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Exam 5: Cost Volume Profit Analysis

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Question 31

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The fixed cost per unit varies with changes in the level of activity.

A) True
B) False

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Question 32

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In order to choose the proper activity base for a cost, managerial accountants must be familiar with the operations of the entity.

A) True
B) False

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Question 33

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Variable costs are costs that vary in total in direct proportion to changes in the activity level.

Racer Industries has fixed costs of $900,000.  Selling price per unit is $250, and variable cost per unit is $130. Required: (a) How many units must Racer sell in order to break even? (b) How many units must Racer sell in order to earn a profit of $480,000? (c) A new employee suggests that Racer Industries sponsor a 10K marathon as a form of advertising.  The cost to sponsor the event is $7,200.  How many more units must be sold to cover this cost?

The Klein Company reports the following data: Determine Klein Company's operating leverage. Round your answer to two decimal places.

Reynold's Grocery has fixed costs of $350,000, the unit selling price is $29, and the unit variable costs are $20. What is the break-even sales (units) if the variable costs are decreased by $4?

If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?

This question has been removed by Cengage as inapplicable.

If fixed costs increased and variable costs per unit decreased, the break-even point would

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

The three most common cost behavior classifications are

Bryce Co. sales are $914,000, variable costs are $498,130, and operating income is $196,000. What is the contribution margin ratio?

If fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000?

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

Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours is an example of a fixed cost.

For purposes of analysis, mixed costs can generally be separated into their variable and fixed components.

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume, and can immediately see the effects of each change on the break-even point and profit. This is called

The cost graphs in the illustration below shows various types of cost behaviors. For each of the following costs, identify the cost graph that best describes its cost behavior as the number of units produced and sold increases: (a) Sales commissions of $6,000 plus $0.05 for each item sold. (b) Rent on warehouse of $12,000 per month. (c) Insurance costs of $2,500 per month. (d) Per-unit cost of direct labor. (e) Total salaries of quality control supervisors. One supervisor must be added for each additional work shift. (f) Total employer pension costs of $0.35 per direct labor hour. (g) Per-unit straight-line depreciation costs. (h) Per-unit cost of direct materials. (i) Total direct materials cost. (j) Electricity costs of $5,000 per month plus $0.0004 per kilowatt-hour. (k) Per-unit cost of plant superintendent's salary. (l) Salary of the night-time security guard of $3,800 per month. (m) Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine usage. (n) Total direct labor cost. (o) Straight-line depreciation on factory equipment.

For the coming year, River Company estimates fixed costs at $109,000, the unit variable cost at $21, and the unit selling price at $85. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating income of $150,000 and (c) the probable operating income if sales total $500,000. Round units to the nearest whole number and percentage to one decimal place.

Jacob Inc. has fixed costs of $240,000, the unit selling price is $32, and the unit variable costs are $20. What are the old and new break-even sales (units) if the unit selling price increases by $4?