lesson 5- cost-volume part 1

7/27/2019 Lesson 5- Cost-Volume Part 1

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TRUE-FALSE STATEMENTS

1. An activity index identifies the activity that has a causal relationship with a particular cost.2. A variable cost remains constant per unit at various levels of activity.3. A fixed cost remains constant in total and on a per unit basis at various levels of activity.4. If volume increases, all costs will increase.5. If the activity index decreases, total variable costs will decrease proportionately.. !han"es in the level of activity will cause unit variable and unit fixed costs to chan"e in opposite directions.#. $or !%& analysis, both variable and fixed costs are assumed to have a linear relationship within the

relevant ran"e of activity.'. (he relevant ran"e of activity is the activity level where the firm will earn income.). !osts will not chan"e in total within the relevant ran"e of activity.1*. (he hi"h+low method is used in classifyin" a mixed cost into its variable and fixed elements.11. A mixed cost has both sellin" and administrative cost elements.12. (he fixed cost element of a mixed cost is the cost of havin" a service available.13. $or plannin" purposes, mixed costs are "enerally "rouped with fixed costs.14. (he difference between the costs at the hi"h and low levels of activity represents the fixed cost element of a

mixed cost.15. hen applyin" the hi"h+low method, the variable cost element of a mixed cost is calculated before the fixed

cost element.1. An assumption of !%& analysis is that all costs can be classified as either variable or fixed.

1#. In !%& analysis, the term cost includes manufacturin" costs, and sellin" and administrative expenses.1'. !ontribution mar"in is the amount of revenues remainin" after deductin" cost of "oods sold.1). -nit contribution mar"in is the amount that each unit sold contributes towards the recovery of fixed costs

and to income.2*. (he contribution mar"in ratio is calculated by multiplyin" the unit contribution mar"in by the unit sales price.21. oth variable and fixed costs are included in calculatin" the contribution mar"in.22. A !%& income statement shows contribution mar"in instead of "ross profit.23. (he brea/+even point is e0ual to the fixed costs plus net income.24. If the unit contribution mar"in is &1 and unit sales are 15,*** units above the brea/+even volume, then net

income will be &15,***.25. (he brea/+even point is where total sales e0ual total variable costs.2. At the brea/+even point, total revenue e0uals total fixed costs plus total variable costs.2#. A tar"et net income is calculated by ta/in" actual sales minus the mar"in of safety.

2'. (ar"et net income is the income obective for an individual product line.2). (he mar"in of safety is the difference between contribution mar"in and fixed costs.3*. (he mar"in of safety is the difference between sales at brea/even and sales at a determined activity level.31. (he activity level is represented by an activity index such as direct labor hours, units of output, or sales

dollars.32. (he trend in most companies is to have more variable costs and fewer fixed costs.33. $or purposes of !%& analysis, mixed costs must be classified into their fixed and variable elements.34. (he contribution mar"in ratio of 4* means that * cents of each sales dollar is available to cover fixed

costs and to produce a profit.35. A cost+volume+profit "raph shows the amount of net income or loss at each level of sales.3. If variable costs per unit are #* of sales, fixed costs are &2)*,*** and tar"et net income is *,***,

re0uired sales are &1,2**,***.3#. (he mar"in of safety ratio is e0ual to the mar"in of safety in dollars divided by the actual or expected

sales.

MULTIPLE CHOICE QUESTIONS

3'. $or an activity base to be useful in cost behavior analysis,a. the activity should always be stated in dollars.b. there should be a correlation between chan"es in the level of activity and chan"es in costs.c. the activity should always be stated in terms of units.d. the activity level should be constant over a period of time.

3). A variable cost is a cost thata. varies per unit at every level of activity.b. occurs at various times durin" the year.c. varies in total in proportion to chan"es in the level of activity.d. may or may not be incurred, dependin" on mana"ements discretion.

4*. A cost which remains constant per unit at various levels of activity is aa. variable cost. b. fixed cost. c. mixed cost. d. manufacturin" cost.


