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Exam 21: Cost-Volume-Profit Analysis

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Question 21

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Which of the following describes the behavior of a variable cost per unit?

A) varies in increasing proportion with changes in the activity level
B) varies in decreasing proportion with changes in the activity level
C) remains constant with changes in the activity level
D) varies in direct proportion with the activity level

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

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Question 22

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If the volume of sales is $7,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 45.8%.

A) True
B) False

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Question 23

Multiple Choice

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Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is

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

Contribution margin is

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units.

If a business sells two products, it is not possible to estimate the break-even point.

The relative distribution of sales among the various products sold by a business is the

Variable costs are costs that vary on a per-unit basis with changes in the activity level.

If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the contribution margin ratio?

If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease.

Match the following terms with their definitions. -A specific activity range over which the cost changes are of interest

Douglas Company has a contribution margin ratio of 30%. If Douglas has $336,420 in fixed costs, what amount of sales will need to be generated in order for the company to break even?

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,200,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

Match the following terms (a-e) with their definitions. -Graphically shows costs, sales, and operating profit or loss at various levels of units sold

Costs that remain constant in total dollar amount as the level of activity changes are called

The relevant activity base for a cost depends on which base is most closely associated with the cost and the decision-making needs of management.

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales in units (rounded to a whole number) if the unit selling price increases by $10?

Match the following terms with their definitions. -Where a business's revenues exactly equal costs

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