60) A cost with a flat cost line within a relevant range that shifts to another level when volume
significantly changes is a(n):
A) Flat line cost.
B) Step-wise cost.
C) Curvilinear cost.
D) Incremental cost.
E) Fixed cost.
61) A cost that includes both fixed and variable cost components is called a:
A) Step-variable cost.
B) Mixed cost.
C) Curvilinear cost.
D) Differential cost.
E) Composite cost.
62) Curvilinear costs always increase:
A) On a per unit basis when volume of activity goes down.
B) With decreases in volume.
C) When volume increases, but at a nonconstant rate.
D) When management performs break-even analysis.
E) In constant proportion to changes in production levels.
63) Which one of the following statements is not true?
A) Total fixed costs remain the same regardless of volume within the relevant range.
B) Total variable costs change with volume.
C) Variable costs per unit remain the same regardless of the volume.
D) Total variable costs decrease as the volume increases.
E) Fixed costs per unit increase as the volume decreases.
23
64) An important tool in predicting the volume of activity, the costs to be incurred, the sales to be
made, and the profit to be earned is:
A) Cost-volume-profit analysis.
B) Variance analysis.
C) Target income analysis.
D) Least-squares regression analysis.
E) Process costing.
65) Select cost information for Seacrest Enterprises is as follows:
1,000 units of output 5,000 units of output
Total Cost/Unit Total Cost/Un
it
Direct materials $ 5,00
0
$ 5.00 $ 25,00
0
$ 5.00
Utilities expense $ 1,00
0
Rent expense $ 4,00
0
$ 1.00 $ 3,750 $ 0.75
$ 4.00 $ 4,000 $ 0.80
Based on this information:
A) Direct materials is a fixed cost and utilities expense is a mixed cost.
B) Utilities expense is a mixed cost and rent expense is a fixed cost.
C) Both direct materials and utilities expense are mixed costs.
D) Both direct materials and rent expense are variable costs.
E) Utilities expense is a mixed cost and rent expense is a variable cost.
66) Select cost information for Klondike Corporation is as follows:
1,000 units of output 2,000 units of output
Total Cost/Unit Total Cost/Unit
Direct materials $ 4,00
0
Rent expense $ 2,00
0
$ 4.00 $ 8,00
0
$ 2.00 $ 2,00
0
$ 4.00
$ 1.00
Based on this information:
A) Both direct materials and rent expense are fixed costs.
B) Direct materials is a fixed cost and rent expense is a variable cost.
C) Both direct materials and rent expense are mixed costs.
D) Both direct materials and rent expense are variable costs.
E) Direct materials is a variable cost and rent expense is a fixed cost.
67) Which of the following costs are most likely to be classified as variable?
A) Insurance
B) Straight-line depreciation
C) Manager salaries
D) Factory rent
E) Direct materials
68) Which of the following costs are most likely to be classified as fixed?
A) Property taxes
B) Shipping costs
C) Sales commissions
D) Direct labor
E) Direct materials
69) A company’s normal operating range, which excludes extremely high or low operating levels that
are not likely to occur, is called the:
A) Relevant range.
B) High-low point.
C) Margin of safety.
D) Break-even point.
E) Contribution range.
70) A term describing a firm’s normal range of operating activities is:
A) Relevant operating analysis.
B) Break-even level of operations.
C) Margin of safety of operations.
D) Relevant range of operations.
E) High-low level of operations.
71) Cost-volume-profit analysis is based on necessary assumptions. Which of the following is not one
of these assumptions?
A) Total fixed costs are held constant.
B) Costs can be classified as variable or fixed.
C) Relevant range includes all possible levels of activity that a company might experience.
D) A constant sales mix in a multiproduct company.
E) Sales price and variable costs per unit of output remain constant as volume changes.
72) A target income refers to:
A) Income planned for a future period.
B) Income at the break-even point.
C) Income only in a multiproduct environment.
D) Income at the minimum contribution margin.
E) Income from the most recent period.
