,600
D. $326,400
E. $500,000
Q:
Ivan Company has a goal of earning $70,000 after-tax income. Ivan would need to pay $20,000 of income taxes at the target level of income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?
A. $23,333
B. $36,000
C. $300,000
D. $353,333
E. $420,000
Q:
Schmidt Inc, manufactures inexpensive cameras that sell for $50. Fixed costs are $720,000 and variable costs are $30.00 per unit. Schmidt can buy a newer production machine that will increase fixed costs by $14,400 per year but will increase variable costs by 10% per unit. What are the original and the new break-even points in this situation?
A. Original $43,200; New $36,720.
B. Original $36,000; New $36,720.
C. Original $36,000; New $42,353.
D. Original $36,000; New $43,200.
E. Original $24,000; New $41,506.
Q:
Mueller Corp. manufactures compact discs that sell for $5. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mueller's break-even point in units?
A. 4,444 unit increase.
B. 9,850 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
Q:
Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Conan Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A. 1,120
B. 8,214
C. 11,200
D. 12,320
E. 14,080
Q:
A product sells for $210 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 after tax income (assume a 30% tax rate), how many units must be sold?
A. 6,500
B. 6,275
C. 500
D. 5,875
E. 5,500
Q:
A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?
A. 6,500
B. 6,000
C. 500
D. 5,000
E. 5,500
Q:
Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percentage of sales?
A. 6%
B. 25%
C. 33%
D. 50%
E. 75%
Q:
The excess of expected sales over the sales level at the break-even point is known as the:
A. Sales turnover.
B. Profit margin.
C. Contribution margin.
D. Relevant range.
E. Margin of safety.
Q:
A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:
A. Increase by 20,000
B. Equal 6,000
C. Increase by 6,000
D. Decrease by 20,000
E. Not change
Q:
If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety (in dollars) is:
A. $60,000
B. $250,000
C. $190,000
D. $440,000
E. $24,000
Q:
The margin of safety is the excess of:
A. Break-even sales over expected sales.
B. Expected sales over variable costs.
C. Expected sales over fixed costs.
D. Fixed costs over expected sales.
E. Expected sales over break-even sales.
Q:
A target income refers to:
A. Income at the break-even point.
B. Income from the most recent period.
C. Income planned for a future period.
D. Income only in a multiproduct environment.
E. Income at the minimum contribution margin.
Q:
Cost-volume-profit analysis is based on three basic assumptions. Which of the following is not one of these assumptions?
A. Total fixed costs remain constant over changes in volume.
B. Curvilinear costs change proportionately with changes in volume throughout the relevant range.
C. Variable costs per unit of output remain constant as volume changes.
D. Sales price per unit remains constant as volume changes.
E. The relationship between volume, costs, and profits do not necessarily hold outside the relevant range.
Q:
A term describing a firm's normal range of operating activities is:
A. Relevant range of operations.
B. Break-even level of operations.
C. Margin of safety of operations.
D. Relevant operating analysis.
E. High-low level of operations.
Q:
A company's normal operating range, which excludes extremely high and low volumes that are not likely to occur, is called the:
A. Margin of safety.
B. Contribution range.
C. Break-even point.
D. Relevant range.
E. High-low point.
Q:
An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:
A. Target income analysis.
B. Cost-volume-profit analysis.
C. Least-squares regression of costs.
D. Variance analysis.
E. Process costing.
Q:
Which one of the following statements is not true?
