Question 1

At the break-even point,
A)sales equal total variable costs.
B)contribution margin equals total variable costs.
C)contribution margin equals total fixed costs.
D)sales equal total fixed costs.

Accepted Answer

At the break-even point, the contribution margin (sales minus variable costs) equals total fixed costs. This is because all the variable costs have been covered by the sales, and the remaining income exactly covers the fixed costs, resulting in zero profit or loss.

Question 2

Required sales in dollars to meet a target net income is computed by dividing
A)fixed costs plus target net income by contribution margin per unit.
B)variable costs plus target net income by contribution margin per unit.
C)fixed costs plus target net income by contribution margin ratio.
D)total costs plus target net income by contribution margin ratio.

Accepted Answer

The answer of Required sales in dollars to meet a...

Question 3

Bolton Industries had actual sales of $750,000 when break-even sales were $600,000.What is the margin of safety ratio?
A)20%
B)25%
C)75%
D)80%

Accepted Answer

The answer of Bolton Industries had actual sales of $750,000...

Question 4

An example of a mixed cost is
A)direct materials.
B)supervisory salaries.
C)utility costs.
D)property taxes.

Accepted Answer

Mixed costs consist of both fixed and variable components. Utility costs are an example because they typically have a fixed base rate plus a variable rate that depends on usage.

Question 5

Within the relevant range, the variable cost per unit
A)differs at each activity level.
B)remains constant at each activity level.
C)increases as production increases.
D)decreases as production increases.

Accepted Answer

Within the relevant range, the variable cost per unit remains constant at each activity level. This means that the cost per unit does not change regardless of how many units are being produced, as long as production remains within the relevant range.

Question 6

The contribution margin ratio increases when
A)fixed costs increase.
B)fixed costs decrease.
C)variable costs as a percentage of sales decrease.
D)variable costs as a percentage of sales increase.

Accepted Answer

The contribution margin ratio is calculated as (Revenue - Variable Costs) / Revenue. If variable costs as a percentage of sales decrease, the contribution margin ratio will increase. This is because a greater portion of each dollar of revenue is contributing to covering fixed costs and generating profit, and less is being used to cover variable costs.

Question 7

Danny's Lawn Equipment has actual sales of $800,000 and a break-even point of $600,000.How much is its margin of safety ratio?
A)25%
B)33%
C)67%
D)75%

Accepted Answer

The margin of safety ratio is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Here, it is ($800,000 - $600,000) / $800,000 = 25%.

Question 8

Wilton Co.reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000.Assume that Wilton increases the selling price of hammers by 10% on June 1.How many hammers will have to be sold in June to maintain the same level of net income?
A)4,000
B)4,300
C)4,500
D)5,000

Accepted Answer

To maintain the same level of net income, Wilton needs to determine the new contribution margin per hammer after increasing the selling price by 10%.

The contribution margin per hammer is calculated as follows:

Contribution margin per hammer = Selling price per hammer - Variable cost per hammer

Since the number of hammers sold is not expected to change, the variable cost per hammer will remain the same. Therefore, the contribution margin per hammer will increase by 10%.

New contribution margin per hammer = ($220,000 / 5,000) - ($120,000 / 5,000) = $20 - $24 = $4

Next, we need to determine how many hammers need to be sold in June to achieve the same net income of $20,000.

Contribution margin per hammer * Number of hammers sold - Fixed costs = Net income

$4 * Number of hammers sold - $60,000 = $20,000

$4 * Number of hammers sold = $80,000

Number of hammers sold = $80,000 / $4 = 20,000

Therefore, Wilton needs to sell 4,000 hammers in June to maintain the same level of net income.

Question 9

In the Restin Company, maintenance costs are a mixed cost.At the low level of activity (160 direct labor hours), maintenance costs are $600.At the high level of activity (400 direct labor hours), maintenance costs are $1,100.Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost? $\begin{array}{lll}&\text { Variable Cost Per Unit }&\text { Total Fixed Cost }\
\text { a. } & \$ 2.08 & \$ 268 \
\text { b. } & \$ 2.08 & \$ 500 \
\text { c. } & \$ 2.75 & \$ 220 \
\text { d. } & \$ 2.75 & \$ 400
\end{array}$

Accepted Answer

The answer of In the Restin Company, maintenance costs are...

Question 10

Cost-volume-profit analysis includes all of the following assumptions except
A)the behavior of costs is curvilinear throughout the relevant range.
B)costs can be classified accurately as either variable or fixed.
C)changes in activity are the only factors that affect costs.
D)all units produced are sold.

