Chapter 19(4): Cost Behavior and Cost-Volume-Profit Analysis
61.
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
62.
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
63.
Costs that remain constant in total dollar amount as the level of activity changes are called
a.
fixed costs
b.
mixed costs
c.
product costs
d.
variable costs
Chapter 19(4): Cost Behavior and Cost-Volume-Profit Analysis
Figure 21-1
64.
Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?
a.
Graph 2
b.
Graph 3
c.
Graph 4
d.
Graph 1
65.
Which of the graphs in Figure 21-1 illustrates the behavior of a total variable cost?
a.
Graph 2
b.
Graph 3
c.
Graph 4
d.
Graph 1
66.
Which of the graphs in Figure 21-1 illustrates the nature of a mixed cost?
a.
Graph 2
b.
Graph 3
c.
Graph 4
d.
Graph 1
67.
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
68.
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
69.
Which of the following activity bases would be the most appropriate for food costs of a hospital?
a.
number of nurses scheduled to work
b.
how many MRI’s are taken
c.
number of patients who stay in the hospital
d.
quantity of prescriptions filled
70.
Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service?
a.
number of truck drivers
b.
total of miles driven
c.
how many trucks are in service
d.
number of packages picked up
71.
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
72.
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
73.
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
74.
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
75.
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
76.
Which of the following describes the behavior of a 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
77.
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
78.
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
79.
Which of the following costs is a mixed cost?
a.
salary of a factory supervisor
b.
electricity costs of $3 per kilowatt-hour
c.
rental costs of $10,000 per month plus $0.30 per machine hour of use
d.
straight-line depreciation on factory equipment
80.
For purposes of analysis, mixed costs are
a.
classified as fixed costs
b.
classified as variable costs
c.
classified as period costs
d.
separated into their variable and fixed cost components
81.
Strait Co. manufactures office furniture. During the most productive month of the year, 3,000 desks were
manufactured at a total cost of $59,000. In the month of lowest production the company made 1,125 desks at a
cost
of $38,000. Using the high-low method of cost estimation, total fixed costs are
a. $21,000
b. $25,400
c. $42,000
d. $13,000
82.
Given the following cost and activity observations for Bounty Company’s utilities, use the high-low
method to
calculate Bounty’ variable utilities costs per machine hour. Round your answer to the nearest
cent.
Cost
Machine Hours
March
$3,100
15,000
April
2,700
10,000
May
2,900
12,000
June
3,600
18,000
a. $10.00
b. $0.67
c. $0.63
d. $0.11
83.
Given the following cost and activity observations for Smithson Company’s utilities, use the highlow
method to
calculate Smithson’s fixed costs per month. Do not round your intermediate calculations.
Cost
Machine Hours
January
$52,200
20,000
February
75,000
29,000
March
57,000
22,000
April
64,000
24,500
a. $1,533
b. $2,530
c. $22,800
d. $50,600
84.
Given the following cost and activity observations for George Company’s utilities, use the highlow
method to
calculate George’s variable utilities costs per machine hour.
Machine Hours
May
105,000
June
120,000
July
100,000
August
117,000
a. $100.00
b. $1.00
c. $10.00
d. $0.10
85.
Manley 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
86.
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 constant in total, and variable costs are constant per unit.
d.
Variable costs are constant in total, and fixed costs vary in total.
87.
As production increases, the fixed cost per unit
a.
increases
b.
decreases
c.
remains the same
d.
either increases or decreases, depending on the variable costs
88.
Understanding how costs behave is useful to management for all the following reasons except
a.
predicting customer demand
b.
predicting profits as sales and production volumes change
c.
estimating costs
d.
changing an existing product production
89.
The manufacturing cost of Calico Industries for three months of the year are provided below:
Total Cost
Production
(units)
April
$120,000
280,000
May
74,000
165,000
June
90,900
230,000
Using the high-low method, the variable cost per unit and the total fixed costs are
a.
$0.78 per unit and $4,000
b.
$0.40 per unit and $8,000
c.
$4.00 per unit and $800
d.
$7.80 per unit and $4,000
90.
As production increases, variable costs per unit
a.
stay the same
b.
increase
c.
decrease
d.
either increase or decrease, depending on the fixed costs
91.
Thompson Company manufactures and sells cookware. Because of current trends, it expects to increase sales by
15% next year. If this expected level of production and sales occurs and plant expansion is not needed, how
should
this increase affect next year’s total amounts for the following costs?
Variable Costs
Fixed Costs
Mixed Costs
a.
increase
increase
increase
b.
increase
no change
increase
c.
no change
no change
increase
d.
decrease
increase
increase
92.
Given the following costs and activities for Dance Company electrical costs, use the high-low method to calculate
Dance’s variable electrical costs per machine hour.
Costs Machine Hours
Aug. $11,700 15,000
Sept. $13,200 17,500
Oct. $11,400 14,500
a. $2.08
b. $6.00
c. $0.60
d. $1.20
93.
Given the following cost data, what type of cost is shown?
Cost per Unit
Number of Units
$6,000
1
$3,000
2
$2,000
3
$1,500
4
a.
mixed cost
b.
variable cost
c.
fixed cost
d.
period cost
94.
Given the following cost data, what type of cost is shown?
Total Cost
Number of Units
$8,000
1
$8,500
2
$9,000
3
$9,500
4
a.
mixed cost
b.
variable cost
c.
fixed cost
d.
period cost
95.
Given the following cost data, what type of cost is shown?
Total Cost
Number of units
$20
1
$40
2
$60
3
$80
4
a.
mixed cost
b.
variable cost
c.
fixed cost
d.
period cost
96.
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
97.
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
98.
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
99.
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
100.
If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the
contribution
margin ratio?
a. 45%
b. 55%
c. 62%
d. 32%
101.
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
102.
A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs
were
40% of sales, and sales were $1,000,000. Operating profit was
a. $180,000
b. $420,000
c. $1,080,000
d. $980,000
103.
If sales are $425,000, variable costs are 62% of sales, and operating income is $50,000, what is the
contribution
margin ratio?
a. 38%
b. 26.8%
c. 11.8%
d. 62%
104.
Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are
$130,000. How much will operating income change if sales increase by $40,000?
a.
$8,000 increase
b.
$8,000 decrease
c.
$30,000 decrease
d.
$30,000 increase
105.
Spice Inc.’s unit selling price is $60, 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 8,000 units?
a.
$150,000 decrease
b.
$175,000 increase
c.
$200,000 increase
d.
$150,000 increase
106.
Bryce Co. sales are $914,000, variable costs are $498,130, and operating income is $196,000. What is
the
contribution margin ratio?
a. 52.2%
b. 28.4%
c. 54.5%
d. 45.5%
107.
A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs
were
70% of sales, and sales were $1,000,000. Operating profit (loss) was
a. $140,000
b. $(30,000)
c. $370,000
d. $670,000
108.
Lee Industry sales are $525,000, variable costs are 53% of sales, and operating income is $19,000. What is
the
contribution margin ratio?
a. 47%
b. 26.5%
c. 9.5%
d. 53%
109.
Zipee Inc.’s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current
sales
are 12,000 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.
$247,500 increase