ACC 560 Week 5 Quiz

ACC 560 Week 5 Quiz – Strayer NEW
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Week 5 Quiz 4: Chapters 5 and 6
Chapter 5
TRUE-FALSE STATEMENTS
1.

An activity index identifies the activity that has a causal relationship with a particular cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
2.

A variable cost remains constant per unit at various levels of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
3.

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
4.

If volume increases, all costs will increase.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
5.

If the activity index decreases, total variable costs will decrease proportionately.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
6.

Changes in the level of activity will cause unit variable and unit fixed costs to change in
opposite directions.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
7.

For CVP analysis, both variable and fixed costs are assumed to have a linear relationship
within the relevant range of activity.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Cost-Volume-Profit

5-2

8.

The relevant range of activity is the activity level where the firm will earn income.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
9.

Costs will not change in total within the relevant range of activity.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
10.

The high-low method is used in classifying a mixed cost into its variable and fixed
elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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11.

A mixed cost has both selling and administrative cost elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
12.

The fixed cost element of a mixed cost is the cost of having a service available.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
13.

For planning purposes, mixed costs are generally grouped with fixed costs.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
14.

The difference between the costs at the high and low levels of activity represents the fixed
cost element of a mixed cost.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
15.

When applying the high-low method, the variable cost element of a mixed cost is
calculated before the fixed cost element.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
16.

An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
17.

In CVP analysis, the term “cost” includes manufacturing costs, and selling and
administrative expenses.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
18.

Contribution margin is the amount of revenues remaining after deducting cost of goods
sold.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
19.

Unit contribution margin is the amount that each unit sold contributes towards the recovery
of fixed costs and to income.

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Cost-Volume-Profit

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Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
20.

The contribution margin ratio is calculated by multiplying the unit contribution margin by
the unit sales price.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
21.

Both variable and fixed costs are included in calculating the contribution margin.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
22.

A CVP income statement shows contribution margin instead of gross profit.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
23.

The break-even point is where total sales equal total variable costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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24.

The break-even point is where total sales equal total variable costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
25.

The break-even point is equal to the fixed costs plus net income.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
26.

If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even
volume, then net income will be $10,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
27.

A target net income is calculated by taking actual sales minus the margin of safety.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
28.

Target net income is the income objective for an individual product line.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
29.

The margin of safety is the difference between sales at breakeven and sales at a determined
activity level.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
30.

The margin of safety is the difference between contribution margin and fixed costs.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
31.

The activity level is represented by an activity index such as direct labor hours, units of
output, or sales dollars.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
32.

The trend in most companies is to have more variable costs and fewer fixed costs.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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33.

For purposes of CVP analysis, mixed costs must be classified into their fixed and variable
elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
34.

The contribution margin ratio of 40% means that 60 cents of each sales dollar is available
to cover fixed costs and to produce a profit.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
35.

A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
36.

If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income
is $70,000, required sales are $1,200,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
37. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual
or (expected) sales.
Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
MULTIPLE CHOICE QUESTIONS
38.

For an activity base to be useful in cost behavior analysis,
a. the activity should always be stated in dollars.
b. there should be a correlation between changes in the level of activity and changes in
costs.
c. the activity should always be stated in terms of units.
d. the activity level should be constant over a period of time.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
39.

A variable cost is a cost that
a. varies per unit at every level of activity.
b. occurs at various times during the year.
c. varies in total in proportion to changes in the level of activity.
d. may or may not be incurred, depending on management's discretion.

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Cost-Volume-Profit

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Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
40.

A cost which remains constant per unit at various levels of activity is a
a. variable cost.
b. fixed cost.
c. mixed cost.
d. manufacturing cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

5-8

Cost-Volume-Profit

41.

Two costs at Bradshaw Company appear below for specific months of operation.
Delivery costs
Utilities

Month
September
October
September
October

Amount
$ 40,000
55,000
$ 84,000
126,000

Units Produced
40,000
60,000
40,000
60,000

Which type of costs are these?
a. Delivery costs and utilities are both variable.
b. Delivery costs and utilities are both mixed.
c. Utilities are mixed and delivery costs are variable.
d. Delivery costs are mixed and utilities are variable.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Quantitative Methods
42.

An increase in the level of activity will have the following effects on unit costs for variable
and fixed costs:
Unit Variable Cost
Unit Fixed Cost
a. Increases
Decreases
b. Remains constant
Remains constant
c. Decreases
Remains constant
d. Remains constant
Decreases

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
43.

A fixed cost is a cost which
a. varies in total with changes in the level of activity.
b. remains constant per unit with changes in the level of activity.
c. varies inversely in total with changes in the level of activity.
d. remains constant in total with changes in the level of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
44.

Fixed costs normally will not include
a. property taxes.
b. direct labor.
c. supervisory salaries.
d. depreciation on buildings and equipment.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
45.

The increased use of automation and less use of the work force in companies has caused a
trend towards an increase in
a. both variable and fixed costs.
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5-9

b. fixed costs and a decrease in variable costs.
c. variable costs and a decrease in fixed costs.
d. variable costs and no change in fixed costs.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB:
Industry/Sector Perspective, AICPA FN: Leverage Technology, AICPA PC: None, IMA:
Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 10

46.

Cost behavior analysis is a study of how a firm's costs
a. relate to competitors' costs.
b. relate to general price level changes.
c. respond to changes in the level of business activity.
d. respond to changes in the gross national product.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
47.

Cost behavior analysis applies to
a. retailers.
b. wholesalers.
c. manufacturers.
d. all entities.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
48.

If a firm increases its activity level,
a. costs should remain the same.
b. most costs will rise.
c. no costs will remain the same.
d. some costs will change, others will remain the same.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
49.

An activity index might be referred to as a cost
a. driver.
b. multiplier.
c. element.
d. correlation.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
50.

Cost activity indexes might help classify costs as
a. temporary.
b. permanent.
c. variable.
d. transient.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
51.

Which of the following is not a cost classification?
a. Mixed
b. Multiple
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c. Variable
d. Fixed
Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
52.

If the activity level increases 10%, total variable costs will
a. remain the same.
b. increase by more than 10%.
c. decrease by less than 10%.
d. increase 10%.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 12

53.

Which of the following costs are variable?
Cost
10,000 Units
30,000 Units
1.
$100,000
$300,000
2.
40,000
240,000
3.
90,000
90,000
4.
50,000
150,000
a. 1 and 2
b. 1 and 4
c. only 1
d. only 2

Ans:, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Quantitative Methods
54.

Changes in activity have a(n) _________ effect on fixed costs per unit.
a. positive
b. negative
c. inverse
d. neutral

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
55.

Which of the following is not a fixed cost?
a. Direct materials
b. Depreciation
c. Lease charge
d. Property taxes

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
56.

Why is identification of a relevant range important?
a. It is required under GAAP.
b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
c. It directly impacts the number of units of product a customer buys.
d. It is a cost that is incurred by a company that must be accounted for.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
57.

The relevant range of activity refers to the
a. geographical areas where the company plans to operate.
b. activity level where all costs are curvilinear.
c. levels of activity over which the company expects to operate.
d. level of activity where all costs are constant.
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Cost-Volume-Profit

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Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
58.

Which of the following is not a plausible explanation of why variable costs often behave in
a curvilinear fashion?
a. Labor specialization
b. Overtime wages
c. Total variable costs are constant within the relevant range
d. Availability of quantity discounts

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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59.

Firms operating at 100% capacity
a. are common.
b. are the exception rather than the rule.
c. have no fixed costs.
d. have no variable costs.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Performance
Measurement
60.

