Accounting, 9e (Horngren)
Chapter 19 Cost-Volume-Profit Analysis
Learning Objective 19-1
1) Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double.
2) Total variable costs change in response to changes in the volume of production.
3) The mixed cost per unit is constant throughout the relevant range of activity.
4) Fixed costs per unit decrease as production levels decrease.
5) Peterson Company has both fixed and variable costs. If the volume doubles, the total variable costs will double.
6) The variable cost per unit is assumed to be constant within a particular relevant range of activity.
7) Variable costs change in direct proportion to a change in volume.
8) Peterson Company has both fixed and variable costs. If the volume doubles, the total of all costs combined will
double.
9) Within the relevant range for production costs, the total fixed costs and the variable cost per unit remain the same.
10) Total fixed costs can change from one relevant range to another.
11) Which of the following is NOT a fixed cost?
A) Property taxes
B) Salary of plant manager
C) Direct materials cost
D) Straight-line depreciation
12) A 15% increase in production volume will result in a:
A) 15% increase in the variable cost per unit.
B) 15% increase in total mixed costs.
C) 15% increase in total manufacturing costs.
D) 15% increase in total variable costs.
13) Which of the following statements is CORRECT with respect to variable cost per unit, within the relevant
range?
A) It will increase as production decreases.
B) It will decrease as production decreases.
C) It will remain the same as production levels change.
D) It will decrease as production increases.
14) Which of the following statements is CORRECT with respect to total variable costs, within the relevant range?
A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.
15) Which of the following statements is CORRECT with respect to total fixed costs, within the relevant range?
A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.
16) Which of the following statements is CORRECT with respect to fixed costs per unit?
A) They will increase as production decreases.
B) They will decrease as production decreases.
C) They will remain the same as production levels change.
D) They will increase as production increases.
17) The long distance company that you use charges $5.00 per month and $0.10 per minute per call. If your current
bill is $25.00, how many minutes did you use?
A) 250 minutes
B) 100 minutes
C) 200 minutes
D) 150 minutes
18) Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $1,700, occurred
in July when she washed 800 dogs and her lowest bill, $900, occurred in November when she washed 400 dogs.
What was the variable cost per dog associated with Jenny’s water bill?
A) $0.67
B) $1.00
C) $0.50
D) $2.00
19) Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $1,700, occurred
in July when she washed 800 dogs and her lowest bill, $900, occurred in November when she washed 400 dogs.
What was the fixed cost associated with Jenny’s water bill?
A) $150
B) $300
C) $100
D) $200
20) Dakota Company provides the following information about its single product:
Targeted operating income
$40,000
Selling price per unit
$3.50
Variable cost per unit
$1.05
Total fixed costs
$90,000
What is the contribution margin ratio?
A) 0.70
B) 0.44
C) 0.56
D) 0.30
21) Which of the following is the term for a cost that does NOT change in total despite wide changes in volume?
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost
22) Which of the following is the term for a cost that is part variable and part fixed?
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost
23) Which of the following is the term for a cost that changes in total in direct proportion to a change in volume?
A) Fixed cost
B) Variable cost
C) Mixed cost
D) Sunk cost
24) JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units
are produced. How much is the variable cost per unit? (Please round to the nearest cent.)
A) $9.45
B) $2.78
C) $7.50
D) $1.95
25) JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units
are produced. If the volume increases to 50,000 units, what will the total costs be?
A) $375,000
B) $472,500
C) $397,500
D) $330,000
26) Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there
were 100,000 units produced and total costs of $550,000. How much is the variable cost per unit? (Please round all
amounts to the nearest cent.)
A) $3.00
B) $5.50
C) $2.50
D) $3.50
27) Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there
were 100,000 units produced and total costs of $550,000. In June, the company produced only 60,000 units. How
much was the total cost in June?
A) $378,000
B) $430,000
C) $330,000
D) $414,500
28) Arlington Company’s highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in
December. The company makes a single product. Production volume in June was 7,000 units; production volume
in December was 12,500 units. How much is the fixed cost per month?
A) $9,625
B) $42,500
C) $40,000
D) $21,875
29) Arlington Company’s highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in
December. The company makes a single product. Production volume in June was 7,000 units; production volume
in December was 12,500 units. How much is the variable cost per unit?
A) $4.95
B) $1.05
C) $1.75
D) $7.46
30) Arlington Company’s highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in
December. The company makes a single product. Production volume in June was 7,000 units; production volume
in December was 12,500 units. If the production volume is 9,000 units, what will the total costs be?
A) $55,000
B) $55,750
C) $45,600
D) $57,062
31) Orleans Company has a normal range of production volumes between 100,000 units and 180,000 units per
month. That is considered the relevant range for production cost analysis. If the company expands significantly
beyond 180,000 units per month, which of the following would be the most likely expectation?
A) The fixed costs will remain the same, but the variable cost per unit may change.
B) The fixed costs may change, but the variable cost per unit will remain the same.
C) The fixed costs and the variable cost per unit will not change.
D) Both the fixed costs and the variable cost per unit may change.
32) The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low
method, and answer the question.
Minutes
Total Bill
Jan
300
$2,650
Feb
150
$2,575
Mar
100
$2,550
Apr
250
$2,625
How much is the fixed portion of the total cost?
