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Name:
Class:
Date:
chapter 11
Indicate whether the statement is true or false.
1. If sales total $2,000,000, fixed costs total $600,000, and variable costs are 60% of the sales, the contribution margin
ratio is 40%.
a. True
b. False
2. Fixed costs are costs that vary in total dollar amount as the level of activity changes.
a. True
b. False
3. If sales total $1,000,000, fixed costs total $200,000, and variable costs are 55% of the sales, the contribution margin
ratio is 55%.
a. True
b. False
4. A mixed cost has characteristics of both a variable cost and a fixed cost.
a. True
b. False
5. If the unit selling price is $50, the volume of sales is $450,000, sales at the break-even point amount to $375,000, and
the maximum possible sales are $550,000, the margin of safety will be 2,000 units.
a. True
b. False
6. Cost-volume-profit analysis can be presented in both graph and equation form.
a. True
b. False
7. If direct materials cost per unit decreases, the break-even point will increase.
a. True
b. False
8. 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 will
be 25%.
a. True
b. False
9. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-
volume-profit graph.
a. True
b. False
10. The relevant range is useful for analyzing cost behavior for management decision-making purposes.
a. True
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chapter 11
b. False
11. Direct materials cost is an example of a fixed cost of production.
a. True
b. False
12. Total fixed costs remain constant as the level of activity changes within the relevant range.
a. True
b. False
13. Variable costs are costs that vary on a per unit basis as the level of manufacturing activity changes.
a. True
b. False
14. The contribution margin ratio is the same as the variable cost ratio.
a. True
b. False
15. The range of activity over which changes in cost are of interest to management is called the relevant range.
a. True
b. False
16. Direct materials and direct labor costs are examples of variable costs of production.
a. True
b. False
17. The graph of the variable costs when plotted against the activity level appears as a line parallel to the horizontal axis.
a. True
b. False
18. DeGiaimo Co. has an operating leverage of 5. If next year's sales are expected to increase by 10%, then the company's
operating income will increase by 50%.
a. True
b. False
19. If a business sells two products, it is not possible to estimate the break-even point.
a. True
b. False
20. 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.
a. True
b. False
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chapter 11
21. Even if a business sells six products, it is possible to estimate the break-even point.
a. True
b. False
22. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.
a. True
b. False
23. A change in fixed costs as a result of increase in the property tax rates will increase the break-even point.
a. True
b. False
24. The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating
income is termed as contribution margin ratio.
a. True
b. False
25. 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 will be 12,500 units.
a. True
b. False
26. Variable costs are costs that remain constant in total with changes in the activity level.
a. True
b. False
27. If direct materials cost per unit increases, the break-even point will increase.
a. True
b. False
28. The break-even point (in units) is calculated by dividing the total estimated fixed costs by the net sales of a period.
a. True
b. False
29. Break-even analysis is a type of cost-volume-profit analysis.
a. True
b. False
30. Monthly rent on a factory building is an example of a fixed cost.
a. True
b. False
31. The point in operations at which revenues and expenses are exactly equal is called the break-even point.
a. True
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chapter 11
b. False
32. Activities that cause costs to change are called activity bases.
a. True
b. False
33. A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.
a. True
b. False
34. If a business sells four products, it is not possible to estimate the break-even point.
a. True
b. False
35. If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating income of
$30,000 are 10,000 units.
a. True
b. False
36. Variable cost per unit remains the same regardless of activity level.
a. True
b. False
37. If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease.
a. True
b. False
38. If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000, the margin of safety will
be 20%.
a. True
b. False
39. A change in fixed costs as a result of increase in yearly insurance premium will decrease the break-even point.
a. True
b. False
40. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-
volume graph.
a. True
b. False
41. The unit contribution margin is the dollars available from each unit of sales to cover fixed cost and provide operating
income.
a. True
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b. False
42. If sales total $5,000,000, fixed costs total $400,000, and variable costs are 2,750,000, the contribution margin ratio is
45%.
a. True
b. False
43. Cost behavior refers to the manner in which a cost changes as a related activity changes.
a. True
b. False
44. A low operating leverage is normal for highly automated industries.
a. True
b. False
45. If fixed costs are $300,000 and variable costs are 70% of break-even sales, profit is zero when sales revenue is
$1,000,000.
a. True
b. False
46. If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will
decrease.
a. True
b. False
47. Rental charges of $60,000 per year plus $2 for each machine hour over 15,000 hours is an example of a fixed cost.
a. True
b. False
48. Variable costs are costs that vary in total in direct proportion to changes in the activity level.
a. True
b. False
49. A rental cost of $40,000 plus $0.50 per machine hour of use is an example of a mixed cost.
a. True
b. False
50. The fixed cost per unit varies with changes in the level of activity.
a. True
b. False
51. The variable cost per unit remains constant with changes in the level of activity.
a. True
b. False
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chapter 11
52. If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when 15,000 units are sold.
a. True
b. False
53. For purpose of analysis, mixed costs can generally be separated into their variable and fixed components.
a. True
b. False
54. If the volume of sales is $6,000,000 and sales at the break-even point amount to $5,000,000, the margin of safety will
be 20%.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
55. Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105, and the fixed costs are
$720,000. What is the sales (in dollars) required to realize operating income of $40,000?
