# Chapters 6-8

34 Questions  I  By AllAmericanOne
Chapters 6-8

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 1 Which of the following statements is TRUE with respect to total variable costs?
 A. They will remain the same as production levels change within the relevant range
 B. They will decrease as production increases within the relevant range
 C. They will decrease as production decreases within the relevant range
 D. They will increase as production decreases within the relevant range
 2 Which of the following equations represents the total mixed cost?
 A. Y=vx+f
 B. Y=vx
 C. Y=f
 D. Y=v+f
 3 YouCall offers a calling plan that charges \$2.00 per month plus \$0.05 per minute of call time. Under this plan, what is the monthly cost if you talk for a total of 100 minutes?
 A. \$7.00
 B. \$5.00
 C. \$3.00
 D. \$2.00
 4 The following graph indicates which type of total cost behavior?      y=2x+5
 A. Fixed
 B. Mixed
 C. Step
 D. Variable
 5 Total costs for Watson & Company at 100,000 units are \$350,000, while total fixed costs are \$150,000.  The total variable costs at a level of 200,000 units would be:
 A. \$700,000
 B. \$175,000
 C. \$400,000
 D. \$300,000
 6 Harbor Manufacturing is trying to predict the cost associated with producing its anchors.  At a production level of 4,000 anchors, Harbor Manufacturing’s average cost per anchor is \$50.00.   If \$20,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 5,000 anchors will be:
 A. \$50,000
 B. \$245,000
 C. \$250,000
 D. \$200,000
 7 Using account analysis, what type of cost is the rental space at \$2,000 per month?
 A. Fixed
 B. Mixed
 C. Step
 D. Variable
 8 Ricco was reviewing the water bill for his carwash business and determined that the highest bill, \$6,000, occurred in July when 2,000 cars were washed and the lowest bill, \$4,500, occurred in February when 1,000 cars were washed. An estimate the fixed portion of the water bill would be
 A. \$3,000
 B. \$5,000
 C. \$5,250
 D. \$1,500
9.  Below is information about the units produced and manufacturing costs for Snow Enterprises for the past six months.
 Month Number of units produced Total manufacturing costs January 7,940 \$5,900 February 7,500 \$5,460 March 6,400 \$5,000 April 6,600 \$5,500 May 4,740 \$5,100 June 7,800 \$5,840
Using the high-low method, what is the monthly fixed manufacturing cost?
 A. \$800
 B. \$11,000
 C. \$3,915
 D. \$1,985
 10 Traditional income statements organize costs by:
 A. Function
 B. Behavior
 C. Discretionary vs. committed
 D. No particular manner. Costs are listed in any order.
 11 The contribution margin is equal to:
 A. Sales minus cost of goods sold
 B. Sales minus variable expenses
 C. Sales minus fixed expenses
 D. Sales minus operating expenses
 12 Toby’s Farm Store buys portable generators for \$500 and sells them for \$800. He pays a sales commission of 5% of sales revenue to his sales staff. Toby pays \$2,000 a month rent for his store, and also pays \$1,800 a month to his staff in addition to the commissions. Toby sold 200 generators in June. If Toby prepares a contribution margin income statement for the month of June, what would be his contribution margin?
 A. \$268,000
 B. \$160,000
 C. \$52,000
 D. \$108,000
 13 Which of the following statements is FALSE?
 A. The main criticism of the high-low method is that it uses only two data points.
 B. Of the methods discussed in the text and in class of determining the variable and fixed components of a mixed cost, regression analysis is the most accurate
 C. The high-low method only utilizes the data at the highest and lowest cost levels
 D. The scatter-plot method is useful in identifying outliers
 14 Which of the following would be considered a committed fixed cost
 A. Research and development
 B. Depreciation
 C. Office holiday party
 15 To compute the unit contribution margin, __________ should be subtracted from the sales price per unit.
 A. Only variable period costs
 B. Only variable inventoriable product costs
 C. All variable costs
 D. All fixed costs
 16 Managers can quickly forecast the total contribution margin by multiplying the projected:
 A. Sales revenue by the contribution margin ratio
 B. Sales units by the contribution ratio
 C. Sales revenue by the unit contribution margin
 D. Sales units by the variable cost ratio
 17 Anthony Office Supplies sells refills on printer ink cartridges for \$16 per refill. Variable costs are \$4 per refill.  Fixed costs are \$2,000 per month. What is the contribution margin ratio for the printer ink cartridge refills?
 A. 133%
 B. 12%
 C. 25%
 D. 75%
 18 If the sale price per unit is \$38, variable expenses per unit are \$21, and total fixed expenses are \$56,950, what will the breakeven sales in units be?
 A. 1,499
 B. 968,150
 C. 2,712
 D. 3,350
 19 If the sale price per unit is \$64, total fixed expenses are \$90,000, and the breakeven sales in dollars is \$360,000, what will the variable expense per unit be?
 A. \$80.00
 B. \$16.00
 C. \$192.00
 D. \$48.00
 20 Healthy Greetings Corporation produces and sells fruit baskets for special events.  The unit selling price is \$60, unit variable costs are \$45, and total fixed costs are \$2,670.  What are breakeven sales in dollars?