Which of the following would be the least controllable fixed costs?
a. Property taxes
b. Rent
c. Research and development
d. Management training programs

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
61.

Which one of the following is a name for the range over which a company expects to
operate?
a. Mixed range
b. Fixed range
c. Variable range
d. Relevant range

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
62.

If graphed, fixed costs that behave in a curvilinear fashion resemble a(n)
a. S-curve.
b. inverted S-curve.
c. straight line.
d. stair-step pattern.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
63.

The graph of variable costs that behave in a curvilinear fashion will
a. approximate a straight line within the relevant range.
b. be sharply kinked on both sides of the relevant range.
c. be downward sloping.
d. be a stair-step pattern.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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64.

Frazier Manufacturing Company collected the following production data for the past
month:
Units Produced Total Cost
1,600
$44,000
1,300
38,000
1,500
45,000
1,100
33,000
If the high-low method is used, what is the monthly total cost equation?
a. Total cost = $8,800 + $22/unit
b. Total cost = $11,000 + $20/unit
c. Total cost = $0 + $30/unit
d. Total cost = $6,600 + $24/unit

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Performance Measurement

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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65.

A mixed cost contains
a. a variable element and a fixed element.
b. both selling and administrative costs.
c. both retailing and manufacturing costs.
d. both operating and nonoperating costs.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
66.

At the high level of activity in November, 7,000 machine hours were run and power costs
were $16,000. In April, a month of low activity, 2,000 machine hours were run and power
costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of
power costs is
a. $16,000.
b. $8,000.
c. $4,800.
d. $11,200.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Performance Measurement
67.

Gribble Company’s high and low level of activity last year was 60,000 units of product
produced in May and 20,000 units produced in November. Machine maintenance costs
were $104,000 in May and $40,000 in November. Using the high-low method, determine
an estimate of total maintenance cost for a month in which production is expected to be
45,000 units.
a. $90,000
b. $96,000
c. $78,000
d. $80,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Performance Measurement
68.

Which of the following is not true about the graph of a mixed cost?
a. It is possible to determine the amount of the fixed cost from the graph.
b. There is a total cost line on the graph.
c. The fixed cost portion of the graph is the same amount at all levels of activity.
d. The variable cost portion of the graph is rectangular in shape.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Performance
Measurement
69.

Which of the following is not a mixed cost?
a. Car rental fee
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Cost-Volume-Profit

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b. Electricity
c. Depreciation
d. Telephone Expense
Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 18

70.

In using the high-low method, the fixed cost
a. is determined by subtracting the total cost at the high level of activity from the total
cost at the low activity level.
b. is determined by adding the total variable cost to the total cost at the low activity level.
c. is determined before the total variable cost.
d. may be determined by subtracting the total variable cost from either the total cost at the
low or high activity level.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
71.

If Qualls Quality Airline cuts its domestic fares by 30%,
a. its fixed costs will decrease.
b. profit will increase by 30%.
c. a profit can only be earned by decreasing the number of flights.
d. a profit can be earned either by increasing the number of passengers or by decreasing
variable costs.

Ans:, LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Business Economics
72.

In applying the high-low method, which months are relevant?
Month
Miles
Total Cost
January
80,000
$144,000
February
50,000
120,000
March
70,000
141,000
April
90,000
195,000
a.
b.
c.
d.

January and February
January and April
February and April
February and March

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Business Economics
73.

In applying the high-low method, what is the unit variable cost?
Month
January
February
March
April

Miles
80,000
50,000
70,000
90,000

Total Cost
$144,000
120,000
141,000
195,000

a. $2.16
b. $1.88
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Cost-Volume-Profit

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c. $2.40
d. Cannot be determined from the information given.
Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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74.

In applying the high-low method, what is the fixed cost?
Month
January
February
March
April
a.
b.
c.
d.

Miles
80,000
50,000
70,000
90,000

Total Cost
$144,000
120,000
141,000
195,000

$26,250
$54,000
$21,000
$75,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Business Economics
75.

For analysis purposes, the high-low method usually produces a(n)
a. reasonable estimate.
b. precise estimate.
c. overstated estimate.
d. understated estimate.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
76.

The high-low method is criticized because it
a. is not a graphical method.
b. is a mathematical method.
c. ignores much of the available data by concentrating on only the extreme points.
d. doesn't provide reasonable estimates.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
77.

The high-low method is often employed in analyzing
a. fixed costs.
b. mixed costs.
c. variable costs.
d. conversion costs.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
78.

Portman Company's activity for the first three months of 2013 are as follows:
January

Machine Hours
2,100

Electrical Cost
$3,600

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Cost-Volume-Profit

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February
March

2,600
2,900

$4,350
$4,800

Using the high-low method, how much is the cost per machine hour?
a. $1.50
b. $2.25
c. $1.69
d. $1.34
Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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79.

Ponszko Nursery used high-low data from June and July to determine its variable cost of
$18 per unit. Additional information follows:
Month
June
July

Units produced
2,000
1,000

Total costs
$48,000
30,000

If Ponszko’s produces 2,300 units in August, how much is its total cost expected to be?
a. $12,000
b. $59,400
c. $41,400
d. $53,400
Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
80.

In CVP analysis, the term "cost"
a. includes only manufacturing costs.
b. means cost of goods sold.
c. includes manufacturing costs plus selling and administrative expenses.
d. excludes all fixed manufacturing costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
81.

Which one of the following is not an assumption of CVP analysis?
a. All units produced are sold.
b. All costs are variable costs.
c. Sales mix remains constant.
d. The behavior of costs and revenues are linear within the relevant range.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
82.

CVP analysis does not consider
a. level of activity.
b. fixed cost per unit.
c. variable cost per unit.
d. sales mix.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
83.

Which of the following is not an underlying assumption of CVP analysis?
a. Changes in activity are the only factors that affect costs.
b. Cost classifications are reasonably accurate.
c. Beginning inventory is larger than ending inventory.
d. Sales mix is constant.
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
84.

CVP analysis is not important in
a. calculating depreciation expense.
b. setting selling prices.
c. determining the product mix.
d. utilizing production facilities.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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85.

To which function of management is CVP analysis most applicable?
a. Planning
b. Motivating
c. Directing
d. Controlling

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
86.

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each
flash drive costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed
costs for March were $2 per unit for a total of $1,000 for the month. How much is the
contribution margin ratio?
a. 30%
b. 40%
c. 60%
d. 70%

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
87.

Contribution margin
a. is always the same as gross profit margin.
b. excludes variable selling costs from its calculation.
c. is calculated by subtracting total manufacturing costs per unit from sales revenue per
unit.
d. equals sales revenue minus variable costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
88.

If a company had a contribution margin of $750,000 and a contribution margin ratio of
40%, total variable costs must have been
a. $1,125,000.
b. $450,000.
c. $1,875,000.
d. $300,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
89.

Which of the following would not be an acceptable way to express contribution margin?
a. Sales minus variable costs
b. Sales minus unit costs
c. Unit selling price minus unit variable costs
d. Contribution margin per unit divided by unit selling price
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
90.

A company has contribution margin per unit of $90 and a contribution margin ratio of
40%. What is the unit selling price?
a. $150
b. $225
c. $36
d. Cannot be determined.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 26

91.

Sales are $500,000 and variable costs are $350,000. What is the contribution margin ratio?
a. 43%
b. 30%
c. 70%
d. Cannot be determined because amounts are not expressed per unit.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
92.

