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Exam 11: Cost Behavior and Cost-Volume-Profit Analysis

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Question 1

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

A) Decreases with increase in production
B) Decreases with decrease in production
C) Remains constant with change in production
D) Increases with increase in production

E) C) and D)
F) None of the above

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Question 2

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For the coming year,Belton Company estimates fixed costs of $60,000,the unit variable cost of $25,and the unit selling price of $50.Determine (a)the break-even point in units of sales, (b)the unit sales required to realize operating income of $100,000,and (c)the probable operating income if sales total $400,000.

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(a)Break­even sales (units)= $...

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Question 3

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Assume that Crowson Co.sold 8,000 units of Product A and 2,000 units of Product B in the last year.The unit contribution margins for Products A and B are $20 and $45,respectively.Crowson has fixed costs of $350,000.The break-even point in units is:

If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000,the margin of safety will be 25%.

If fixed costs are $300,000 and variable costs are 70% of break-even sales,profit is zero when sales revenue is $1,000,000.

Alpha Inc.operated at 75% of capacity for the past year during which fixed costs were $225,000,variable costs were 70% of sales,and sales were $850,000.Operating profit was:

The following is a list of various costs of producing sweatshirts.Classify each cost as either a variable,fixed,or mixed cost for units produced and sold. (a) Electricity costs of $0.025 per kilowatt-hour (b) Warehouse rent of $6,000 per month plus $0.50 per square foot of storage used (c) Thread (d) Zip used in sweatshirts (e) Janitorial costs of $2,000 per month (f) Advertising costs of $10,000 per month (g) Plant manager salary (h) Color dyes for producing different colors of sweatshirts (i) Salary of the production supervisor (j) Straight-line depreciation on sewing machines (k) Patterns for different designs. Patterns typically last many years before being replaced (l) Maintenance costs for the company’s sewing machine. The cost is $2,000 per year plus $0.001 for each machine hour of use (m) Property taxes on factory, building, and equipment (n) Cotton and polyester cloth (o) Hourly wages of sewing machine operators

A low operating leverage is normal for highly automated industries.

Which of the following graphs illustrates the nature of a mixed cost?

Monthly rent on a factory building is an example of a fixed cost.

Total fixed costs remain constant as the level of activity changes within the relevant range.

The unit contribution margin is the dollars available from each unit of sales to cover fixed cost and provide income from operations.

A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.

Winston Co.manufactures office furniture.During the most productive month of the year,3,500 desks were manufactured at a total cost of $84,400.In its slowest month,the company made 1,100 desks at a cost of $46,000.Using the high-low method of cost estimation,total fixed costs are:

For the purpose of analysis,mixed costs are generally:

Snower Corporation sells product G for $150 per unit,the variable cost per unit is $105,and the fixed costs are $720,000.What is the sales (in dollars) required to realize income from operations of $40,000?

Cost behavior refers to the manner in which a cost changes as a related activity changes.

Currently,fixed costs are $561,000 and the unit contribution margin is $10.What would be the break-even point in units if variable cost is decreased by $0.50 per unit?

If the contribution margin ratio for Harrison Company is 38%,sales were $425,000,and fixed costs were $100,000,what was the income from operations?

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.Such an analysis is called: