1. Which of the following activity bases would be the most appropriate for food costs of a hospital?
1. Number of x-rays taken  
2. Number of scheduled surgeries  
3. Number of cooks scheduled to work  
4. Number of patients who stay in the hospital  


2. If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units.
1. True  
2. False  


3. If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease.
1. True  
2. False  


4. Safari Co. sells two products, Orks and Zins. Last year Safari sold 21,000 units of Orks and 14,000 units of Zins. Related data are:

Product                    Unit Selling Price                Unit Variable Cost             Unit Contribution Margin
Orks                              $120                                    $80                            $40
Zins                                 80                                      60                             20

What was Safari’s Co.’s weighted average unit selling price?
1. $200  
2. $104  
3. $80  
4. $120  


5. Selling price = $80 per unit
Variable cost = $30 per unit
Units = 20,000
Fixed costs = $240,000

This company is considering a 20% drop in selling price that they believe will raise units sold by 20%.   All other costs stay the same.  How much will income go up or down if they make this change?
1. $184,000 less income  
2. $40,000 more income  
3. $20,000 more income  
4. $320,000  less income  


6. The point where the total costs line intersects the left-hand vertical axis on the cost-volume-profit chart represents:
1. the break-even point  
2. the total fixed costs  
3. the maximum possible operating income  
4. the minimum possible operating loss  


7. The Rocky Company reports the following data.
Sales                 $700,000
Variable costs $300,000
Fixed costs         $120,000

Rocky Company’s operating leverage is:
1. 2.5  
2. 1.4  
3. 3.33  
4. 1.0  

8. 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. 0  
3. 7.500  
4. 1.333  


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


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


11. Which of the following describes the behavior of the fixed cost per unit?
1. Increases with increasing production  
2. Decreases with decreasing production  
3. Decreases with increasing production  
4. Remains constant with changes in production  


12. Total variable costs change as the level of activity changes.
1. True  
2. False  


13. In cost-volume-profit analysis, all costs are classified into the following two categories:
1. mixed costs and variable costs  
2. sunk costs and fixed costs  
3. variable costs and fixed costs  
4. discretionary costs and sunk costs  


14. As production increases, what would you expect to happen to fixed cost per unit?
1. Decrease  
2. Either increase or decrease, depending on the variable costs  
3. Remain the same  
4. Increase  


15. Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?
1. $247,500 increase  
2. $75,000 increase  
3. $175,000 increase  
4. $125,000 decrease  


16. Cost behavior refers to the manner in which:
1. a cost is used in setting selling prices  
2. a cost is allocated to products  
3. a cost changes as the related activity changes  
4. a cost is estimated  


17. 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. $12,500  
2. $50,000  
3. $5,000  
4. $1,630  


18. Cost behavior refers to the methods used to estimate costs for use in managerial decision making.
1. True  
2. False  


19. 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. Both costs are constant when considered on a per unit basis.  
3. Variable costs vary in total and fixed costs are constant on a per unit basis.  
4. Fixed costs are constant in total and variable costs are constant on a per unit basis.  


20. What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit?
1. Contribution margin ratio  
2. Profit ratio
3. Costs and expenses ratio  
4. Margin of safety ratio