1. The graph of a variable cost when plotted against its related activity base appears as a:
1. rectangle  
2. circle  
3. straight line  
4. curved line  


2. If the contribution margin ratio for France Company is 45%, sales were $425,000. and fixed costs were $100,000, what was the income from operations?
1. $133,750  
2. $167,750  
3. $325,000  
4. $91,250  


3. 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:


Product                    Unit Selling Price                Unit Variable Cost             Unit Contribution Margin
X                               $110                                 $70                                $40
Y                                70                                     50                                $20

What was Rusty Co.’s sales mix last year?
1. 58% X’s, 42% Y’s  
2. 30% X’s, 70% Y’s  
3. 60% X’s, 40% Y’s  
4. 12.5% X’s, 87.5% Y’s  


4. If a business sells two products, it is not possible to estimate the break-even point.
1. False  
2. True  


5. Assume that Krause 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 $20 and $45 respectively. Krause has fixed costs of $350,000. The break-even point in units is:
1. 8,000 units  
2. 10,769 units  
3. 14,000 units  
4. 25,278 units  


6. Flying Cloud Co. has the following operating data for its manufacturing operations:

Unit selling price        $    250
Unit variable cost             100
Total fixed costs      $840,000

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:
1. increased by 800 units  
2. decreased by 640 units  
3. increased by 400 units  
4. increased by 640 units  


7. Variable costs are costs that vary on a per-unit basis with changes in the activity level.
1. True  
2. False  


8. With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called:
1. vary the data analysis  
2. data gathering  
3. "What if" or sensitivity analysis  
4. computer aided analysis  


9. If fixed costs are $240,000, the unit selling price is $32, and the unit variable costs are $20, what are the old and new break-even sales (units) if the unit selling price increases by $4?
1. 7,500 units and 6,667 units  
2. 12,000 units and 15,000 units  
3. 20,000 units and 15,000 units  
4. 20,000 units and 30,000 units  


10. Given the following cost and activity observations for Smithson Company’s utilities, use the high-low method to calculate Smithson’s fixed costs per month.  Round variable cost per unit to two decimal places in your calculations.

                                      Cost         Machine Hours
January                 $52,200          20,000
February                  75,000           29,000
March                  57,000           22,000
April                            64,000           24,500

1. $1,630  
2. $12,500  
3. $50,000  
4. $5,000  


11. Given the following cost and activity observations for Taco Company’s utilities, use the high-low method to calculate Taco’s variable utilities costs per machine hour.

                           Cost         Machine Hours
May                $8,300          15,000
June                 10,400           20,000
July               7,200             12,000
August       9,500             18,000
1. $.52  
2. $.60  
3. $10.00  
4. $.40  


12. If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units.
1. False  
2. True  


13. In a cost-volume-Profit chart, the
1. slope of the total cost line is dependent on the fixed cost per unit.  
2. total cost line begins at the total fixed cost value on the vertical axis.  
3. total cost line begins at zero.  
4. total cost line normally begins at zero.  


14. Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:
Product                    Unit Selling Price                Unit Variable Cost             Unit Contribution Margin
Arks                              $120                                    $80                            $40
Bins                                 80                                      60                             20

What was Carter Co.'s weighted average unit contribution margin?
Student Response Value Correct Answer Feedback
1. $92  
2. $20  
3. $24  
4. $60  


15. If fixed costs increased and variable costs per unit decreased, the break-even point would:
1. increase  
2. decrease  
3. increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable cost  
4. remain the same  


16. Contribution margin is:
1. the excess of sales revenue over variable cost  
2. another term for volume in the "cost-volume-profit" analysis  
3. the same as sales revenue  
4. profit  


17. Which of the following statements is correct concerning variable and fixed costs?
1. Variable costs are constant in total and fixed costs are constant on a per unit basis.  
2. Variable costs vary in total and fixed costs are constant on a per unit basis.
3. Fixed costs are constant in total and variable costs are constant on a per unit basis.  
4. Both costs are constant when considered on a per unit basis.  


18. If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?
1. 2.0  
2. 7.500  
3. 1.333  
4. 0  


19. Which of the following describes the behavior of the variable cost per unit?
1. Varies in direct proportion with the activity level  
2. Varies in decreasing proportion with changes in the activity level  
3. Varies in increasing proportion with changes in the activity level  
4. Remains constant with changes in the activity level  


20. Given the following cost data, what type of cost is shown?
Total Cost # of units
$500            1
$1,000    2
$1,500    3
$2,000    4
1. fixed cost  
2. none of the above  
3. mixed cost  
4. variable cost