 A. \$8,010
 B. \$1,526
 C. \$178
 D. \$10,680
 21 Which of the following statements is TRUE if the fixed costs increase while the sales price per unit and variable costs per unit remain constant?
 A. The contribution margin increases and the breakeven point decreases
 B. The contribution margin decreases and the breakeven point decreases
 C. The contribution margin stays the same and the breakeven point decreases
 D. The contribution margin stays the same and the breakeven point increases
 22 Which of the following will decrease the breakeven point in units assuming no other changes in the cost-volume-profit relationship?
 A. An increase int he sale price per unit
 B. A decrease in the sale price per unit
 C. An increase in total fixed costs
 D. An increase in the variable costs per unit
 23 Julia's Catering has a monthly target operating income of \$6,000. Variable expenses are 40% of sales and monthly fixed expenses are \$3,600. What is the monthly margin of safety in dollars if the business achieves its operating income goal?
 A. \$10,000
 B. \$22,000
 C. \$16,000
 D. \$4,000
 24 The higher the operating leverage factor, the:
 A. Greater the impact of volume on operating income
 B. Lesser the impact of volume on operating income
 C. More likely operating income is to stay constant
 D. Greater the chance that none of the above occur
 25 Southwest Electric Co-op has variable expenses of 20% of sales and monthly fixed expenses of \$150,000.  The monthly target operating income is \$50,000.  What is Southwest Electric Co-op’s operating leverage factor at the target level of operating income?
 A. 1.33
 B. 2
 C. 4
 D. 0.25
 26 Which of the following describes a sunk cost?
 A. One that is relevant to a decision because it changes depending on the alternative course of action selected
 B. An outlay expected to be incurred in the future
 C. A historical cost that is always irrelevant
 D. A historical cost that may be relevant
 27 Which would be a consideration for making special orders
 A. Available capacity to fill the order
 B. If price will cover incremental costs of filling the order
 C. If the order will affect regular sales in the long run
 D. All of the above
28.  Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10,000 sails per year. The following information relates to current production:
 Sale price per unit \$250 Variable costs per unit: Manufacturing \$165 Marketing and administrative \$50 Total fixed costs: Manufacturing \$750,000 Marketing and administrative \$200,000
If a special sales order is accepted for 2,500 sails at a price of \$205 per unit, fixed costs increase by \$14,000, and variable marketing and administrative costs for that order are \$25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
 A. Increase by \$23,500
 B. Decrease by \$23,500
 C. Increase by \$37,500
 D. Increase by \$86,000
29.  Spahr Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
 Direct materials \$2.00 Direct labor \$4.00 Variable manufacturing overhead \$3.00 Fixed manufacturing overhead \$1.00 Total cost \$10.00
The fixed overhead costs are unavoidable.  Assuming no other use for its facilities, what is the highest price per unit that Spahr Company should be willing to pay for the part?
 A. \$10
 B. \$6
 C. \$3
 D. \$9
 30 The Schmidt Corporation has in its inventory 4,000 damaged radios that cost \$50,000. The radios can be sold in their present condition for \$32,000, or repaired at a cost of \$43,000 and sold for \$66,000. What is the opportunity cost of selling the radios in their present condition?
 A. \$23,000
 B. \$109,000
 C. \$82,000
 D. \$75,000
 31 When deciding whether to outsource a product or service, managers should consider which of the following?
 A. Quality of the product or service
 B. Delivery schedule of the product or service
 C. Cost charged for the product or service
 D. All of the above
32.  The internal financial statements of Pierce Solutions show that their product, LX90, incurred an operating loss in the most recent year.  There were 20,000 units of LX90 sold in that year. Selected financial information about product LX90 follows.
 Total sales revenue \$       160,000 Variable costs \$       100,000 Contribution margin \$         60,000 Fixed costs \$         70,000 Net operating loss \$       (10,000)
If product LX90 were to be dropped, the company would avoid \$16,000 in fixed costs per year.   If Pierce Solutions were to drop product LX90, the change in annual operating income would be a(n):
 A. Increase in total operating income of \$44,000
 B. Decrease in total operating income of \$44,000
 C. Increase in total operating income of \$10,000
 D. Decrease in total operating income of \$10,000
33.  The income statement for Champion Parts is divided by its two product lines, Part L2 and Part C6, as follows:
 Part L2 Part C6 Total Sales revenue \$680,000 \$275,000 \$955,000 Variable expenses \$450,000 \$210,000 \$660,000 Contribution margin \$230,000 \$65,000 \$295,000 Fixed expenses \$75,000 \$75,000 \$150,000 Operating income (loss) \$155,000 \$(10,000) \$145,000
If fixed costs are unavoidable and Champion Parts drops the Part C6 line, how will operating income change?
 A. Will decrease by \$65,000
 B. Will increase by \$65,000
 C. Will decrease by \$230,000
 D. Will increase by \$230,000
 34 The benefit foregone by not choosing an alternative course of action is referred to as a(n):
 A. Variable cost
 B. Opportunity cost
 C. Incremental cost
 D. Sunk cost
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