73) The margin of safety is the excess of:
A) Break-even sales over expected sales.
B) Expected sales over variable costs.
C) Fixed costs over expected sales.
D) Expected sales over break-even sales.
E) Expected sales over fixed costs.
74) 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) $440,000. D) $24,000. E) $190,000.
75) The excess of expected sales over the sales level at the break-even point is known as the:
A) Contribution margin.
B) Margin of safety.
C) Profit margin.
D) Relevant range.
E) Sales turnover.
76) A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be
$60,000. If the variable costs per unit are $5, total fixed costs must be:
A) $215,000. B) $275,000. C) $90,000. D) $125,000. E) $65,000.
77) During March, a firm expects its total sales to be $160,000, its total variable costs to be $95,000,
and its total fixed costs to be $25,000. The contribution margin for March is:
A) $25,000. B) $120,000. C) $65,000. D) $40,000. E) $90,000.
78) A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit
of $6. Total fixed costs are $70,000. The total contribution margin is:
A) $380,000. B) $125,000. C) $150,000. D) $55,000. E) $90,000.
79) A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit
of $6. Total fixed costs are $70,000. The pretax net income is:
A) $90,000. B) $55,000. C) $380,000. D) $125,000. E) $150,000.
80) Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio. If the
company has set a target monthly income of $15,000, what dollar amount of sales must be made to
produce the target income?
A) $207,500 B) $245,000 C) $37,300 D) $170,000 E) $39,200
81) During its most recent fiscal year, Raphael Enterprises sold 200,000 electric screwdrivers at a price
of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount
should have been reported as variable costs in the company’s contribution margin income statement
for the year in question?
A) $2,400,000.
B) $2,000,000.
C) $3,000,000.
D) $1,600,000.
E) $1,000,000.
82) During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin
amounted to $1,500,000 and pretax income was $400,000. What amount should have been
reported as variable costs in the company’s contribution margin income statement for the year in
question?
A) $1,100,000.
B) $2,800,000.
C) $1,300,000.
D) $1,900,000.
E) $1,700,000.
83) During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin
amounted to $1,500,000 and pretax income was $400,000. What amount should have been
reported as fixed costs in the company’s contribution margin income statement for the year in
question?
A) $1,900,000.
B) $2,800,000.
C) $1,100,000.
D) $1,300,000.
E) $1,700,000.
84) Henderson 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 percent of sales?
A) 25%. B) 75%. C) 6%. D) 33%. E) 50%.
85) Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break even
sales are $300,000. What is the margin of safety as a percent of sales, rounded to the nearest whole
percent?
A) 52%. B) 92%. C) 9%. D) 108%. E) 8%.
86) 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) 5,500. B) 6,500. C) 5,000. D) 6,000. E) 500.
87) A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants
to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole
unit)?
A) 21,333. B) 2,667. C) 20,000. D) 18,666. E) 24,000.
88) A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution
margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of
sales must the company make (rounded to the nearest whole dollar)?
A) 490,909. B) 381,818. C) 330,000. D) 600,000. E) 109,090.
89) Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will
pretax income equal if sales are $325,000?
A) $130,000. B) $122,500. C) $181,250. D) $57,500. E) $252,500.
90) Locus 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 Locus 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) 14,080. B) 11,200. C) 12,320. D) 1,120. E) 8,214.
91) Raven Company has a target of earning $70,000 pre-tax 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) $353,333. C) $420,000. D) $36,000. E) $300,000.
92) Use the following information to determine the margin of safety in dollars:
Unit sales 50,000 Units
Dollar sales $ 500,00
0
Fixed costs 39 $ 204,00
Fixed costs $ 204,00
0
Variable costs $ 187,50
0
A) $173,600. B) $500,000. C) $108,500. D) $88,500. E) $326,400.
93) Use the following information to determine the break-even point in sales dollars:
Unit sales 50,000 Units
Dollar sales $ 500,00
0
Fixed costs $ 204,00
0
Variable costs $ 187,50
0