a. $2,533,333
b. $1,773,333
c. $2,400,000
d. $1,680,000
56. 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
57. Which of the following conditions would cause the break-even point to increase?
a. Increase in total fixed costs
b. Increase in unit selling price
c. Decrease in unit variable cost
d. Decrease in total fixed costs
58. Currently, fixed costs are $540,000, the unit selling price is $95, and the unit variable cost is $60. What would be the
break-even sales (in units) if the unit selling price is increased by $10?
a. 5,294 units
b. 9,000 units
c. 12,857 units
d. 12,000 units
59. Calculate break-even sales (in units) when fixed cost is $216,000, unit selling price is $120, and unit variable cost is
$60.
a. 4,100 units
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b. 2,300 units
c. 3,400 units
d. 3,600 units
60. Which of the following graphs illustrates the behavior of a total variable cost?
a. Graph 2
b. Graph 3
c. Graph 4
d. Graph 1
61. Wiles Inc.'s unit selling price is $40, the unit variable costs is $30, fixed costs are $135,000, and current sales are
10,000 units. How much would operating income change if sales increase by 5,000 units?
a. $50,000 increase
b. $65,000 decrease
c. $100,000 increase
d. $50,000 decrease
62. If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point (in dollars)?
a. $1,875,000
b. $1,250,000
c. $1,666,667
d. $1,350,000
63. Using the high-low method, calculate variable utilities costs per machine hour.
Cost Machine Hours
January $ 8,200 14,900
February 13,600 21,200
March 5,600 5,200
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April 9,400 17,900
a. $0.33
b. $0.64
c. $0.50
d. $0.25
64. Foggy Co. has the following operating data for its manufacturing operations:
Unit selling price $250
Unit variable cost $100
Total fixed costs $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 break-even point for Foggy Co. will _____.
a. increase by 400 units
b. increase by 640 units
c. decrease by 640 units
d. increase by 800 units
65. Compute the break-even point (in dollars) if fixed costs are $540,000 and variable cost are 70% of sales.
a. $3,850,000
b. $1,800,000
c. $1,650,000
d. $900,000
66. For the purpose 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
67. Calculate the number of units that must be sold in order to realize an operating income of $139,000 when fixed costs
are $440,000 and unit contribution margin is $20.
a. 28,950 units
b. 29,650 units
c. 30,350 units
d. 31,550 units
68. Tucker Co. manufactures office furniture. During the most productive month of the year, 3,600 desks were
manufactured at a total cost of $192,000. In its slowest month, the company made 1,200 desks at a cost of $72,000. Using
the high-low method of cost estimation, total fixed costs per month are _____.
a. $120,000
b. $12,000
c. $72,000
d. $11,600
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chapter 11
69. Assume that Bisque Co. sold 12,000 units of Product A and 18,000 units of Product B in the last year. The unit
contribution margins for Products A and B are $10 and $20 respectively. Bisque has fixed costs of $420,000. The break-
even point in units is _____.
a. 26,250 units
b. 25,000 units
c. 18,500 units
d. 16,750 units
70. Which of the following conditions would cause the break-even point to decrease?
a. Increase in total fixed costs
b. Decrease in unit selling price
c. Decrease in unit variable cost
d. Increase in unit variable cost
71. What is the margin of safety (in sales) when a business has sales of $485,000, sales of $225,000 at break-even point,
and unit selling price of $55?
a. $710,000
b. $280,000
c. $260,000
d. $510,000
72. Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable cost is $48. What would be the
break-even sales (in units) if the variable cost is increased by $2?
a. 16,200 units
b. 57,875 units
c. 81,000 units
d. 67,500 units
73. 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
74. Which of the following graphs illustrates the behavior of a total fixed cost within the specified relevant range?
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a. Graph 2
b. Graph 3
c. Graph 4
d. Graph 1
75. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are as follows:
Unit Selling Unit Variable Unit Contribution
Product Price Cost Margin
Arks $ 80 $20 $60
Bins 120 40 80
What was Kennedy's overall product's unit variable cost?
a. $32.00
b. $30.00
c. $28.80
d. $27.20
76. A company operated at 82% of its capacity for the past year. Fixed costs during this time were $152,000, variable
costs were 60% of sales, and sales were $790,000. Calculate the company's operating profit.
a. $97,000
b. $185,000
c. $56,000
d. $164,000
77. The following information is given for the maintenance department of Goldenrod Co. Calculate the variable costs per
unit using the high-low method.