Accepted Answer

Cost-volume-profit analysis assumes that costs can be accurately categorized as either variable or fixed, changes in activity are the only factors that affect costs, and all units produced are sold. However, it does not assume that the behavior of costs is curvilinear throughout the relevant range. Instead, it assumes that the behavior of costs is linear throughout the relevant range.

Question 11

Sweet Manufacturing is planning to sell 400,000 hammers for $3 per unit.The contribution margin ratio is 20%.If Sweet will break even at this level of sales, what are the fixed costs?
A)$240,000
B)$560,000
C)$800,000
D)$960,000

Accepted Answer

The contribution margin per unit is $3 * 20% = $0.60. At break-even, total contribution margin equals fixed costs. Therefore, fixed costs = 400,000 units * $0.60 = $240,000.

Question 12

Chung, Inc.sells 100,000 wrenches for $18 per unit.Fixed costs are $525,000 and net income is $375,000.What should be reported as variable expenses in the CVP income statement?
A)$810,000
B)$900,000
C)$1,425,000
D)$1,275,000

Accepted Answer

The answer of Chung, Inc.sells 100,000 wrenches for $18 per...

Question 13

In evaluating the margin of safety, the
A)break-even point is not relevant.
B)higher the margin of safety ratio, the greater the margin of safety.
C)higher the dollar amount, the lower the margin of safety.
D)higher the margin of safety ratio, the lower the fixed costs.

Accepted Answer

The margin of safety ratio is a measure of how much sales can decline before a company reaches its break-even point. Therefore, the higher the margin of safety ratio, the greater the cushion the company has against potential losses. Choice A is incorrect because the break-even point is closely related to the margin of safety, as both measures are used to assess a company's ability to generate profits. Choice C is incorrect because a higher dollar amount of margin of safety indicates that the company has more cushion against potential losses, which means that the margin of safety is higher. Choice D is incorrect because the margin of safety ratio is not directly related to fixed costs, but instead reflects the relationship between fixed costs, variable costs, and sales.

Question 14

The following monthly data are available for Seasons Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 5,000 units.How much is the margin of safety for the company for June?
A)$56,000
B)$84,000
C)$126,000
D)$2,000

Accepted Answer

The answer of The following monthly data are available for...

Question 15

Contribution margin is
A)the amount of revenue remaining after deducting fixed costs.
B)available to cover fixed costs and contribute to income for the company.
C)sales less fixed costs.
D)unit selling price less unit fixed costs.

Accepted Answer

Contribution margin is defined as the amount of revenue remaining after deducting variable costs, which is then available to cover fixed costs and contribute to net income for the company. Choices A, C, and D incorrectly describe the concept by either focusing on fixed costs or inaccurately defining the calculation.

Question 16

The amount by which actual or expected sales exceeds break-even sales is referred to as
A)contribution margin.
B)unanticipated profit.
C)margin of safety.
D)target net income.

Accepted Answer

Margin of safety refers to the amount of sales that exceed the break-even point, meaning it's the cushion or buffer that a company has before it starts making losses. Option A, Contribution margin is the excess amount left after deducting variable costs from sales and applying it towards fixed costs. Option B, Unanticipated profit, is not a standardized accounting term and can vary depending on industry and company practices. Option D, Target net income, refers to the expected or desired profit level that a company aims to achieve through its operations.

Quiz 5: Merchandising Operations and the Multiple-Step Income Statement

At the break-even point,

Required sales in dollars to meet a target net income is computed by dividing

Bolton Industries had actual sales of $750,000 when break-even sales were $600,000.What is the margin of safety ratio?

An example of a mixed cost is

Within the relevant range, the variable cost per unit

The contribution margin ratio increases when

Danny's Lawn Equipment has actual sales of $800,000 and a break-even point of $600,000.How much is its margin of safety ratio?

Cost-volume-profit analysis includes all of the following assumptions except

Sweet Manufacturing is planning to sell 400,000 hammers for $3 per unit.The contribution margin ratio is 20%.If Sweet will break even at this level of sales, what are the fixed costs?

Chung, Inc.sells 100,000 wrenches for $18 per unit.Fixed costs are $525,000 and net income is $375,000.What should be reported as variable expenses in the CVP income statement?

In evaluating the margin of safety, the

The following monthly data are available for Seasons Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 5,000 units.How much is the margin of safety for the company for June?

Contribution margin is

The amount by which actual or expected sales exceeds break-even sales is referred to as