Question 1

Within the relevant range of activity fixed cost per unit will tend to:

Accepted Answer

A)   vary directly and proportionately with the level of activity.
B)   vary inversely with the level of activity.
C)   remain constant.
D)   exhibit erratic movements.E) B) and C)
F) None of the above

Question 2

A small publishing house sold 50 000 copies of 'How to Control Dogs' in paperback at $3 per book. Fixed costs were $36 000 and variable costs were $90 000. What is the break-even point in units?

Accepted Answer

A)   6000
B)   20 000
C)   10 000
D)   30 000E) B) and C)
F) A) and D)

Question 3

The following information is available for Eve Ltd

The variable expense variance is:

Accepted Answer

A)   $22 000 U
B)   $33 500 U
C)   $16 000 U
D)   $22 500 FE) C) and D)
F) B) and D)

Question 4

The vertical axis of the cost-volume-profit chart represents:

Accepted Answer

A)   margin of safety.
B)   direct costs.
C)   volume of units.
D)   committed fixed costs.E) B) and D)
F) B) and C)

Question 5

Costs which, in total, vary directly or nearly directly with the volume of production are known as:

Accepted Answer

A)   indirect costs.
B)   direct costs.
C)   variable costs.
D)   fixed costs.E) All of the above
F) A) and B) C

Question 6

Contribution margin can be calculated as:

Accepted Answer

A)   profit + total variable costs.
B)   fixed costs - variable costs.
C)   total revenue - total fixed costs.
D)   total revenue - total variable costs.E) A) and B)
F) A) and C)

Question 7

The high-low method is:

Accepted Answer

A)   a quote of the current price of the company's shares.
B)   a quantitative technique that can be used to estimate a mixed cost function.
C)   a technique for determining the margin of safety.
D)   the range of activity when there are changes in productive output.E) B) and D)
F) A) and B)

Question 8

On a per unit basis, a variable cost will:

Accepted Answer

A)   decrease.
B)   increase.
C)   vary from unit to unit.
D)   remain constant.E) None of the above
F) A) and B)

Question 9

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

Accepted Answer

A)   focuses on fixed costs only and ignores variable costs.
B)   usually overestimates the total cost.
C)   is based on a very small portion of the available data.
D)   can only be used if contribution margin income statements are also being used.E) All of the above
F) A) and B) C

Question 10

What will be the effect on the breakeven point if advertising is increased?

Accepted Answer

A)   The break-even point will be lower.
B)   The break-even point will be higher.
C)   The break-even point will not change.
D)   It is not possible to calculate the effect without having more information.E) B) and C)
F) A) and D)

Question 11

Contribution margin is:

Accepted Answer

A)   sales less cost of sales.
B)   equivalent to gross profit.
C)   sales less fixed costs.
D)   sales less variable costs.E) A) and D)
F) B) and C)

Question 12

Which of these is an example of a fixed cost?

Accepted Answer

A)   Factory rental
B)   Factory bonuses linked to the level of production
C)   Packaging costs
D)   Raw materialsE) B) and C)
F) All of the above

Question 13

Mitcham Ltd has observed that at an activity level of 10 000 units the maintenance cost is $13 000, and at 20 000 units the maintenance cost is $18 000. Using the high-low method, the cost formula for maintenance is:

Accepted Answer

A)   $6000 + $.60 x units.
B)   $6000 + $.1.54 x units.
C)   $5000 + $.60 x units.
D)   $1.54/unit.E) None of the above
F) A) and D)

Question 14

It is not an assumption of cost-volume-profit analysis that:

Accepted Answer

A)   there are no mixed costs.
B)   variable costs change proportionately with volume.
C)   fixed costs remain constant over the relevant range.
D)   efficiency remains unchanged.E) A) and B)
F) All of the above

Question 15

Mailroom clerks at Speedy Mail are paid a salary of $2200 per month. All clerks are full time. A new clerk is hired whenever the volume of mail increases by 40 000 pieces since the last clerk was hired. If volume of mail is the activity base mail-handling costs are:

Accepted Answer

A)   indirect costs.
B)   step-variable costs.
C)   discretionary fixed costs.
D)   committed fixed costs.E) B) and C)
F) None of the above B

Question 16

CVP analysis is based on a number of assumptions, which of these is not one of those assumptions?

Accepted Answer

A)   Fixed costs remain constant over the relevant range
B)   Variable costs change proportionately with volume
C)   Efficiency remains relatively unchanged
D)   There are no mixed costsE) A) and B)
F) None of the above

Question 17

Super Saver light globes can sell 10 000 units of a product for which the variable expenses are $4 per unit. Fixed expenses are $20 000 and the business wishes to earn a profit of $20 000. What price must Super Saver charge?

Accepted Answer

A)   $5 per unit
B)   $6 per unit
C)   $7 per unit
D)   $8 per unitE) C) and D)
F) A) and B)

Question 18

The formula for break-even point sales in dollars is:

Accepted Answer

A)   FC = VC.
B)   FC = Sales.
C)   (FC + Profit)  /CM%.
D)   Sales = VC.E) A) and C)
F) A) and B)

Question 19

A retail organisation pays its employees a commission of three percent on each sale. This is a:

Accepted Answer

A)   fixed cost.
B)   constant cost.
C)   variable cost.
D)   mixed cost.E) A) and D)
F) B) and C)

Question 20

Items such as depreciation, property taxes and insurance can be described as:

Accepted Answer

A)   fixed costs.
B)   variable costs.
C)   mixed costs.
D)   incremental costs.E) All of the above
F) A) and B)

Exam 11: Cost-Volume-Profit Analysis for Decision Making

Within the relevant range of activity fixed cost per unit will tend to:

Correct AnswerverifiedShow Answer

A small publishing house sold 50 000 copies of 'How to Control Dogs' in paperback at $3 per book. Fixed costs were $36 000 and variable costs were $90 000. What is the break-even point in units?

Correct AnswerverifiedShow Answer

The following information is available for Eve Ltd The variable expense variance is:

Correct AnswerverifiedShow Answer

The vertical axis of the cost-volume-profit chart represents:

Correct AnswerverifiedShow Answer

Costs which, in total, vary directly or nearly directly with the volume of production are known as:

Correct AnswerverifiedC

Contribution margin can be calculated as:

Correct AnswerverifiedShow Answer

The high-low method is:

Correct AnswerverifiedShow Answer

On a per unit basis, a variable cost will:

Correct AnswerverifiedShow Answer

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

Correct AnswerverifiedC

What will be the effect on the breakeven point if advertising is increased?

Correct AnswerverifiedShow Answer

Contribution margin is:

Correct AnswerverifiedShow Answer

Which of these is an example of a fixed cost?

Correct AnswerverifiedShow Answer

Mitcham Ltd has observed that at an activity level of 10 000 units the maintenance cost is $13 000, and at 20 000 units the maintenance cost is $18 000. Using the high-low method, the cost formula for maintenance is:

Correct AnswerverifiedShow Answer

It is not an assumption of cost-volume-profit analysis that:

Correct AnswerverifiedShow Answer

Mailroom clerks at Speedy Mail are paid a salary of $2200 per month. All clerks are full time. A new clerk is hired whenever the volume of mail increases by 40 000 pieces since the last clerk was hired. If volume of mail is the activity base mail-handling costs are:

Correct AnswerverifiedB

CVP analysis is based on a number of assumptions, which of these is not one of those assumptions?

Correct AnswerverifiedShow Answer

Super Saver light globes can sell 10 000 units of a product for which the variable expenses are $4 per unit. Fixed expenses are $20 000 and the business wishes to earn a profit of $20 000. What price must Super Saver charge?

Correct AnswerverifiedShow Answer

The formula for break-even point sales in dollars is:

Correct AnswerverifiedShow Answer

A retail organisation pays its employees a commission of three percent on each sale. This is a:

Correct AnswerverifiedShow Answer

Items such as depreciation, property taxes and insurance can be described as:

Correct AnswerverifiedShow Answer

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C

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C

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B

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