Dunbar Manufacturing’s variable costs are 30% of sales. The company is contemplating an
advertising campaign that will cost $44,000. If sales are expected to increase $80,000, by
how much will the company's net income increase?
a. $36,000
b. $56,000
c. $24,000
d. $12,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
93.

Weatherspoon Company has a product with a selling price per unit of $200, the unit
variable cost is $90, and the total monthly fixed costs are $300,000. How much is
Weatherspoon’s contribution margin ratio?
a. 55%
b. 45%
c. 150%
d. 222%

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
94.

Armstrong Industries has a contribution margin of $300,000 and a contribution margin
ratio of 30%. How much are total variable costs?
a. $90,000
b. $700,000
c. $210,000
d. $1,000,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
95.

Zehms, Inc. has a contribution margin per unit of $21 and a contribution margin ratio of
60%. How much is the selling price of each unit?
a. $35.00
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Cost-Volume-Profit

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b. $52.50
c. $12.60
d. Cannot be determined without more information.
Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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96.

A division sold 100,000 calculators during 2013:
Sales
Variable costs:
Materials
Order processing
Billing labor
Selling expenses
Total variable costs
Fixed costs

$2,000,000
$380,000
150,000
110,000
60,000
700,000
1,000,000

How much is the contribution margin per unit?
a. $2
b. $7
c. $17
d. $13
Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
97.

At the break-even point of 2,000 units, variable costs are $110,000, and fixed costs are
$64,000. How much is the selling price per unit?
a. $87
b. $23
c. $32
d. Not enough information

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
98.

The following information is available for Wade Corp.:
Sales
$550,000
Total fixed expenses
Cost of goods sold
390,000
Total variable expenses

$150,000
360,000

A CVP income statement would report
a. gross profit of $160,000.
b. contribution margin of $400,000.
c. gross profit of $190,000.
d. contribution margin of $190,000.
Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
99.

Which is the true statement?
a. In a CVP income statement, costs and expenses are classified only by function.
b. The CVP income statement is prepared for both internal and external use.
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Cost-Volume-Profit

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c. The CVP income statement shows contribution margin instead of gross profit.
d. In a traditional income statement, costs and expenses are classified as either variable or
fixed.
Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 30

100.

The equation which reflects a CVP income statement is
a. Sales = Cost of goods sold + Operating expenses + Net income.
b. Sales + Fixed costs = Variable costs + Net income.
c. Sales – Variable costs + Fixed costs = Net income.
d. Sales – Variable costs – Fixed costs = Net income.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
101.

The CVP income statement
a. is distributed internally and externally.
b. classifies costs by functions.
c. discloses contribution margin in the body of the statement.
d. will reflect a different net income than the traditional income statement.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
102.

O’Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net
income is $250,000. What should be reported as variable expenses in the CVP income
statement?
a. $600,000.
b. $700,000.
c. $950,000.
d. $1,050,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
103.

A company has total fixed costs of $200,000 and a contribution margin ratio of 20%. The
total sales necessary to break even are
a. $800,000.
b. $1,000,000.
c. $250,000.
d. $240,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
104.

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and
total fixed costs of $180,000. The number of units the company must sell to break even is
a. 90,000 units.
b. 36,000 units.
c. 360,000 units.
d. 60,000 units.
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
105.

The break-even point is where
a. total sales equal total variable costs.
b. contribution margin equals total fixed costs.
c. total variable costs equal total fixed costs.
d. total sales equal total fixed costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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106.

The break-even point cannot be determined by
a. computing it from a mathematical equation.
b. computing it using contribution margin.
c. reading the prior year's financial statements.
d. deriving it from a CVP graph.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1,
AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement,
AICPA PC: None, IMA: Business
Economics
107.

Select the correct statement concerning the
cost-volume-profit graph at right:
a. The point identified by "B" is the breakeven point.
b. Line F is the variable cost line.
c. At point B, profits equal total costs.
d. Line E is the total cost line.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
108.

Fixed costs are $600,000 and the variable costs are 75% of the unit selling price. What is
the break-even point in dollars?
a. $1,400,000
b. $1,800,000
c. $2,400,000
d. $800,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
109.

Fixed costs are $2,400,000 and the contribution margin per unit is $150. What is the breakeven point?
a. $6,000,000
b. $16,000,000
c. 6,000 units
d. 16,000 units

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
110.

Nelson Manufacturing has the following data:
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Cost-Volume-Profit

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Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The contribution margin per unit is $500.
The fixed costs are $300,000.
Which of the following does not express the break-even point?
a. $300,000 + .60X = X
b. $300,000 + .40X = X
c. $300,000 ÷ $500 = X
d. $300,000 ÷ .40 = X
Ans:, LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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111.

A CVP graph does not include a
a. variable cost line.
b. fixed cost line.
c. sales line.
d. total cost line.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
112.

Boswell company reported the following information for the current year: Sales (50,000
units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000,
and fixed costs $270,000. What is Boswell’s contribution margin ratio?
a. 68%.
b. 45%.
c. 32%.
d. 55%.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
113.

Boswell company reported the following information for the current year: Sales (50,000
units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000,
and fixed costs $270,000. What is Boswell’s break-even point in units?
a. 24,546.
b. 30,000.
c. 38,334.
d. 42,188.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
114.

Walters Corporation sells radios for $50 per unit. The fixed costs are $420,000 and the
variable costs are 60% of the selling price. As a result of new automated equipment, it is
anticipated that fixed costs will increase by $100,000 and variable costs will be 50% of the
selling price. The new break-even point in units is:
a. 21,000
b. 20,800
c. 20,600
d. 16,800

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
115.

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and
fixed costs total $90,000. What sales are needed by Cunningham to break even?
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Cost-Volume-Profit

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a.
b.
c.
d.

$120,000.
$225,000.
$270,000.
$360,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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116.

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and
fixed costs total $90,000. How many MP3 players must Cunningham sell to earn net
income of $210,000?
a. 15,000.
b. 5,250.
c. 3,750.
d. 4,500.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
117.

Gall Manufacturing sells a product for $50 per unit. The fixed costs are $735,000 and the
variable costs are 60% of the selling price. As a result of new automated equipment, it is
anticipated that fixed costs will increase by $175,000 and variable costs will be 50% of the
selling price. The new break-even point in units is:
a. 36,750.
b. 36,400.
c. 36,050.
d. 29,400.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
118.

Pascal, Inc. is planning to sell 800,000 units for $1.50 per unit. The contribution margin
ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs?
a. $240,000.
b. $560,000.
c. $800,000.
d. $960,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
119.

April Industries sells a product with a contribution margin of $12 per unit, fixed costs of
$148,800, and sales for the current year of $200,000. How much is April’s break-even
point?
a. 9,200 units
b. $51,200
c. 12,400 units
d. 4,267 units

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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120.

Kaplan, Inc. produces flash drives for computers, which it sells for $20 each. The variable
cost to make each flash drive is $13. During April, 700 drives were sold. Fixed costs for
April were $2 per unit for a total of $1,400 for the month. How much is the monthly breakeven level of sales in dollars for Kaplan?
a. $200
b. $4,000
c. $14,000
d. $8,400

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 38

121.

Vintage Wines has fixed costs of $15,000 per year. Its warehouse sells wine with variable
costs of 80% of its unit selling price. How much in sales does Vintage need to break even
per year?
a. $12,000
b. $3,000
c. $18,750
d. $75,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
122.

