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

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Question 41

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If sales amounted to $300,000, variable costs are 60% of sales, and operating income is $40,000, what is the operating leverage?

A) 3.000
B) 7.500
C) 1.875
D) 4.500

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

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Question 42

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The range of activity over which changes in cost are of interest to management is called the relevant range.

A) True
B) False

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Question 43

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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?

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

If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $30,000 are 14,000 units.

Currently, Zane Company's unit selling price is $30, the variable cost is $14, and the total fixed costs are $96,000. A proposal is being evaluated to increase the selling price to $34. (a)Compute the current break-even sales (in units). (b)Compute the anticipated break-even s ales (in units), assunning that the unit selling price is increased and all costs remain constant.

Variable costs are costs that vary on a per-unit basis as the level of manufacturing activity changes.

If fixed costs are $600,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000?

The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed as contribution margin ratio.

Vest Food Co. has the following operating data: $\begin{array}{ll}\$10.00 & \text { Unit selling price } \\6.00 & \text { Unit variable cost } \\960,000 & \text { Fixed costs }\end{array}$ The company is contemplating moving to another state where direct labor costs can be reduced, thereby reducing the unit variable cost by 10%. The state where the company currently operates has offered to reduce property taxes to encourage Vest to stay. The minimum amount of property tax savings necessary to keep the company, assuming no other changes, would be:

If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety will be 12,500 units.

If sales total $1,000,000, fixed costs total $200,000, and variable costs are 55% of the sales, the contribution margin ratio is 55%.

If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating income of $30,000 are 10,000 units.

Foggy Co. has the following operating data for its manufacturing operations: $\begin{array}{ll}\$ 250 & \text { Unit selling price } \\\$ 100 & \text { Unit variable cost } \\\$ 840,000 & \text { Total fixed costs }\end{array}$ 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 break-even point for Foggy Co. will:

Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are: Use the above given data to solve the following questions: Refer to the information provided for Kennedy Co. What was Kennedy's overall product's unit selling price?

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

Given the following cost and activity observations for Merritt Company's utilities, use the high-low method to calculate Merritt's fixed costs per month. $\begin{array}{lll}\text { Machine Hours}&\text { Cost }\\20,000 & \$ 52,600 & \text { January } \\29,000 & 75,100 & \text { February } \\22,000 & 57,000 & \text { March } \\24,500 & 64,000 & \text { April }\end{array}$

The following cost graphs illustrate various types of cost behaviors. For each of the following costs, identify the cost graph that best describes its cost behavior as the number of units produced and sold increases.

If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point (in dollars) ?

Rental charges of $60,000 per year plus $2 for each machine hour over 15,000 hours is an example of a fixed cost.