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Exam 21: Cost Behavior and Cost-Volume-Profit Analysis

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Question 81

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If fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000?

A) 17,250
B) 15,000
C) 8,333
D) 9,667

E) B) and C)
F) All of the above

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Question 82

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If direct materials cost per unit increases, the break-even point will increase.

A) True
B) False

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Question 83

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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: What was Rusty Co.'s weighted average unit variable cost?

Gladstorm Enterprises sells a product for $60 per unit. The variable cost is $20 per unit, while fixed costs are $85,000. Determine the (a) break-even point in sales units, and (b) break-even point in sales units if the selling price increased to $80 per unit. Round your answer to the nearest whole number.

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

Cost behavior refers to the manner in which a cost changes as the related activity changes.

The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable, fixed, or mixed cost for units produced and sold.

If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease.

If fixed costs are $256,000, the unit selling price is $36, and the unit variable costs are $20, what is the break-even sales (units) ?

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales (units) if the unit selling price increases by $10?

If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?

The reliability of cost-volume-profit analysis does NOT depend on the assumption that costs can be accurately divided into fixed and variable components.

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

The fixed cost per unit varies with changes in the level of activity.

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.

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $30 and $60 respectively. Corn has fixed costs of $378,000. The break-even point in units is:

Knowing how costs behave is useful to management for all the following reasons except for

Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is:

Variable costs are costs that vary on a per-unit basis with changes in the activity level.