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41. (wo costs at atson, Inc. appear below for specific months of operation. 6onth Amount -nits &roduced

7elivery costs 8anuary & 4*,*** 4*,***$ebruary 55,*** *,***

-tilities 8anuary & '4,*** 4*,***$ebruary 12,*** *,***

hich type of costs are these9a. 7elivery costs and utilities are both variable.b. 7elivery costs and utilities are both mixed.c. -tilities are mixed and delivery costs are variable.d. 7elivery costs are mixed and utilities are variable.

42. An increase in the level of activity will have the followin" effects on unit costs for variable and fixed costs:-nit %ariable !ost -nit $ixed !ost

a. Increases 7ecreasesb. ;emains constant ;emains constantc. 7ecreases ;emains constantd. ;emains constant 7ecreases

43. A fixed cost is a cost whicha. varies in total with chan"es in the level of activity.b. remains constant per unit with chan"es in the level of activity.c. varies inversely in total with chan"es in the level of activity.d. remains constant in total with chan"es in the level of activity.

44. $ixed costs normally will notincludea. property taxes. b. direct labor.c. supervisory salaries. d. depreciation on buildin"s and e0uipment.

45. (he increased use of automation and less use of the wor/ force in companies has caused a trend towardsan increase in

a. both variable and fixed costs. b. fixed costs and a decrease in variable costs.c. variable costs and a decrease in fixed costs. d. variable costs and no chan"e in fixed costs.

4. !ost behavior analysis is a study of how a firms costsa. relate to competitors costs. b. relate to "eneral price level chan"es.c. respond to chan"es in the level of business activity. d. respond to chan"es in the "ross national

product.4#. !ost behavior analysis applies to

a. retailers. b. wholesalers. c. manufacturers. d. all entities.

4'. If a firm increases its activity level,a. costs should remain the same. b. most costs will rise.c. no costs will remain the same. d. some costs will chan"e, others will remain the same.

4). An activity index mi"ht be referred to as a costa. driver. b. multiplier. c. element. d. correlation.

5*. !ost activity indexes mi"ht help classify costs asa. temporary. b. permanent. c. variable. d. transient.

51. hich of the followin" is nota cost classification9a. 6ixed b. 6ultiple c. %ariable d. $ixed

52. If the activity level increases 1*, total variable costs willa. remain the same. b. increase by more than 1*.c. decrease by less than 1*. d. increase 1*.

53. hich of the followin" costs are variable9!ost 1*,*** -nits 3*,*** -nits1. &1**,*** &3**,***2. 4*,*** 24*,***3. )*,*** )*,***4. 5*,*** 15*,***

a. 1 and 2 b. 1 and 4 c. only 1 d. only 2


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54. !han"es in activity have an


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#. ynne !ompanys hi"h and low level of activity last year was *,*** units of product produced in 6ay and2*,*** units produced in Eovember. 6achine maintenance costs were ',*** in 6ay and &3*,*** inEovember. -sin" the hi"h+low method, determine an estimate of total maintenance cost for a month in whichproduction is expected to be 45,*** units.a. ,5** b. ,*** c. &5',5** d. &*,***

'. hich of the followin" is nottrue about the "raph of a mixed cost9a. It is possible to determine the amount of the fixed cost from the "raph.b. (here is a total cost line on the "raph.c. (he fixed cost portion of the "raph is the same amount at all levels of activity.d. (he variable cost portion of the "raph is rectan"ular in shape.

). hich of the followin" is nota mixed cost9a. !ar rental fee b. Flectricity c. 7epreciation d. (elephone Fxpense

#*. In usin" the hi"h+low method, the fixed costa. is determined by subtractin" the total cost at the hi"h level of activity from the total cost at the low activitylevel.b. is determined by addin" the total variable cost to the total cost at the low activity level.c. is determined before the total variable cost.

d. may be determined by subtractin" the total variable cost from either the total cost at the low or hi"hactivity level.

#1. If &hilippine Airlines cuts its domestic fares by 3*,a. its fixed costs will decrease.b. profit will increase by 3*.c. a profit can only be earned by decreasin" the number of fli"hts.d. a profit can be earned either by increasin" the number of passen"ers or by decreasin" variable costs.

