Chapter 21 Activity Level Increases Within The Relevant

90. Exhibit 21-5

The following is a partial income statement for Duncan Corporation for 2011:

Duncan Corporation

Projected Income Statement

For the Year Ended December 31,

2011

Sales revenue (750 units at $20)

$15,000

Manufacturing cost of goods sold:

Direct materials used

$2,250

Direct labor

2,100

Variable manufacturing overhead

2,650

Fixed manufacturing overhead

750

7,750

Gross margin

$ 7,250

Selling expenses:

Variable costs

$1,100

Fixed costs

950

Administrative expenses:

Variable costs

900

Fixed costs

620

Total selling and administrative expenses

3,570

Operating income

$ 3,680

Refer to Exhibit 21-5. How many units of its product will Duncan Corporation have to sell to break even?

91. Exhibit 21-5

The following is a partial income statement for Duncan Corporation for 2011:

Duncan Corporation

Projected Income Statement

For the Year Ended December 31,

2011

Sales revenue (750 units at $20)

$15,000

Manufacturing cost of goods sold:

Direct materials used

$2,250

Direct labor

2,100

Variable manufacturing overhead

2,650

Fixed manufacturing overhead

750

7,750

Gross margin

$ 7,250

Selling expenses:

Variable costs

$1,100

Fixed costs

950

Administrative expenses:

Variable costs

900

Fixed costs

620

Total selling and administrative expenses

3,570

Operating income

$ 3,680

Refer to Exhibit 21-5. What will be Duncan Corporation’s operating income if sales volume increases by 40 percent?

92. As activity level increases within the relevant range, per-unit fixed costs usually will:

93. As activity level increases within the relevant range, total variable costs usually will:

94. When all other factors remain constant, which of the following is true?

95. When other factors remain constant, a decrease in fixed costs:

96. When other factors remain constant, an increase in variable costs:

97. When other factors remain constant, a decrease in sales price:

98. If two firms have the same sales prices for their merchandise once fixed costs are covered, the firm with a

higher variable cost rate will have:

99. An increase in sales price would:

100. If the fixed costs relative to a specific product increase while the variable costs and sales price remain

constant, the break-even point will:

101. Increasing the selling price and decreasing sales volume will increase profit if:

102. As fixed costs increase, the break-even point in units will:

103. A company’s break-even point would change if there were an increase in:

104. At a break-even point of 600 units sold, the variable costs were $600 and the fixed costs were $300. What

will the sale of each additional unit contribute to profit before income taxes?

105. Company X and Company Y each have a break-even point of 2,000 units. If Company X has higher fixed

costs but lower variable costs, what will be the effect of an increase in sales volume, for both companies, to

2,200 units?

106. If a company’s total fixed costs decreased by $6,000 and its contribution margin increased by $12,000, net

income would:

107. Collins Co. earned a profit of $2,000 in January. The company has estimated that sales will increase by

$13,500 in February. Assume that fixed costs for January were $3,000 (and are not expected to change) and the

variable cost ratio is 40%. What is the expected profit for the next month?

108. After the break-even point is reached, a firm that has a per-unit contribution margin of $20 will have a

$500 increase in profits when sales increase by:

109. Stanley Company manufactures and sells one product for $200 per unit. The variable costs per unit are

$140, and monthly total fixed costs are $7,500. Last month Stanley sold 100 units and expects sales to remain

110. Everclean Company cleans draperies. It charges $90 to clean a full-size drape, and its variable and fixed

costs are $55 per drape and $10,000 per year, respectively. Given these data, if Everclean’s variable costs were

reduced to $50 per drape, how many drapes would the firm have to clean to break even?

111. Everclean Company cleans draperies. It charges $90 to clean a full-size drape, and its variable and fixed

costs are $55 per drape and $10,000 per year, respectively. Given these data, if Everclean’s fixed costs increased

to $15,000, how many drapes must the firm clean to earn $60,000?

112. Exhibit 21-6

The graph below illustrates various cost behavior patterns in XYZ Company.

Refer to Exhibit 21-6. In the graph above, total fixed costs are represented by:

113. Exhibit 21-6

The graph below illustrates various cost behavior patterns in XYZ Company.

Refer to Exhibit 21-6. In the graph above, total costs are represented by:

114. Exhibit 21-6

The graph below illustrates various cost behavior patterns in XYZ Company.

Refer to Exhibit 21-6. In the graph above, the variable costs are represented by: