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Exam 19: Cost Behavior and Cost-Volume-Profit Analysis

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Question 1

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The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced.

A) True
B) False

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Question 2

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If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point.

A) True
B) False

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Question 3

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Charlotte Co. has budgeted salary increases to factory supervisors totaling 9%. If selling prices and all other cost relationships are held constant, next year's break-even point

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: $\begin{array} { l l l l } & \text { Unit Selling Price } & \text { Unit Variable } & \text { Unit Contribution } \\\text { Product } & \text { Price } & \text { Cost } & \text { Margin } \\\hline \mathrm { X } & \$ 110.00 & \$ 70.00 & \$ 40.00 \\\mathrm { Y } & 70.00 & 50.00 & 20.00\end{array}$ -What was Rusty Co.'s unit variable cost of E?

Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours is an example of a fixed cost.

If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease.

If a business sells four products, it is not possible to estimate the break-even point.

Garmo Co. has an operating leverage of 5. Next year's sales are expected to increase by 10%. The company's operating income will increase by 50%.

Variable costs are costs that vary in total in direct proportion to changes in the activity level.

In order to choose the proper activity base for a cost, managerial accountants must be familiar with the operations of the entity.

Figure 21-1 -Which of the following describes the behavior of the fixed cost per unit?

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

Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.

Which of the following is not an example of a cost that varies in total as the number of units produced changes?

If fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000?

Which of the following is not an example of a cost that varies in total as the number of units produced changes?

Because variable costs are assumed to change in direct proportion to changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle.

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: $\begin{array} { l l l l } & \text { Unit Selling Price } & \text { Unit Variable } & \text { Unit Contribution } \\\text { Product } & \text { Price } & \text { Cost } & \text { Margin } \\\hline \mathrm { X } & \$ 110.00 & \$ 70.00 & \$ 40.00 \\\mathrm { Y } & 70.00 & 50.00 & 20.00\end{array}$ -What was Rusty Co.'s sales mix last year?

Which of the following conditions would cause the break-even point to decrease?

If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero when sales revenue is $930,000.