Bruno & Court is a nonprofit organization that captures stray deer bewildered within
residential communities. Fixed costs are $15,000. The variable cost of capturing each deer
is $10 each. Bruno & Court is funded by a local philanthropy in the amount of $48,000 for
2013. How many deer can Bruno & Court capture during 2013?
a. 3,300
b. 4,800
c. 6,300
d. 3,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
123.

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are
$32,000. How much is the selling price per unit?
a. $43.50
b. $11.50
c. $16.00
d. $27.50

Ans:, LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
124.

Variable costs for Abbey, Inc. are 25% of sales. Its selling price is $80 per unit. If Abbey
sells one unit more than break-even units, how much will profit increase?
a. $60
b. $20
c. $25
d. $320

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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125.

A company requires $1,360,000 in sales to meet its net income target. Its contribution
margin is 30%, and fixed costs are $240,000. What is the target net income?
a. $408,000
b. $312,000
c. $560,000
d. $168,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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126.

Montoya Manufacturing has fixed costs of $2,500,000 and variable costs are 40% of sales.
What are the required sales if Montoya desires net income of $250,000?
a. $4,583,333
b. $4,166,667
c. $6,875,000
d. $6,250,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
127.

Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $400,000 and to earn net
income of $500,000. What percent are variable costs of sales?
a. 25%
b. 55%
c. 20%
d. 45%

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
128.

Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the
variable costs are $8 per brush. Fixed costs per month are $4,800. If Lansbury sells 25
more units beyond breakeven, how much does profit increase as a result?
a. $300
b. $500
c. $200
d. $1,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
129.

Hayduke Corporation reported the following results from the sale of 6,000 units in May:
sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000.
Assume that Hayduke increases the selling price by 10% on June 1. How many units will
have to be sold in June to maintain the same level of net income?
a. 4,800.
b. 5,160.
c. 5,400.
d. 6,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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130.

Keene, Inc. produces flash drives for computers, which it sells for $20 each. Each flash drive
costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for
March were $4.90 per unit for a total of $4,900 for the month. If variable costs decrease by
10%, what happens to the break-even level of units per month for Keene?
a. It is 10% higher than the original break-even point.
b. It decreases about 14 units.
c. It decreases about 35 units.
d. It depends on the number of units the company expects to produce and sell.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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131.

Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of
$80,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are
$160,000, how many units must be sold to earn income of $80,000?
a. 120,000 units
b. 80,000 units
c. 30,000 units
d. 1,200,000 units

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
132.

How much sales are required to earn a target income of $160,000 if total fixed costs are
$200,000 and the contribution margin ratio is 40%?
a. $600,000
b. $400,000
c. $900,000
d. $660,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
133.

Farmers’ Industries has fixed costs of $400,000 and variable costs are 60% of sales. How
much will Farmers report as sales when its net income equals $40,000?
a. $1,100,000
b. $733,333
c. $1,040,000
d. $264,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
134.

Murphy Company produces flash drives for computers, which it sells for $20 each. Each
flash drive costs $8 of variable costs to make. During April, 700 drives were sold. Fixed
costs for April were $4 per unit for a total of $2,800 for the month. How much does
Murphy’s operating income increase for each $1,000 increase in revenue per month?
a. $600
b. $400
c. $14,000
d. Not enough information to determine the answer.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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135.

Greg’s Golf Carts produces two models: Model 24 has sales of 500 units with a
contribution margin of $40 each; Model 26 has sales of 350 units with a contribution
margin of $50 each. If sales of Model 26 increase by 100 units, how much will profit
change?
a. $5,000 increase
b. $17,500 increase
c. $22,500 increase
d. $35,000 increase

Ans:, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative
Methods

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136.

Wendy Industries produces only one product. Monthly fixed expenses are $12,000,
monthly unit sales are 2,500, and the unit contribution margin is $10. How much is
monthly net income?
a. $25,000
b. $37,000
c. $0
d. $13,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
137.

A company desires to sell a sufficient quantity of products to earn a profit of $300,000. If
the unit sales price is $20, unit variable cost is $12, and total fixed costs are $600,000, how
many units must be sold to earn net income of $300,000?
a. 168,750 units
b. 112,500 units
c. 90,000 units
d. 67,500 units

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
138.

Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed costs are
$16,000. The company is considering the purchase of an automated machine that will
result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs.
Which of the following is true about the break-even point in units?
a. It will remain unchanged.
b. It will decrease.
c. It will increase.
d. It cannot be determined from the information provided.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
139.

How much sales are required to earn a target net income of $160,000 if total fixed costs are
$200,000 and the contribution margin ratio is 40%?
a. $500,000
b. $810,000
c. $900,000
d. $400,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
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140.

The following monthly data are available for Lumberyard Company. which produces only
one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses,
$84,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety
for the company for June?
a. $84,000
b. $42,000
c. $126,000
d. $1,000

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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141.

Danny’s Lawn Equipment has actual sales of $800,000 and a break-even point of
$600,000. How much is its margin of safety ratio?
a. 25%
b. 33%
c. 67%
d. 75%

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
142.

The following monthly data are available for Seasons Company which produces only one
product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses,
$84,000; Actual sales for the month of June, 5,000 units. How much is the margin of safety
for the company for June?
a. $56,000
b. $84,000
c. $126,000
d. $2,000

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
143.

The amount by which actual or expected sales exceeds break-even sales is referred to as
a. contribution margin.
b. unanticipated profit.
c. margin of safety.
d. target net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
144.

In evaluating the margin of safety, the
a. break-even point is not relevant.
b. higher the margin of safety ratio, the greater the margin of safety.
c. higher the dollar amount, the lower the margin of safety.
d. higher the margin of safety ratio, the lower the fixed costs.

Ans:, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
145.

Within the relevant range, the variable cost per unit
a. differs at each activity level.
b. remains constant at each activity level.
c. increases as production increases.
d. decreases as production increases.
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Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
146.

An example of a mixed cost is
a. direct materials.
b. supervisory salaries.
c. utility costs.
d. property taxes.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

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147.

In the Restin Company, maintenance costs are a mixed cost. At the low level of activity
(160 direct labor hours), maintenance costs are $600. At the high level of activity (400
direct labor hours), maintenance costs are $1,100. Using the high-low method, what is the
variable maintenance cost per unit and the total fixed maintenance cost?
a.
b.
c.
d.

Variable Cost Per Unit
$2.08
$2.08
$2.75
$2.75

Total Fixed Cost
$268
$500
$220
$400

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
148.

Cost-volume-profit analysis includes all of the following assumptions except
a. the behavior of costs is curvilinear throughout the relevant range.
b. costs can be classified accurately as either variable or fixed.
c. changes in activity are the only factors that affect costs.
d. all units produced are sold.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
149.

The contribution margin ratio increases when
a. fixed costs increase.
b. fixed costs decrease.
c. variable costs as a percentage of sales decrease.
d. variable costs as a percentage of sales increase.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
150.

Contribution margin is
a. the amount of revenue remaining after deducting fixed costs.
b. available to cover fixed costs and contribute to income for the company.
c. sales less fixed costs.
d. unit selling price less unit fixed costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
151.

Chung, Inc. sells 100,000 wrenches for $18 per unit. Fixed costs are $525,000 and net
income is $375,000. What should be reported as variable expenses in the CVP income
statement?
a. $810,000
b. $900,000
c. $1,425,000
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d. $1,275,000
Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting

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152.

Sweet Manufacturing is planning to sell 400,000 hammers for $3 per unit. The contribution
margin ratio is 20%. If Sweet will break even at this level of sales, what are the fixed
costs?
a. $240,000
b. $560,000
c. $800,000
d. $960,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods
153.