A) $2,050
B) $1,960
C) $2,500
D) $250
33) The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low
method, and answer the question.
Minutes
Total Bill
Jan
300
$2,650
Feb
150
$2,575
Mar
100
$2,550
Apr
250
$2,625
How much is the variable cost per minute?
A) $0.50
B) $1.75
C) $2.50
D) $0.25
34) The phone bill for a CPA firm is a mixed cost. Please refer to the 4-month data below, apply the high-low
method, and answer the question.
Minutes
Total Bill
Jan
300
$2,650
Feb
150
$2,575
Mar
100
$2,550
Apr
250
$2,625
If the company uses 280 minutes in May, how much will the total bill be?
A) $2,625
B) $2,750
C) $2,640
D) $2,540
35) Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that
affect the total variable costs? (Assume all volumes are within the relevant range.)
A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down
36) Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that
affect the total fixed costs? (Assume all volumes are within the relevant range.)
A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down
37) Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that
affect the total of all costs? (Assume all volumes are within the relevant range.)
A) Would go up 20%
B) Would remain the same
C) Would go up by some amount less than 20%
D) Would go down
38) America First Company provided the following manufacturing costs for the month of June.
Direct materials cost
Janitor’s salary
Property taxes
Direct labor cost
Packaging costs
Equipment depreciation (straight-line)
Factory insurance
Factory manager’s salary
How much of the above would normally be considered fixed costs?
A) $47,800
B) $26,400
C) $35,800
D) $38,400
39) America First Company provided the following manufacturing costs for the month of June.
Direct materials cost
Janitor’s salary
Property taxes
Direct labor cost
Packaging costs
Equipment depreciation (straight-line)
Factory insurance
Factory manager’s salary
How much of the above would normally be considered variable costs?
A) $108,000
B) $125,400
C) $117,400
D) $38,400
40) Ace Card Company has variable costs of $0.40 per unit of product. The remainder of its production costs are
fixed. In May, the volume was 12,000 units and the total production costs were $6,900. How much are the fixed
costs?
A) $2,100
B) $2,200
C) $1,950
D) $2,025
Learning Objective 19-2
1) If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60.
2) Contribution margin is defined as the sales revenue minus the fixed costs.
3) Fixed costs divided by the contribution margin per unit equals the breakeven point in unit sales.
4) CVP analysis assumes that the ONLY factor that affects costs is change in volume.
5) Both the income statement approach and the contribution margin approach will yield the same answer for
calculating breakeven points.
6) The breakeven point represents the sales volume at which the company’s net income is zero.
7) If all other factors are constant, an increase in fixed costs will increase the breakeven point.
8) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
9) Some companies use contribution margin rather than sales revenues as the basis of incentives for motivating sales
persons because it will lead them to sell more of the higher margin goods.
10) Breakeven is the point where the sales revenues are exactly equal to the fixed costs.
11) Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed
costs.
12) Arturo Company’s model A generator sells for $456 and model B sells for $390. The variable cost of model A
is $404 and of model B is $320. If Arturo Company’s sales incentives reward sales of the goods with highest
contribution margin, the sales force will be motivated to push sales of model A more aggressively than model B.
13) Arturo Company’s model A generator sells for $456, and model B sells for $390. The variable cost of model A
is $404 and of model B is $320. If Arturo sells more of model B than model A, it will generate lower revenues, but
higher net income.
14) Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending
space for one day. Her variable costs are $15 per scarf. How many scarves does she need to sell to break even?
A) 4
B) 3
C) 5
D) 2
15) Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending
space for one day. Her variable costs are $15 per scarf. What total revenue amount does she need to earn to break
even?
A) $85
B) $75
C) $50
D) $100
16) Dalian Company provides the following information:
Price per unit: $20
Variable cost per unit: $8
Fixed costs per month: $15,000
How much is the contribution margin per unit?
A) $12.00
B) $4.00
C) $4.50
D) $16.00
17) Dalian Company provides the following information:
Price per unit: $20
Variable cost per unit: $8
Fixed costs per month: $15,000
How much is the contribution margin ratio?
A) 12%
B) 6%
C) 40%
D) 60%
18) Dalian Company provides the following information:
Price per unit: $20
Variable cost per unit: $8
Fixed costs per month: $15,000
What is the breakeven point in terms of units sold?
A) 1,150
B) 1,200
C) 1,875
D) 1,250
19) Dalian Company provides the following information:
Price per unit: $20
Variable cost per unit: $8
Fixed costs per month: $15,000
What is the breakeven point in terms of sales revenues?
A) $18,500
B) $25,000
C) $37,500
D) $22,750
20) Reevis Company has fixed costs of $7,500. Their contribution margin ratio is 20%. What is the break-even
point in sales dollars?
A) $22,000
B) $37,500
C) $1,500
D) $32,750
21) Reevis Company sells hand-sewn shirts for $25 per unit, and has fixed costs of $7,500. Their contribution
margin ratio is 20%. How many units do they have to sell to break even?
A) 950
B) 1,750
C) 1,125
D) 1,500
22) Reevis Company sells hand-sewn shirts for $25 per unit, and has fixed costs of $7,500. Their contribution
margin ratio is 20%. How much is the variable cost per unit?
A) $20
B) $8
C) $5
D) $15