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Exam 5: Cost Behavior and Cost-Volume-Profit Analysis

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Question 1

Multiple Choice

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The contribution margin ratio:

A) Is the percent of each sales dollar that remains after deducting the total unit variable cost.
B) Is the percent of each sales dollar that remains after deducting the total unit fixed cost.
C) Is the percent of each sales dollar that remains to cover the variable and fixed costs.
D) Cannot be used in conjunction with other analytical tools.
E) Is the same as the unit contribution margin.

F) D) and E)
G) A) and D)

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Question 2

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Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:

A) $1,750.
B) $2,500.
C) $4,000.
D) $4,250.
E) $4,375.

F) A) and D)
G) B) and D)

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Question 3

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A company sells a single product that has a contribution margin ratio of 28%. If the company's total fixed costs are $84,000, what is the break-even point in dollar sales?

________ is a statistical method of identifying an estimated line of cost behavior.

Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin ratio per composite unit (rounded to the nearest whole percentage) .

A firm provides the following sales data: Expected unit sales………… 5,000 Unit variable cost………… $10 Unit selling price…………… $16 Total fixed cost…………… $12,000 Required: (a) Calculate the break-even point in dollar sales. (b) Calculate the margin of safety in dollar sales.

A graph used to analyze past cost behaviors by displaying costs and unit data for each period as points on a diagram is called a:

Cost-volume-profit analysis can be used to compute expected income from predicted sales and cost levels.

The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.

Identify items a, b, and c in the cost-volume-profit graph shown below.

The proportion of sales volumes for various products in a multiproduct company is known as the composite mix.

A cost that includes both fixed and variable cost components is called a:

Cost-volume-profit analysis is used to determine the number of units that must be sold to break even..

Use the following information to determine the break-even point in sales dollars:

What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?

Varigon Co. produces and sells three products-Household, Commercial, and Industrial, and has total fixed costs of $52,000. Sales and cost data follow: Calculate the break-even point in composite units.

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

The variable costing method is required for external financial reporting.

Managers can use variable costing information for internal decision making, but they must use absorption costing for external reporting purposes.

When using the high-low method for estimating cost behavior, the slope, or variable cost per unit, is calculated by ________.