A. Total fixed costs remain the same regardless of volume.
B. Total variable costs change with volume.
C. Total variable costs decrease as the volume increases.
D. Fixed costs per unit increase as the volume decreases.
E. Variable costs per unit remain the same regardless of the volume.
Q:
Curvilinear costs always increase:
A. With decreases in volume.
B. In constant proportion to changes in production levels.
C. When management performs break-even analysis.
D. When volume increases but not at a constant rate.
E. On a per unit basis when volume of activity goes down.
Q:
A cost that can be separated into fixed and variable components is called a:
A. Mixed cost
B. Step-variable cost
C. Composite cost
D. Curvilinear cost
E. Differential cost
Q:
A cost that remains constant over a limited range of volume but increases by a lump sum when volume increases beyond a maximum amount is a(n):
A. Step-wise cost
B. Fixed cost
C. Curvilinear cost
D. Incremental cost
E. Opportunity cost
Q:
A cost that changes with volume, but not at a constant rate, is called a:
A. Variable cost
B. Curvilinear cost
C. Step-wise variable cost
D. Fixed cost
E. Differential cost
Q:
A cost that changes in total proportionately to changes in volume of activity is a(n):
A. Differential cost
B. Fixed cost
C. Incremental cost
D. Variable cost
E. Product cost
Q:
A cost that remains the same in total even when volume of activity varies is a:
A. Fixed cost
B. Curvilinear cost
C. Variable cost
D. Step-wise variable cost
E. Standard cost
Q:
An important assumption in the analysis of a multiproduct situation is that the sales mix is known and remains constant.
Q:
Break-even analysis cannot be applied in a multiproduct situation.
Q:
Cost-volume-profit analysis cannot be used when a firm produces and sells more than one product.
Q:
On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis and both dollars of sales and dollars of costs are represented on the vertical axis.
Q:
A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.
Q:
A graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart.
Q:
The contribution margin ratio is the percentage by which the margin of safety exceeds the break-even point.
Q:
To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and unit sales price.
Q:
The contribution margin per unit is equal to the sales price per unit minus the variable costs per unit.
Q:
The contribution margin per unit is the price at which a unit must be sold in order for the company to break even.
Q:
The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.
Q:
Break-even analysis is a special case of cost-volume-profit analysis.
Q:
A break-even point can be calculated either in units or in dollars.
Q:
The high-low method is used to derive an estimated line of cost behavior by graphically connecting the two cost amounts identified with the highest and lowest volume levels.
Q:
To determine the slope of the variable cost from a scatter diagram, divide the change in volume by the change in cost.
Q:
Scatter diagrams plot volume on the vertical axis and cost on the horizontal axis.
Q:
There are only two methods to derive an estimated line of cost behavior: the high-low method and the scatter diagram.
Q:
A visual inspection of a scatter diagram may be used to identify the approximate relation between past cost and volume.
Q:
The high-low method can be used to derive an estimated line of cost behavior.
Q:
Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.
Q:
The extent, or relative size, of fixed costs in the total cost structure is known as operating leverage.
Q:
Unit contribution margin is the amount each unit contributes to both fixed costs and net income.
Q:
Unit contribution ratio is calculated by dividing sales price per unit by the unit contribution margin.
Q:
Unit contribution margin is the amount a products unit selling price exceeds its total variable cost.
Q:
Least-squares regression is a statistical method for deriving an estimated line of cost behavior.
Q:
The most complex of the cost estimation methods is the high-low method.
Q:
The high-low method of deriving an estimated cost line uses all the data points available.
Q:
The margin of safety can be expressed in units of product, in dollars, or as a percentage of sales.
Q:
The dollar amount of sales needed to achieve a targeted after-tax income is computed by dividing the sum of fixed costs plus the desired after-tax income plus income taxes by the contribution margin ratio.
Q:
The margin of safety is the amount that sales can drop before the company incurs a loss.
Q:
Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.
Q:
Cost-volume-profit analysis provides approximate, but not precise, answers to questions about the relations among costs, volume, and profits.
Q:
The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.
Q:
Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.
Q:
Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.
Q:
The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.
Q:
A step-wise variable cost can be separated into a fixed component and a variable component.
Q:
As the level of output activity increases, the variable cost per unit remains constant.
Q:
As the level of output activity increases, fixed cost per unit remains constant.
Q:
Curvilinear costs are also known as nonlinear costs.
Q:
Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to do cost-volume-profit analysis.
Q:
Variable costs per unit increase proportionately with increases in output activity.
Q:
Total variable costs change proportionately with changes in output activity.