At the break-even point,
a. sales equal total variable costs.
b. contribution margin equals total variable costs.
c. contribution margin equals total fixed costs.
d. sales equal total fixed costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
154.

Wilton Co. reported the following results from the sale of 5,000 hammers in May: sales
$200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. Assume
that Wilton increases the selling price of hammers by 10% on June 1. How many hammers
will have to be sold in June to maintain the same level of net income?
a. 4,000
b. 4,300
c. 4,500
d. 5,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
155.

Required sales in dollars to meet a target net income is computed by dividing
a. fixed costs plus target net income by contribution margin per unit.
b. variable costs plus target net income by contribution margin per unit.
c. fixed costs plus target net income by contribution margin ratio.
d. total costs plus target net income by contribution margin ratio.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
156.

Bolton Industries had actual sales of $750,000 when break-even sales were $600,000.
What is the margin of safety ratio?
a. 20%
b. 25%
c. 75%
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d. 80%
Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
Quantitative Methods

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5 - 52

Chapter 6

1.

TRUE-FALSE STATEMENTS
The CVP income statement classifies costs as variable or fixed and computes a
contribution margin.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
2.

In CVP analysis, cost includes manufacturing costs but not selling and administrative
expenses.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Cost Management
3.

When a company is in its early stages of operation, its primary goal is to generate a target
net income.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Project
Management, IMA: Business Economics
4.

The margin of safety tells a company how far sales can drop before it will be operating at a
loss.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Marketing/Client Focus, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
5.

Sales mix is a measure of the percentage increase in sales from period to period.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
6.

Sales mix is not important to managers when different products have substantially different
contribution margins.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting

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7.

The weighted-average contribution margin of all the products is computed when
determining the break-even sales for a multi-product firm.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
8.

If Buttercup, Inc. sells two products with a sales mix of 75% : 25%, and the respective
contribution margins are $80 and $240, then weighted-average unit contribution margin is
$120.

Ans:, LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
9.

If fixed costs are $100,000 and weighted-average unit contribution margin is $50, then the
break-even point in units is 2,000 units.

Ans:, LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics
10.

Net income can be increased or decreased by changing the sales mix.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
11.

The break-even point in dollars is variable costs divided by the weighted-average
contribution margin ratio.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Marketing/Client
Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA:
Business Economics

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12.

When a company has limited resources, management must decide which products to make
and sell in order to maximize net income.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
13.

When a company has limited resources to manufacture products, it should manufacture
those products which have the highest contribution margin per unit.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project
Management, IMA: Business Economics
14.

If a company has limited machine hours available for production, it is generally more
profitable to produce and sell the product with the highest contribution margin per machine
hour.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project
Management, IMA: Business Economics
15.

According to the theory of constraints, a company must identify its constraints and find
ways to reduce or eliminate them.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Project
Management, IMA: Business Economics
16.

Cost structure refers to the relative proportion of fixed versus variable costs that a company
incurs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
17.

Operating leverage refers to the extent to which a company’s net income reacts to a given
change in fixed costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
18.

The degree of operating leverage provides a measure of a company’s earnings volatility.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
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19.

If Sprinkle Industries has a margin of safety ratio of .60, it could sustain a 60 percent
decline in sales before it would be operating at a loss.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics
20.

A company with low operating leverage will experience a sharp increase in net income
with a given increase in sales.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
a

21.

Variable costing is the approach used for external reporting under generally accepted
accounting principles.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

22.

The difference between absorption costing and variable costing is the treatment of fixed
manufacturing overhead.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting

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Cost-Volume-Profit

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a

23.

Selling and administrative costs are period costs under both absorption and variable
costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

24.

Manufacturing cost per unit will be higher under variable costing than under absorption
costing.

Ans:, LO: 7, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
a

25.

Some fixed manufacturing costs of the current period are deferred to future periods
through ending inventory under variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

26.

When units produced exceed units sold, income under absorption costing is higher than
income under variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
a

27.

When units sold exceed units produced, income under absorption costing is higher than
income under variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA:
Reporting
a

28.

When absorption costing is used for external reporting, variable costing can still be used
for internal reporting purposes.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

29.

When absorption costing is used, management may be tempted to overproduce in a given
period in order to increase net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
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Cost-Volume-Profit

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a

30.

The use of absorption costing facilitates cost-volume-profit analysis.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics

31.

MULTIPLE CHOICE QUESTIONS
Cost-volume-profit analysis is the study of the effects of
a. changes in costs and volume on a company’s profit.
b. cost, volume, and profit on the cash budget.
c. cost, volume, and profit on various ratios.
d. changes in costs and volume on a company’s profitability ratios.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
32.

The CVP income statement classifies costs
a. as variable or fixed and computes contribution margin.
b. by function and computes a contribution margin.
c. as variable or fixed and computes gross margin.
d. by function and computes a gross margin.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
33.

Contribution margin is the amount of revenue remaining after deducting
a. cost of goods sold.
b. fixed costs.
c. variable costs.
d. contra-revenue.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
34.

Moonwalker’s CVP income statement included sales of 4,000 units, a selling price of $100,
variable expenses of $60 per unit, and fixed expenses of $88,000. Contribution margin is
a. $400,000.
b. $240,000.
c. $160,000.
d. $72,000.

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Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics
35.

Moonwalker’s CVP income statement included sales of 4,000 units, a selling price of $100,
variable expenses of $60 per unit, and fixed expenses of $88,000. Net income is
a. $400,000.
b. $160,000.
c. $152,000.
d. $72,000.

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA:
Reporting
36.

For Buffalo Co., at a sales level of 5,000 units, sales is $75,000, variable expenses total
$50,000, and fixed expenses are $21,000. What is the contribution margin per unit?
a. $4.20
b. $5.00
c. $10.00
d. $15.00

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics

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37.

If contribution margin is $120,000, sales is $300,000, and net income is $40,000, then
variable and fixed expenses are
a.
b.
c.
d.

Variable
$180,000
$180,000
$80,000
$420,000

Fixed
$260,000
$80,000
$180,000
$260,000

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
38.

In a CVP income statement, cost of goods sold is generally
a. completely a variable cost.
b. completely a fixed cost.
c. neither a variable cost nor a fixed cost.
d. partly a variable cost and partly a fixed cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
39. In a CVP income statement, a selling expense is generally
a. completely a variable cost.
b. completely a fixed cost.
c. neither a variable cost nor a fixed cost.
d. partly a variable cost and partly a fixed cost.
Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
40.

Hinge Manufacturing’s cost of goods sold is $420,000 variable and $240,000 fixed. The
company’s selling and administrative expenses are $300,000 variable and $360,000 fixed.
If the company’s sales is $1,480,000, what is its contribution margin?
a. $160,000
b. $760,000
c. $820,000
d. $880,000

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: FSA
41. Hinge Manufacturing’s cost of goods sold is $420,000 variable and $240,000 fixed. The
company’s selling and administrative expenses are $300,000 variable and $360,000 fixed.
If the company’s sales is $1,480,000, what is its net income?
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a.
b.
c.
d.

$160,000
$760,000
$820,000
$880,000

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem
Solving/Decision Making, IMA: Reporting
42.

Woolford’s CVP income statement included sales of 4,000 units, a selling price of $50,
variable expenses of $30 per unit, and net income of $25,000. Fixed expenses are
a. $55,000.
b. $80,000.
c. $120,000.
d. $200,000.

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting

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43.

