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

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Question 71

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Even if a business sells six products, it is possible to estimate the break-even point.

A) True
B) False

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Question 72

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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%.

A) True
B) False

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Question 73

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Cordell, Inc. has an operating leverage of 3. Sales are expected to increase by 9% next year. What is the expected change in operating income next year?

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are: Assuming that last year's fixed costs totaled $675,000. What was Rusty Co.'s break-even point in units?

Marcye 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:

Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.

Variable costs are costs that remain constant in total dollar amount as the level of activity changes.

Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service, such as United Postal Service?

If sales are $425,000, variable costs are 62% of sales, and operating income is $50,000, what is the contribution margin ratio?

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 low operating leverage is normal for highly automated industries.

Flying Cloud Co. has the following operating data for its manufacturing operations: The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be:

Cost-volume-profit analysis cannot be used if which of the following occurs?

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

The following data are available from the accounting records of Suwanee Co. for the month ended May 31, 2012. 17,000 units were manufactured and sold during the accounting period at a price of $60 per unit. There was no beginning inventories and all units were completed (no work in process).

Cost behavior refers to the manner in which:

If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was:

If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,200,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

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

Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are: