Week 5 Homework
Question 1 of 2
Question 2 of 2
Chapter 20 Cost-Volume Profit Analysis -- Chapter Review Questions-
SAMPLE QUIZ QUESTIONS BELOW
Week 5 Lesson Synopsis
The relationship between costs and revenue and the level of business activity is the foundation of profit planning. We begin our presentation of cost-volume-profit analysis with an introduction to cost behavior relationships. Fixed, variable and semivariable cost functions are illustrated graphically and numerically. The distinction between the behavior of total and unit costs is explained and graphically illustrated as well.
With the various cost behavior patterns established, the chapter turns to the development of the basic CVP model. This analysis is initially presented graphically. Following discussion of the contribution margin concept the same results are established numerically. The model is solved for target levels of operating income and the margin of safety. A number of comparative static experiments illustrates the usefulness of the CVP model in a realistic planning situation. This example is developed form the point of view of managers of several different functional areas.
The chapter concludes with an examination of the significance of sales mix and the high-low method of estimating fixed and variable components of mixed costs.
Chapter 20 Learning Objectives
1. Explain how fixed, variable, and semivariable costs respond to changes in the volume of business activity.
2. Explain how economies of scale can reduce unit costs.
3. Prepare a cost-volume-profit graph.
4. Compute contribution margin and explain its usefulness.
5. Determine the sales volume required to earn a desired level of operating income.
6. Use the contribution margin ratio to estimate the change in operating income caused by a change in sales volume.
7. Use CVP relationships to evaluate a new marketing strategy.
8. Use CVP when a company sells multiple products.
9. Determine semivariable cost elements.
SAMPLE QUIZ QUESTIONS
Question 1 / (1 point)SaveA company's relevant range of production is:
/ The production range that covers fixed but not variable costs./ The production range over which CVP assumptions are valid.
/ The production range from zero to 100% of plant capacity.
/ The production range beyond the break-even point.
Question 2 / (1 point)Save
Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
What will be the monthly margin of safety (in dollars) if 1,500 units are sold each month?
/ $30,000.
/ $ 9,000.
/ $12,000.
Question 3 / (1 point)Save
A product sells for $120, variable costs are $78 and fixed costs are $35,000. If sales can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $200,000?
/ 10257/ 933
/ 4662
/ 5595
Question 4 / (1 point)Save
The dollar amount by which sales can decline before an operating loss is incurred is called the
/ Relevant range/ Contribution margin
/ Contribution margin ratio
/ Margin of safety
Question 5 / (1 point)Save
Empire Company produces a single product. The selling price is $50 per unit, and variable costs amount to $20 per unit. Empire's fixed costs per month total $80,000.
How many units must be sold each month to earn a monthly operating income of $25,000?
/ 2,300.
/ 3,500.
/ Some other amount.
Question 6 / (1 point)Save
A fixed cost may include all of the following except
/ Sales commission expense/ Depreciation
/ Annual salary of the CEO
/ Rent for the warehouse
Question 7 / (1 point)Save
Product X sells for $30 per unit and has related variable costs of $20 per unit. The fixed costs of producing product X are $50,000 per month. How many units of product X must be sold each month to earn a monthly operating income of $90,000?
/ 7,000./ 14,000.
/ 9,000.
/ 4,667.
Question 8 / (1 point)Save
Handy Gadget Company produces a single product with a current selling price of $180. Variable costs are $120 per unit, and fixed costs per month average $4,320. Management is considering increasing the selling price to $200 per unit. Assume that the cost of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the proposed increased selling price of $200 per unit, what dollar volume of sales per month is required to break even?
/ $10,800.
/ $6,486.
/ $8,640.
Question 9 / (1 point)Save
In cost-volume-profit analysis, income tax expense:
/ Is considered a fixed cost of doing business./ Is generally ignored.
/ Is included among the monthly operating expenses as a variable cost.
/ Is treated as a semivariable cost that is partially dependent upon sales volume.
Question 10 / (1 point)Save
Empire Company produces a single product. The selling price is $50 per unit, and variable costs amount to $20 per unit. Empire's fixed costs per month total $80,000.
What will be Empire's monthly operating income if 3,500 units are sold each month?
/ $25,000.
/ $105,000.
/ $15,000
In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to:
/ Variable expenses when production is at normal capacity./ Covering the fixed costs of the business and providing operating income.
/ Variable expenses and interest charges.
/ Fixed expenses and variable expenses.
Question 2 / (1 point)Save
The following information is available regarding the total manufacturing overhead of Allenby Company for a recent four-month period.
April..... / 80,000 / $162,000
May...... / 70,000 / $145,000
June...... / 100,000 / $190,000
July...... / 85,000 / $173,000
Allenby's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.
/ $175,000./ $205,000.
/ $195,000.
/ $185,000.
Question 3 / (1 point)Save
All other things held constant, how will an increase in selling price effect the break even point measured in units?
/ The break even point will decrease./ The effect on the break even point can't be predicted with certainty.
/ The break even point will increase.
/ The break even point will remain constant.
Question 4 / (1 point)Save
If the monthly sales volume required to break even is $180,000 and monthly fixed costs are $54,000, the contribution margin ratio is:
/ 70%./ 333.33%.
/ 42.9%.
/ 30%.
Question 5 / (1 point)Save
A 45% contribution margin ratio means that:
/ 45% of the company's revenue is available to cover fixed costs and to contribute toward operating income./ 55% of the company's revenue is consumed by fixed and variable costs.
/ The company's revenue has increased by 45% during the current accounting period.
/ The company should contribute 45% of its operating income to qualified charities for maximum tax benefits.
Question 6 / (1 point)Save
Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
What will be Noble's monthly operating income if 1,500 units are sold each month?
/ $ 6,000.
/ $18,000.
/ $78,000.
Question 7 / (1 point)Save
A company with an operating income of $65,000 and a contribution margin ratio of 55% has a margin of safety of:
/ $35,750./ $153,932.
/ $118,182.
/ It is not possible to determine the margin of safety from the information provided.
Question 8 / (1 point)Save
GreenTree Associates sells only one product, with a current selling price of $70 per unit. Variable costs are 40% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $65 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
At the reduced selling price of $65 per unit, the contribution margin ratio is (rounded, if necessary):
/ 56.9%.
/ 52.8%.
/ Some other percentage.
Question 9 / (1 point)Save
Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
How many units must be sold each month to earn a monthly operating income of $5,000?
/ 1,417.
/ 354.
/ 85,000.
Question 10 / (1 point)Save
The above data are available for product no. CK34, manufactured and sold by Ward Corporation:
The contribution margin per unit for product no. CK34 is:
/ $27.
/ $64.
/ $54.