The contribution margin ratio is
a. sales divided by contribution margin.
b. sales divided by fixed expenses.
c. sales divided by variable expenses.
d. contribution margin divided by sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
44.

For Pierce Company, sales is $500,000, variable expenses are $330,000, and fixed
expenses are $140,000. Pierce’s contribution margin ratio is
a. 10%.
b. 28%.
c. 34%.
d. 66%.

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
45.

For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution
margin per unit is $48. What is the break-even point?
a. $2,083,334 sales dollars
b. $625,000 sales dollars
c. 20,834 units
d. 6,250 units

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
46.

For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution
margin ratio is 36%. What is net income?
a. $90,000
b. $162,000
c. $378,000
d. $540,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
47.

For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution
margin ratio is 36%. What are the total variable expenses?
a. $288,000
b. $540,000
c. $960,000
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d. $1,500,000
Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
48.

In 2013, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per
unit, and fixed expenses were $160,000. What was Teller’s 2013 net income?
a. $200,000
b. $360,000
c. $840,000
d. $1,200,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem
Solving/Decision Making, IMA: Reporting

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49.

In 2012, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per
unit, and fixed expenses were $180,000. The same selling price, variable expenses, and
fixed expenses are expected for 2013. What is Teller’s break-even point in sales dollars for
2013?
a. $600,000
b. $1,800,000
c. $1,200,000
d. $1,714,286

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
50.

In 2012, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per
unit, and fixed expenses were $180,000. The same selling price, variable expenses, and
fixed expenses are expected for 2013. What is Teller’s break-even point in units for 2013?
a. 1,500
b. 3,375
c. 4,500
d. 7,500

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
51.

The required sales in units to achieve a target net income is
a. (sales + target net income) divided by contribution margin per unit.
b. (sales + target net income) divided by contribution margin ratio.
c. (fixed cost + target net income) divided by contribution margin per unit.
d. (fixed cost + target net income) divided by contribution margin ratio.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
52.

For Wickham Co., sales is $2,000,000, fixed expenses are $600,000, and the contribution
margin ratio is 36%. What is required sales in dollars to earn a target net income of
$400,000?
a. $1,111,111
b. $1,666,666
c. $2,777,778
d. $5,555,556

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

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53.

Warner Manufacturing reported sales of $2,000,000 last year (100,000 units at $20 each),
when the break-even point was 75,000 units. Warner’s margin of safety ratio is
a. 25%.
b. 33%.
c. 75%.
d. 125%.

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

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54.

For Wilder Corporation, sales is $1,200,000 (6,000 units), fixed expenses are $360,000,
and the contribution margin per unit is $80. What is the margin of safety in dollars?
a. $60,000
b. $300,000
c. $540,000
d. $840,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
55.

Margin of safety in dollars is
a. expected sales divided by break-even sales.
b. expected sales less break-even sales.
c. actual sales less expected sales.
d. expected sales less actual sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
56.

The margin of safety ratio is
a. expected sales divided by break-even sales.
b. expected sales less break-even sales.
c. margin of safety in dollars divided by expected sales.
d. margin of safety in dollars divided by break-even sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
57.

In 2012, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit,
and fixed expenses were $455,000. The same variable expenses per unit and fixed
expenses are expected for 2013. If Hagar cuts selling price by 4%, what is Hagar’s breakeven point in units for 2013?
a. 3,033
b. 3,159
c. 3,360
d. 3,500

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
58.

In 2012, Carow sold 3,000 units at $500 each. Variable expenses were $250 per unit, and
fixed expenses were $250,000. The same selling price is expected for 2013. Carow is
tentatively planning to invest in equipment that would increase fixed costs by 20%, while
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Cost-Volume-Profit

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decreasing variable costs per unit by 20%. What is Carow’s break-even point in units for
2013?
a. 1,000
b. 1,200
c. 1,250
d. 1,500
Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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59.

In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000. Variable
expenses were $300 per unit, and fixed expenses were $150,000. The same selling price is
expected for 2013. Raleigh’s variable cost per unit will rise by 10% in 2013 due to
increasing material costs, so they are tentatively planning to cut fixed costs by $15,000.
How many units must Raleigh sell in 2013 to maintain the same income level as 2012?
a. 794
b. 971
c. 1,176
d. 1,088

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
60.

Sales mix is
a. the relative percentage in which a company sells its multiple products.
b. the trend of sales over recent periods.
c. the mix of variable and fixed expenses in relation to sales.
d. a measure of leverage used by the company.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
61.

In a sales mix situation, at any level of units sold, net income will be higher if
a. more higher contribution margin units are sold than lower contribution margin units.
b. more lower contribution margin units are sold than higher contribution margin units.
c. more fixed expenses are incurred.
d. weighted-average unit contribution margin decreases.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
62.

Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip)
and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of
$100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. The
weighted-average unit contribution margin for Ramirez is
a. $46.
b. $50.
c. $54.
d. $100.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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63.

Capitol Manufacturing sells 3,000 units of Product A annually, and 7,000 units of Product
B annually. The sales mix for Product A is
a. 30%.
b. 43%.
c. 70%.
d. Cannot determine from information given.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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64.

Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip)
and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of
$100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. Ramirez’s
fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even
point?
a. 3,000
b. 3,522
c. 5,000
d. 7,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
65.

Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two
products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and
60,000 Supreme. Fixed expenses are $1,800,000. How many Standards would Roosevelt
sell at the break-even point?
a. 18,000
b. 27,000
c. 30,000
d. 45,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
66.

Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two
products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and
60,000 Supreme. Fixed expenses are $1,800,000. At the expected sales level, Roosevelt’s
net income will be
a. $(200,000).
b. $ - 0 -.
c. $2,200,000.
d. $4,000,000.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
67.

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is
65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed
costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is
50%. The weighted-average contribution margin ratio is
a. 37%.
b. 40%.
c. 43%.
d. 50%.
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Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
68.

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is
65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed
costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is
50%. The break-even point in dollars is
a. $1,642,800.
b. $10,325,582.
c. $11,100,000.
d. $12,000,000.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

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69.

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is
65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed
costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is
50%. What will sales be for the Sporting Goods Division at the break-even point?
a. $3,600,000
b. $4,200,000
c. $6,711,628
d. $7,800,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
70.

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is
65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed
costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is
50%. What will be the total contribution margin at the break-even point?
a. $3,820,466
b. $4,440,000
c. $4,480,000
d. $5,160,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
71.

A shift from low-margin sales to high-margin sales
a. may increase net income, even though there is a decline in total units sold.
b. will always increase net income.
c. will always decrease net income.
d. will always decrease units sold.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
72.

A shift from high-margin sales to low-margin sales
a. may decrease net income, even though there is an increase in total units sold.
b. will always decrease net income.
c. will always increase net income.
d. will always increase units sold.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics

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73.

MacCloud Industries has two divisions—Standard and Premium. Each division has
hundreds of different types of tennis racquets and tennis products. The following
information is available:
Standard Division
Premium Division
Total
Sales
$400,000
$600,000
$1,000,000
Variable costs
280,000
360,000
Contribution margin
$120,000
$240,000
Total fixed costs
$320,000
What is the weighted-average contribution margin ratio?
a. 34%
b. 35%
c. 36%
d. 50%

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

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74.

MacCloud Industries has two divisions—Standard and Premium. Each division has
hundreds of different types of tennis racquets and tennis products. The following
information is available:
Standard Division
Premium Division
Total
Sales
$400,000
$600,000
$1,000,000
Variable costs
280,000
360,000
Contribution margin
$120,000
$240,000
Total fixed costs
$320,000
What is the break-even point in dollars?
a. $115,200
b. $888,889
c. $914,286
d. $941,117

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
75.