-se the followin" information for 0uestions #2G#4. 6onth 6iles (otal !ost

8anuary '*,*** & ),***$ebruary 5*,*** '*,***

6arch #*,*** )4,***April )*,*** 13*,***

#2. In applyin" the hi"h+low method, which months are relevant9a. 8anuary and $ebruary b. 8anuary and Aprilc. $ebruary and April d. $ebruary and 6arch

#3. In applyin" the hi"h+low method, what is the unit variable cost9a. &1.44 b. &1.25 c. &1.* d. !annot be determined from

#4. In applyin" the hi"h+low method, what is the fixed cost9a. &1#,5** b. &3,*** c. &14,*** d. &5*,***

#5. $or analysis purposes, the hi"h+low method usually produces ana. reasonable estimate. b. precise estimate.c. overstated estimate. d. understated estimate.

#. (he hi"h+low method is critici?ed because ita. is not a "raphical method.b. is a mathematical method.c. i"nores much of the available data by concentratin" on only the extreme points.d. doesnt provide reasonable estimates.

##. (he hi"h+low method is often employed in analy?in"a. fixed costs. b. mixed costs. c. variable costs. d. conversion costs.

#'. corpio !ompanys activity for the first three months of 2**' are as follows:6achine Hours Flectrical !ost

8anuary 2,1** &2,4**$ebruary 2,** &2,)**6arch 2,)** &3,2**

-sin" the hi"h+low method, how much is the cost per machine hour9a. &1.** b. &1.5* c. &1.13 d. &*.')


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#). Harrys eafood used hi"h+low data from 8une and 8uly to determine its variable cost of &15 per unit.Additional information follows:

6onth -nits produced (otal costs8une 2,*** &4*,***8uly 1,*** 25,***

If Harrys produces 2,3** units in Au"ust, how much is its total cost expected to be9a. &1*,*** b. &4),5** c. &34,5** d. &44,5**

'*. In !%& analysis, the term JcostJa. includes only manufacturin" costs.b. means cost of "oods sold.c. includes manufacturin" costs plus sellin" and administrative expenses.d. excludes all fixed manufacturin" costs.

'1. hich one of the followin" is notan assumption of !%& analysis9a. All units produced are sold.b. All costs are variable costs.c. ales mix remains constant.d. (he behavior of costs and revenues are linear within the relevant ran"e.

'2. !%& analysis does notconsidera. level of activity. b. fixed cost per unit. c. variable cost per unit. d. sales mix.

'3. hich of the followin" is notan underlyin" assumption of !%& analysis9a. !han"es in activity are the only factors that affect costs.b. !ost classifications are reasonably accurate.c. e"innin" inventory is lar"er than endin" inventory.d. ales mix is constant.

'4. !%& analysis is notimportant ina. calculatin" depreciation expense. b. settin" sellin" prices.c. determinin" the product mix. d. utili?in" production facilities.

'5. (o which function of mana"ement is !%& analysis most applicable9a. &lannin" b. 6otivatin" c. 7irectin" d. !ontrollin"

'. !lar/ !ompany produces flash drives for computers, which it sells for &2* each. Fach flash drive costs &12of variable costs to ma/e. 7urin" April, 1,*** drives were sold. $ixed costs for 6arch were &2 per unit for atotal of &1,*** for the month. How much is the contribution mar"in ratio9a. * b. 4* c. * d. #*

'#. !ontribution mar"ina. is always the same as "ross profit mar"in.b. excludes variable sellin" costs from its calculation.c. is calculated by subtractin" total manufacturin" costs per unit from sales revenue per unit.

d. e0uals sales revenue minus variable costs.

''. If a company had a contribution mar"in of &5**,*** and a contribution mar"in ratio of 4*, total variablecosts must have beena. *,***. b. &3**,***. c. &1,25*,***. d. &2**,***.

'). hich of the followin" would notbe an acceptable way to express contribution mar"in9a. ales minus variable costsb. ales minus unit costsc. -nit sellin" price minus unit variable costsd. !ontribution mar"in per unit divided by unit sellin" price

)*. A company has contribution mar"in per unit of &45 and a contribution mar"in ratio of 4*. hat is the unitsellin" price9a. .** b. &112.5* c. &1'.** d. !annot be determined.

)1. ales are &5**,*** and variable costs are &35*,***. hat is the contribution mar"in ratio9a. 43 b. 3* c. #* d. !annot be determined.