Cost Production in units
July $2,100 14,000
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August 1,000 9,000
September 1,800 10,000
October 4,000 21,000
a. $0.17
b. $0.11
c. $0.25
d. $0.08
78. Based on the following information, calculate fixed costs per month using the high-low method.
Cost Machine Hours
May $56,000 22,000
June 76,000 32,000
July 58,000 26,000
August 66,000 24,000
a. $12,000
b. $11,000
c. $10,000
d. $9,000
79. Clinton 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
80. Omega Inc. is expecting a reduction of $25,000 in fixed costs of $725,000. What will be the change in break-even
sales (in units) if selling price per unit is $50 and the unit variable cost is $35?
a. 48,333 units
b. 46,667 units
c. 1,667 units
d. 2,500 units
81. Which of the following graphs illustrates the nature of a mixed cost?
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a. Graph 2
b. Graph 3
c. Graph 4
d. Graph 1
82. Which of the following is true of a variable cost?
a. Total variable cost remains constant with changes in the number of goods sold.
b. Unit variable cost decreases with an increase in production.
c. Unit variable cost remains constant with changes in production.
d. Total variable cost decreases with an increase in the number of goods sold.
83. Costs that remain constant on a per unit level as the level of activity changes are called _____.
a. fixed costs
b. mixed costs
c. opportunity costs
d. variable costs
84. Calculate the break-even sales when a business has sales of $824,000 and a margin of safety of 21%.
a. $584,000
b. $650,960
c. $672,100
d. $710,000
85. Which of the following is true about the changes in fixed cost?
a. An increase in production will result in an increase in per unit fixed cost.
b. A decrease in fixed cost will result in an increase in variable cost.
c. An increase in production will result in a decrease in per unit fixed cost.
d. A decrease in production will result in an increase in total fixed cost.
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86. Currently, fixed costs are $561,000, and the unit contribution margin is $10. What would be the break-even point in
units if variable cost decreased by $0.50 per unit?
a. 59,053 units
b. 56,100 units
c. 53,429 units
d. 60,000 units
87. 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.
88. 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.
89. 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 are admitted in the hospital
d. Number of scheduled surgeries
90. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are as follows:
Unit Selling Unit Variable Unit Contribution
Product Price Cost Margin
Arks $ 80 $20 $60
Bins 120 40 80
Assuming that last year's fixed costs totaled $910,000, what was Kennedy's break-even point in units?
a. 9,100 units
b. 13,000 units
c. 13,227 units
d. 13,542 units
91. Which of the following is an example of a mixed cost?
a. Depreciation on factory machinery
b. Direct material cost
c. Maintenance expense
d. Property tax
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92. 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
93. Calculate the contribution margin ratio of a company with sales of $180,000 and operating income of $37,000.
Variable costs of the company are 52% of sales.
a. 41%
b. 48%
c. 36%
d. 24%
94. Sales amount to $774,000, variable costs are 59% of sales, and fixed cost is $120,000. What is the contribution margin
ratio?
a. 37%
b. 44%
c. 39%
d. 41%
95. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service such as
UPS?
a. Number of trucks employed
b. Number of miles driven
c. Number of trucks in service
d. Number of packages delivered
96. ABC Co. manufactures pens. During the most productive month of the year, 3,650 pens were manufactured at a total
cost of $84,550. During its slowest month, the company made 1,250 pens at a cost of $46,150. Calculate the total fixed
cost using the high-low method of cost estimation.
a. $25,650
b. $28,300
c. $26,150
d. $27,800
97. The point where the profit line intersects the left vertical axis on the profit-volume graph represents _____.
a. the maximum possible operating loss
b. the maximum possible operating income
c. the total fixed costs
d. the break-even point
98. Vest Food Co. has the following operating data:
Unit selling price $ 10.00
Unit variable cost 6.00
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Fixed costs 960,000
The company is contemplating moving to another state where direct labor costs can be reduced, thereby reducing the unit
variable cost by 10%. The state where the company currently operates has offered to reduce property taxes to encourage
Vest to stay. The minimum amount of property tax savings necessary to keep the company, assuming no other changes,
would be _____.
a. $152,016
b. $240,000
c. $208,696
d. $125,217
99. The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses,
and profits is termed as _____.
a. contribution margin analysis
b. cost-volume-profit analysis
c. budgetary analysis
d. gross profit analysis
100. 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
101. Calculate operating leverage if sales are $342,000, variable costs are 58% of sales, and operating income is $42,000.
a. 6.24
b. 4.27
c. 5.25
d. 3.42
102. If the contribution margin ratio for Harrison Company was 38%, sales were $425,000, and fixed costs were
$100,000, what was the operating income?
a. $163,500
b. $161,500
c. $54,730
d. $61,500
103. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are as follows:
Unit Selling Unit Variable Unit Contribution
Product Price Cost Margin
Arks $ 80 $20 $60
Bins 120 40 80
What was Kennedy's overall product's unit contribution margin?
a. $67.20
b. $70.00
c. $72.00