The sales mix percentages for Novotna’s Boston and Seattle Divisions are 70% and 30%.
The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are
$1,110,000. What is Novotna’s break-even point in dollars?
a. $388,500
b. $3,000,000
c. $3,171,428
d. $3,363,636

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
76. A company can sell all the units it can produce of either Product A or Product B but not both.
Product A has a unit contribution margin of $16 and takes two machine hours to make and
Product B has a unit contribution margin of $30 and takes three machine hours to make. If
there are 3,000 machine hours available to manufacture a product, income will be
a. $6,000 more if Product A is made.
b. $6,000 less if Product B is made.
c. $6,000 less if Product A is made.
d. the same if either product is made.
Ans:, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
77.

Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both.
Plain has a unit contribution margin of $120 and takes two machine hours to make and
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Fancy has a unit contribution margin of $150 and takes three machine hours to make. There
are 2,400 machine hours available to manufacture a product. What should Brooks do?
a. Make Fancy which creates $30 more profit per unit than Plain does.
b. Make Plain which creates $10 more profit per machine hour than Fancy does.
c. Make Plain because more units can be made and sold than Fancy.
d. The same total profits exist regardless of which product is made.
Ans:, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

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78.

What is the key factor in determining sales mix if a company has limited resources?
a. Contribution margin per unit of limited resource
b. The amount of fixed costs per unit
c. Total contribution margin
d. The cost of limited resources

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
79.

Greg’s Breads can produce and sell only one of the following two products:
Oven
Hours Required
Muffins
0.2
Coffee Cakes
0.3

Contribution
Margin Per Unit
$3
$4

The company has oven capacity of 1,200 hours. How much will contribution margin be if
it produces only the most profitable product?
a. $12,000
b. $16,000
c. $18,000
d. $24,000
Ans:, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
80.

Curtis Corporation’s contribution margin is $20 per unit for Product A and $24 for Product
B. Product A requires 2 machine hours and Product B requires 4 machine hours. How
much is the contribution margin per unit of limited resource for each product?
A
B
a. $10.00 $6.00
b. $10.00 $6.66
c. $8.00
$6.00
d. $8.00
$6.66

Ans:, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
81.

Cost structure
a. refers to the relative proportion of fixed versus variable costs that a company incurs.
b. generally has little impact on profitability.
c. cannot be significantly changed by companies.
d. refers to the relative proportion of operating versus nonoperating costs that a company
incurs.

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Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Cost Management
82.

Outsourcing production will
a. reduce fixed costs and increase variable costs.
b. reduce variable costs and increase fixed costs.
c. have no effect on the relative proportion of fixed and variable costs.
d. make the company more susceptible to economic swings.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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83.

Reducing reliance on human workers and instead investing heavily in computers and
online technology will
a. reduce fixed costs and increase variable costs.
b. reduce variable costs and increase fixed costs.
c. have no effect on the relative proportion of fixed and variable costs.
d. make the company less susceptible to economic swings.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business
Economics
84.

Cost structure refers to the relative proportion of
a. selling expenses versus administrative expenses.
b. selling and administrative expenses versus cost of goods sold.
c. contribution margin versus sales.
d. none of the above.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Cost Management
85.

Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed
costs of $750,000. Mercantile’s degree of operating leverage is
a. 1.22.
b. 1.47.
c. 1.20.
d. 6.00.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
86.

Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed
costs of $750,000. Mercantile’s margin of safety ratio is
a. .08.
b. .17.
c. .20.
d. .83.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
87.

Which of the following statements is not true?
a. Operating leverage refers to the extent to which a company’s net income reacts to a
given change in sales.
b. Companies that have higher fixed costs relative to variable costs have higher operating
leverage.
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Cost-Volume-Profit

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c. When a company’s sales revenue is increasing, high operating leverage is good because
it means that profits will increase rapidly.
d. When a company’s sales revenue is decreasing, high operating leverage is good
because it means that profits will decrease at a slower pace than revenues decrease.
Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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88.

Miller Manufacturing’s degree of operating leverage is 1.5. Warren Corporation’s degree of
operating leverage is 6. Warren’s earnings would go up (or down) by ________ as much as
Miller’s with an equal increase (or decrease) in sales.
a. 1/4
b. 4.5 times
c. 4 times
d. 7.5 times

Ans:, LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
89.

The margin of safety ratio
a. is computed as actual sales divided by break-even sales.
b. indicates what percent decline in sales could be sustained before the company would
operate at a loss.
c. measures the ratio of fixed costs to variable costs.
d. is used to determine the break-even point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
90.

A cost structure which relies more heavily on fixed costs makes the company
a. more sensitive to changes in sales revenue.
b. less sensitive to changes in sales revenue.
c. either more or less sensitive to changes in sales revenue, depending on other factors.
d. have a lower break-even point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
91.

A company with a higher contribution margin ratio is
a. more sensitive to changes in sales revenue.
b. less sensitive to changes in sales revenue.
c. either more or less sensitive to changes in sales revenue, depending on other factors.
d. likely to have a lower breakeven point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management,
IMA: Business Economics
92.

The degree of operating leverage
a. does not provide a reliable measure of a company’s earnings volatility.
b. cannot be used to compare companies.
c. is computed by dividing total contribution margin by net income.
d. measures how much of each sales dollar is available to cover fixed expenses.
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Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
a

93.

Only direct materials, direct labor, and variable manufacturing overhead costs are
considered product costs when using
a. full costing.
b. absorption costing.
c. variable costing.
d. product costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics

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a

94.

When a company assigns the costs of direct materials, direct labor, and both variable and
fixed manufacturing overhead to products, that company is using
a. operations costing.
b. absorption costing.
c. variable costing.
d. product costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

95.

Companies recognize fixed manufacturing overhead costs as period costs (expenses) when
incurred when using
a. full costing.
b. absorption costing.
c. product costing.
d. variable costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

96.

Under absorption costing and variable costing, how are fixed manufacturing costs treated?
a.
b.
c.
d.

Absorption
Product Cost
Product Cost
Period Cost
Period Cost

Variable
Product Cost
Period Cost
Product Cost
Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA:
Business Economics
a

97.

Under absorption costing and variable costing, how are variable manufacturing costs
treated?
a.
b.
c.
d.

Absorption
Product Cost
Product Cost
Period Cost
Period Cost

Variable
Product Cost
Period Cost
Product Cost
Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics
a

98.

Under absorption costing and variable costing, how are direct labor costs treated?
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Cost-Volume-Profit

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a.
b.
c.
d.

Absorption
Product Cost
Product Cost
Period Cost
Period Cost

Variable
Product Cost
Period Cost
Product Cost
Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector
Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making,
IMA: Business Economics
a

99.

Fixed selling expenses are period costs
a. under both absorption and variable costing.
b. under neither absorption nor variable costing.
c. under absorption costing, but not under variable costing.
d. under variable costing, but not under absorption costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting

FOR INSTRUCTOR USE ONLY

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a

100. Which cost is not charged to the product under variable costing?
a. Direct materials
b. Direct labor
c. Variable manufacturing overhead
d. Fixed manufacturing overhead

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

101. Which cost is charged to the product under variable costing?
a. Variable manufacturing overhead
b. Fixed manufacturing overhead
c. Variable administrative expenses
d. Fixed administrative expenses

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

102. Variable costing
a. is used for external reporting purposes.
b. is required under GAAP.
c. treats fixed manufacturing overhead as a period cost.
d. is also known as full costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

103. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and
sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials
$5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing
overhead, and $30,000 selling and administrative expenses. The per unit manufacturing
cost under absorption costing is
a. $8.
b. $9.
c. $13.
d. $14.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Cost Management
a

104. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and
sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials
$5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing
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Cost-Volume-Profit

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overhead, and $30,000 selling and administrative expenses. The per unit manufacturing
cost under variable costing is
a. $8.
b. $9.
c. $13.
d. $14.
Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Cost Management

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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a

105. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and
sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials
$5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing
overhead, and $30,000 selling and administrative expenses. Cost of goods sold under
absorption costing is
a. $450,000.
b. $540,000.
c. $650,000.
d. $520,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
a

106. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and
sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials
$5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing
overhead, and $30,000 selling and administrative expenses. Ending inventory under
variable costing is
a. $90,000.
b. $130,000.
c. $200,000.
d. $450,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
a

107. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and
sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials
$5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing
overhead, and $30,000 selling and administrative expenses. Under absorption costing, what
amount of fixed overhead is deferred to a future period?
a. $10,000
b. $40,000
c. $50,000
d. $240,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Business Economics
a

108. Net income under absorption costing is gross profit less
a. cost of goods sold.
b. fixed manufacturing overhead and fixed selling and administrative expenses.
c. fixed manufacturing overhead and variable manufacturing overhead.
d. variable selling and administrative expenses and fixed selling and administrative
expenses.
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Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Business Economics
a

109. Net income under variable costing is contribution margin less
a. cost of goods sold.
b. fixed manufacturing overhead and fixed selling and administrative expenses.
c. fixed manufacturing overhead and variable manufacturing overhead.
d. variable selling and administrative expenses and fixed selling and administrative
expenses.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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a

110.

The manufacturing cost per unit for absorption costing is
a. usually, but not always, higher than manufacturing cost per unit for variable costing.
b. usually, but not always, lower than manufacturing cost per unit for variable costing.
c. always higher than manufacturing cost per unit for variable costing.
d. always lower than manufacturing cost per unit for variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
a

111. The one primary difference between variable and absorption costing is that under
a. variable costing, companies charge the fixed manufacturing overhead as an expense in
the current period.
b. absorption costing, companies charge the fixed manufacturing overhead as an expense
in the current period.
c. variable costing, companies charge the variable manufacturing overhead as an expense
in the current period.
d. absorption costing, companies charge the variable manufacturing overhead as an
expense in the current period.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management,
IMA: Business Economics
a

112. Net income under absorption costing is higher than net income under variable costing
a. when units produced exceed units sold.
b. when units produced equal units sold.
c. when units produced are less than units sold.
d. regardless of the relationship between units produced and units sold.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

113. Some fixed manufacturing overhead costs of the current period are deferred to future
periods under
a. absorption costing.
b. variable costing.
c. both absorption and variable costing.
d. neither absorption nor variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

114. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are:
manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000
manufacturing overhead, and $32,000 selling and administrative. There was no beginning
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Cost-Volume-Profit

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inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in
2012, 16 units in 2013, and 24 units in 2014. Income under absorption costing for 2013 is
a. $6,400.
b. $11,200.
c. $12,800.
d. $17,600.
Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

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a

115. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are:
manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000
manufacturing overhead, and $32,000 selling and administrative. There was no beginning
inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in
2012, 16 units in 2013, and 24 units in 2014. Income under absorption costing for 2014 is
a. $26,400.
b. $31,200.
c. $32,800.
d. $37,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
a

116. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are:
manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000
manufacturing overhead, and $32,000 selling and administrative. There was no beginning
inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in
2012, 16 units in 2013, and 24 units in 2014. Income under variable costing for 2013 is
a. $6,400.
b. $11,200.
c. $12,800.
d. $17,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
a

117.

Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are:
manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000
manufacturing overhead, and $32,000 selling and administrative. There was no beginning
inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in
2012, 16 units in 2013, and 24 units in 2014. Income under variable costing for 2014 is
a. $26,400.
b. $31,200.
c. $32,800.
d. $37,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision
Making, IMA: Reporting
a

118. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are:
manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000
manufacturing overhead, and $32,000 selling and administrative. There was no beginning
inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in
2012, 16 units in 2013, and 24 units in 2014. For the three years 2012–2014,
a. absorption costing income exceeds variable costing income by $8,000.
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Cost-Volume-Profit

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b. absorption costing income equals variable costing income.
c. variable costing income exceeds absorption costing income by $8,000.
d. absorption costing income may be greater than, equal to, or less than variable costing
income, depending on the situation.
Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting

FOR INSTRUCTOR USE ONLY

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a

119. When production exceeds sales,
a. some fixed manufacturing overhead costs are deferred until a future
absorption costing.
b. some fixed manufacturing overhead costs are deferred until a future
variable costing.
c. variable and fixed manufacturing overhead costs are deferred until a
under absorption costing.
b. variable and fixed manufacturing overhead costs are deferred until a
under variable costing.

period under
period under
future period
future period

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

120. When production exceeds sales,
a. ending inventory under variable costing will exceed ending inventory under absorption
costing.
b. ending inventory under absorption costing will exceed ending inventory under variable
costing.
c. ending inventory under absorption costing will be equal to ending inventory under
variable costing.
d. ending inventory under absorption costing may exceed, be equal to, or be less than
ending inventory under variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management,
IMA: Reporting
a

121. Management may be tempted to overproduce when using
a. variable costing, in order to increase net income.
b. variable costing, in order to decrease net income.
c. absorption costing, in order to increase net income.
d. absorption costing, in order to decrease net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Industry/Sector
Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision
Making, IMA: Business Economics
a

122. If a division manager’s compensation is based upon the division’s net income, the manager
may decide to meet the net income targets by increasing production when using
a. variable costing, in order to increase net income.
b. variable costing, in order to decrease net income.
c. absorption costing, in order to increase net income.
d. absorption costing, in order to decrease net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Industry/Sector
Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision
Making, IMA: Business Economics
FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 92
a

123. Expected sales for next year for the Beresford Company is 150,000 units. Curt Planters,
manager of the Beresford Division, is under pressure to improve the performance of the
Division. As he plans for next year, he has to decide whether to produce 150,000 units or
180,000 units. The Beresford Company will have higher net income if Curt Planters
decides to produce
a. 180,000 units if income is measured under absorption costing.
b. 180,000 units if income is measured under variable costing.
c. 150,000 units if income is measured under absorption costing.
d. 150,000 units if income is measured under variable costing.

Ans:, LO: 8, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Ethics, AICPA BB: Industry/Sector
Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision
Making, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

Cost-Volume-Profit

5 - 93
a

124. Which of the following is a potential advantage of variable costing relative to absorption
costing?
a. Net income is affected by changes in production levels.
b. The use of variable costing is consistent with cost-volume-profit analysis.
c. Net income computed under variable costing is not closely tied to changes in sales
levels.
d. More than one of the above.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project
Management, IMA: Business Economics
a

125. Companies that use just-in-time processing techniques will
a. have greater differences between absorption and variable costing net income.
b. have smaller differences between absorption and variable costing net income.
c. not be able to use absorption costing.
d. not be able to use variable costing.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB:
Leverage Technology, AICPA FN: Leverage Technology, AICPA PC: Project Management,
IMA: Business Applications

FOR INSTRUCTOR USE ONLY