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)2. 7isneys variable costs are 3* of sales. (he company is contemplatin" an advertisin" campai"n that willcost &22,***. If sales are expected to increase &4*,***, by how much will the companys net incomeincrease9a. &1',*** b. &2',*** c. &12,*** d. K,***

)3. Hartley, Inc. has a product with a sellin" price per unit of &2**, the unit variable cost is , and the totalmonthly fixed costs are &3**,***. How much is Hartleys contribution mar"in ratio9a. 2.5 b. 3#.5 c. 15* d. 2.

)4. ar/s !ompany has a contribution mar"in of &15*,*** and a contribution mar"in ratio of 3*. How muchare total variable costs9a. &45,*** b. &35*,*** c. &1*5,*** d. &5**,***

)5. Harda"e !ompany has a contribution mar"in per unit of &15 and a contribution mar"in ratio of *. Howmuch is the sellin" price of each unit9a. &25.** b. &3#.5* c. &).** d. !annot be determined.

). A division sold 2**,*** calculators durin" 2**':ales &2,***,***%ariable costs:

6aterials &3'*,***@rder processin" 15*,***illin" labor 11*,***ellin" expenses *,***(otal variable costs #**,***$ixed costs 1,***,***

How much is the contribution mar"in per unit9a. &1.** b. &3.5* c. &'.5* d. &.5*

)#. At the brea/+even point of 2,*** units, variable costs are &55,***, and fixed costs are &32,***. How muchis the sellin" price per unit9a. &43.5* b. &11.5* c. &1.** d. Eot enou"h information

)'. (he followin" information is available for ar/ley !ompany:ales &**,*** (otal fixed expenses &15*,***!ost of "oods sold 3)*,*** (otal variable expenses 3*,***

A !%& income statement would reporta. "ross profit of &21*,***. b. contribution mar"in of &45*,***.c. "ross profit of &24*,***. d. contribution mar"in of &24*,***.

)). hich is the true statement9a. In a !%& income statement, costs and expenses are classified only by function.b. (he !%& income statement is prepared for both internal and external use.c. (he !%& income statement shows contribution mar"in instead of "ross profit.

d. In a traditional income statement, costs and expenses are classified as either variable or fixed.

1**. (he e0uation which reflects a !%& income statement isa. ales B !ost of "oods sold C @peratin" expenses C Eet income.b. ales C $ixed costs B %ariable costs C Eet income.c. ales G %ariable costs C $ixed costs B Eet income.d. ales G %ariable costs G $ixed costs B Eet income.

1*1. (he !%& income statementa. is distributed internally and externally.b. classifies costs by functions.c. discloses contribution mar"in in the body of the statement.d. will reflect a different net income than the traditional income statement.

1*2. At the brea/+even point of 2,5** units, variable costs are &55,***, and fixed costs are &32,***. How muchis the sellin" price per unit9a. &34.'* b. &).2* c. &12.'* d. &22.**

1*3. A company has total fixed costs of &12*,*** and a contribution mar"in ratio of 2*. (he total salesnecessary to brea/ even area. &4'*,***. b. &**,***. c. &15*,***. d. &144,***.


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1*4. A company sells a product which has a unit sales price of &5, unit variable cost of &3 and total fixed costs of&12*,***. (he number of units the company must sell to brea/ even isa. *,*** units. b. 24,*** units. c. 24*,*** units. d. 4*,*** units.

1*5. (he brea/+even point is wherea. total sales e0ual total variable costs. b. contribution mar"in e0uals total fixed costs.c. total variable costs e0ual total fixed costs. d. total sales e0ual total fixed costs.

1*. (he brea/+even point cannot be determined bya. computin" it from a mathematical e0uation. b. computin" it usin" contribution mar"in.c. readin" the prior years financial statements. d. derivin" it from a !%& "raph.

1*#. elect the correct statement concernin" the cost+volume+profit "raph at ri"ht:a. (he point identified by JJ is the brea/+even point.b. =ine $ is the variable cost line.c. At point , profits e0ual total costs.d. =ine F is the total cost line.

1*'. $ixed costs are &3**,*** and the variable costs are #5 of the unit sellin" price. hat is the brea/+evenpoint in pesos9a. **,*** b. &)**,*** c. &1,2**,*** d. &4**,***

1*). $ixed costs are &1,5**,*** and the contribution mar"in per unit is &15*. hat is the brea/+even point9a. &3,#5*,*** b. &1*,***,*** c. 3,#5* units d. 1*,*** units

11*. tarr !ompany has the followin" data:

%ariable costs are * of the unit sellin" price.(he contribution mar"in ratio is 4*.(he contribution mar"in per unit is &5**.(he fixed costs are &4**,***.

hich of the followin" does not express the brea/+even point9a. &4**,*** C .*L B L b. &4**,*** C .4*L B Lc. &4**,*** M K5** B L d. &4**,*** M .4* B L

111. A !%& "raph does not include aa. variable cost line. b. fixed cost line. c. sales line. d. total cost line.

112. Hess, Inc. sells a product with a contribution mar"in of &12 per unit, fixed costs of ,4**, and sales for the

current year of &1**,***. How much is Hesss brea/+even point9a. 4,** units b. &25,** c. ,2** units d. 2,133 units

113. utton !ompany produces flash drives for computers, which it sells for &2* each. (he variable cost to ma/eeach flash drive is &. 7urin" April, #** drives were sold. $ixed costs for April were &2 per unit for a total of&1,4** for the month. How much is the monthly brea/+even level of sales in dollars for utton !ompany9a. &1** b. &2,*** c. ,*** d. &4,2**

114. onoma inery has fixed costs of &1*,*** per year. Its warehouse sells wine with variable costs of '* ofits unit sellin" price. How much in sales does onoma need to brea/ even per year9a. &',*** b. &2,*** c. &12,5** d. &5*,***

115. $allow+Haw/e is a nonprofit or"ani?ation that captures stray deer from residential communities. $ixed costs

are &1*,***. (he variable cost of capturin" each deer is &1*.** each. $allow+Haw/e is funded by a localphilanthropy in the amount of &32,*** for 2**'. How many deer can $allow+Haw/e capture durin" 2**'9a. 2,2** b. 3,2** c. 4,2** d. 2,***

11. %ariable costs for $oley, Inc. are 25 of sales. Its sellin" price is &'* per unit. If $oley sells one unit morethan brea/+even units, how much will profit increase9a. &*.** b. &2*.** c. &2. d. &32*.**

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11#. A company re0uires &1,*2*,*** in sales to meet its net income tar"et. Its contribution mar"in is 3*, andfixed costs are &1'*,***. hat is the tar"et net income9a. &3*,*** b. &234,*** c. &42*,*** d. &12,***

11'. Heese !ompany has fixed costs of &1,5**,*** and variable costs are 4* of sales. hat are the re0uiredsales if Heese !ompany desires net income of &15*,***9a. &2,#5*,*** b. &2,5**,*** c. &4,125,*** d. &3,#5*,***

11). ;eese !ompany re0uires sales of &2,***,*** to cover its fixed costs of **,*** and to earn net income of&5**,***. hat percent are variable costs of sales9a. 25 b. 4* c. 35 d. *

12*. anache/, Inc. produces hair brushes. (he sellin" price is &2* per unit and the variable costs are &' perbrush. $ixed costs per month are &4,'**. If anache/ sells 15 more units beyond brea/even, how muchdoes profit increase as a result9a. &1'* b. &3** c. &12* d. &**

121. aver !ompany produces only one product. 6onthly fixed expenses are &12,***, monthly unit sales are2,***, and the unit contribution mar"in is &1*. How much is monthly net profit9a. &2*,*** b. &32,*** c. &* d. &',***

122. $orms, Inc. wants to sell a sufficient 0uantity of products to earn a profit of &4*,***. If the unit sales price is&1*, unit variable cost is &', and total fixed costs are &'*,***, how many units must be sold to earn incomeof &4*,***9a. *,*** units b. 4*,*** units c. 15,*** units d. **,*** units

123. 7od"e !ompany produces flash drives for computers, which it sells for &2* each. Fach flash drive costs & ofvariable costs to ma/e. 7urin" 6arch, 1,*** drives were sold. $ixed costs for 6arch were &4.2* per unit for atotal of &4,2** for the month. If variable costs decrease by 1*, what happens to the brea/+even level of unitsper month for 7od"e !ompany9a. It is 1* hi"her than the ori"inal brea/+even point.b. It decreases about 12 units.c. It decreases about 3* units.

d. It depends on the number of units the company expects to produce and sell.

124. A company desires to sell a sufficient 0uantity of products to earn a profit of &1'*,***. If the unit sales priceis K2*, unit variable cost is &12, and total fixed costs are &3*,***, how many units must be sold to earn netincome of &1'*,***9a. 1*1,25* units b. #,5** units c. 54,*** units d. 4*,5** units

125. Nua/er !orporation sells its product for &4*. (he variable costs are &1' per unit. $ixed costs are &1,***.(he company is considerin" the purchase of an automated machine that will result in a &2 reduction in unitvariable costs and an increase of &5,*** in fixed costs. hich of the followin" is true about the brea/+evenpoint in units9a. It will remain unchan"ed. b. It will decrease.c. It will increase. d. It cannot be determined from the information provided.

12. How much sales are re0uired to earn a tar"et net income of &12',*** if total fixed costs are &1*,*** andthe contribution mar"in ratio is 4*9a. &4**,*** b. &4',*** c. *,*** d. &32*,***

12#. washbuc/ler, Inc. produces buc/ets. (he sellin" price is &2* per unit and the variable costs are &' perbuc/et. $ixed costs per month are &4,'**. If washbuc/ler sells 1* more units beyond brea/even, howmuch does profit increase as a result9a. &12* b. &4** c. &** d. &12,***

12'. How much sales are re0uired to earn a tar"et income of &'*,*** if total fixed costs are &1**,*** and thecontribution mar"in ratio is 4*9a. &3**,*** b. &2**,*** c. &45*,*** d. &33*,***

12). @r"ani?er !ompany has fixed costs of &2**,*** and variable costs are * of sales. How much will@r"ani?er !ompany report as sales when its net income e0uals &2*,***9a. &55*,*** b. &3,# c. &52*,*** d. &132,***

13*. utton !ompany produces flash drives for computers, which it sells for &2* each. Fach flash drive costs Kof variable costs to ma/e. 7urin" April, #** drives were sold. $ixed costs for April were &4 per unit for a totalof &2,'** for the month. How much does uttons operatin" income increase for each &1,*** increase inrevenue per month9


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a. ** b. &5** c. &14,*** d. Eone of these

131. arcelona a"pipes produces two models: 6odel 24 has sales of 5** units with a contribution mar"in of &4*eachO 6odel 2 has sales of 35* units with a contribution mar"in of K5* each. If sales of 6odel 2 increaseby 1** units, how much will profit chan"e9a. &5,*** increase b. &1#,5** increase c. &22,5** increase d. &35,*** increase

132. (he followin" monthly data are available for (u"", Inc. which produces only one product: ellin" price perunit, &42O -nit variable expenses, &14O (otal fixed expenses, *,***O Actual sales for the month of 8une,4,*** units. How much is the mar"in of safety for the company for 8une9a. &42,*** b. &3,*** c. &3#,'** d. &1,5**

133. (he amount by which actual or expected sales exceeds brea/+even sales is referred to asa. contribution mar"in. b. unanticipated profit. c. mar"in of safety. d. tar"et net income.

134. In evaluatin" the mar"in of safety, thea. brea/+even point is not relevant.b. hi"her the mar"in of safety ratio, the "reater the mar"in of safety.c. hi"her the dollar amount, the lower the mar"in of safety.d. hi"her the mar"in of safety ratio, the lower the fixed costs.

135. (he followin" monthly data are available for ac/adoos, Inc. which produces only one product: ellin" priceper unit, &42O -nit variable expenses, &14O (otal fixed expenses, &42,***O Actual sales for the month of8une, 4,*** units. How much is the mar"in of safety for the company for 8une9a. *,*** b. &1*5,*** c. &3,*** d. &2,5**

13. (iny (ots (oys has actual sales of &4**,*** and a brea/+even point of &2*,***. How much is its mar"in ofsafety ratio9a. 35 b. 5 c. 154 d. 53.'

13#. hich concept answers the followin" 0uestion: PIf bud"eted revenues are above brea/even and decline,how far can they fall before the brea/+even point is reached9Qa. !ontribution mar"in b. ;elevant ran"e of operations

c. (ar"et mar"in d. 6ar"in of safety

13'. (he followin" monthly data are available for ac/adoos, Inc., which produces only one product: ellin" priceper unit, &42O -nit variable expenses, &14O (otal fixed expenses, &42,***O Actual sales for the month of8une, 4,*** units. How much is the mar"in of safety for the company in 8une9a. 3#.5 b. * c. 2.5 d. .#

13). ithin the relevant ran"e, the variable cost per unita. differs at each activity level. b. remains constant at each activity level.c. increases as production increases. d. decreases as production increases.

14*. An example of a mixed cost isa. direct materials. b. supervisory salaries. c. utility costs. d. property taxes.

141. In the >abbana !ompany, maintenance costs are a mixed cost. At the low level of activity '* direct laborhours, maintenance costs are &**. At the hi"h level of activity 2** direct labor hours, maintenance costsare &1,1**. -sin" the hi"h+low method, what is the variable maintenance cost per unit and the total fixedmaintenance cost9

%ariable !ost &er -nit (otal $ixed !osta. &4.1# &2#b. &4.1# &5**c. &5.5* &22*d. .5* &4**

142. !ost+volume+profit analysis includes all of the followin" assumptions excepta. the behavior of costs is curvilinear throu"hout the relevant ran"e.b. costs can be classified accurately as either variable or fixed.c. chan"es in activity are the only factors that affect costs.d. all units produced are sold.

143. (he contribution mar"in ratio increases whena. fixed costs increase.b. fixed costs decrease.c. variable costs as a percenta"e of sales decrease.d. variable costs as a percenta"e of sales increase.

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144. !ontribution mar"in isa. the amount of revenue remainin" after deductin" fixed costs.b. available to cover fixed costs and contribute to income for the company.c. sales less fixed costs.d. unit sellin" price less unit fixed costs.

145. >ivenchy !ompany sells 1**,*** wrenches for &12.** per unit. $ixed costs are &35*,*** and net income is&25*,***. hat should be reported as variable expenses in the !%& income statement9a. &54*,*** b. &**,*** c. &)5*,*** d. &'5*,***

14. At the brea/+even point,a. sales e0ual total variable costs. b. contribution mar"in e0uals total variable costs.c. contribution mar"in e0uals total fixed costs. d. sales e0ual total fixed costs.

14#. 7olce !ompany is plannin" to sell 4**,*** hammers for &1.5* per unit. (he contribution mar"in ratio is2*. If 7olce will brea/ even at this level of sales, what are the fixed costs9a. &12*,*** b. &2'*,*** c. &4**,*** d. &4'*,***

14'. ;e0uired sales in dollars to meet a tar"et net income is computed by dividin"

a. fixed costs plus tar"et net income by contribution mar"in per unit.b. variable costs plus tar"et net income by contribution mar"in per unit.c. fixed costs plus tar"et net income by contribution mar"in ratio.d. total costs plus tar"et net income by contribution mar"in ratio.

14). =a"erfield !ompany reported the followin" results from the sale of 5,*** hammers in 6ay: sales &2**,***,variable costs &12*,***, fixed costs &*,***, and net income &2*,***. Assume that =a"erfield increasesthe sellin" price of hammers by 1* on 8une 1. How many hammers will have to be sold in 8une to maintainthe same level of net income9a. 4,*** b. 4,3** c. 4,5** d. 5,***

15*. 6oschino !ompany sells compact dis/ players for &* each. %ariable costs are &4* per unit, and fixed coststotal &3*,***. How many compact dis/ players must 6oschino sell to earn net income of *,***9

a. 5,*** b. 3,5** c. 2,5** d. 1,5**

151. >aultier !ompany had actual sales of &'**,*** when brea/+even sales were &**,***. hat is the mar"inof safety ratio9a. 25 b. 33 c. # d. #5

lesson 5- cost-volume part 1

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