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Exam 11: Cost Behavior and Cost-Volume-Profit Analysis

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Question 1

True/False

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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

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Question 2

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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

E) A) and B)
F) A) and C)

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Question 3

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Given the following costs and activity observations for Pike Company's utilities, use the high-low method to calculate Pike's variable utilities costs per machine hour. $\begin{array}{lll}\text { Machine Hours}&\text { Cost }\\15,000 & \$ 8,300 & \text { May } \\20,000 & 10,400 & \text { June } \\12,000 & 7,200 & \text { July } \\18,000 & 9,500 & \text { August }\end{array}$

For the coming year, Belton Company estimates fixed costs of $60,000, the unit variable cost of $25, and the unit selling price of $50. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $100,000, and (c) the probable operating income if sales total $400,000.

For the purpose of analysis, mixed costs are generally:

The variable cost per unit remains constant with changes in the level of activity.

Given below are the two independent situations: (a) If Herry Company's budgeted sales are $\$ 800,000$ , fixed costs are $\$ 350,000$ , and variable costs are $\$ 600,000$ , what is the budgeted contitibution margin ratio? (b) If the contribution margin ratio is $30 \%$ for Gray Company, sales are $\$ 900,000$ , and fixed costs are $\$ 180,000$ , what is the operating profit?

A low operating leverage is normal for highly automated industries.

Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much would operating income change if sales increase by $50,000?

The difference between the current sales revenue and the sales at the break-even point is called the:

For the past year, LaPrade Company had fixed costs of $70,000, a unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs except that property taxes are expected to increase by $10,000. Determine the break-even sales (in units) for (a) the past year and (b) the coming year.

A change in fixed costs as a result of increase in the property tax rates will increase the break-even point.

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 fixed costs are reduced by $51,000?

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

Currently, fixed costs are $500,000 and the unit contribution margin is $40. What would be the break-even point in units if fixed costs are reduced by $80,000?

Company M had fixed costs of $262,500, variable costs of $625,000, and actual sales amounted to $1,000,000. If the company has a break-even point at $700,000 in sales revenue, determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income.

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:

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed as:

If a business had a capacity of $10,000,000 of sales, actual sales were $6,000,000, break-even sales was $4,500,000, fixed costs amounted to $1,800,000, and variable costs amounted to 60% of sales, what is the margin of safety expressed as a percentage of sales?

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents: