Consider the following information for Optimist Inc.:

Production

(units) Total Cost

October 1,000 $42,000

November 2,000 55,000

December 1,500 46,000

January 2,500 67,500

February 1,800 50,000

Calculate the variable cost per unit using the high-low method of cost estimation. a.$42

b.$35

c.$17

d.$25

Activities that cause costs to change are called _____. a.activity bases

b.incremental activities

c.unit activities

d.cost pools

Which of the following statements is true of variable costing?

a.Fixed factory overhead is treated as an expense for the period in which it is incurred.

b.Variable factory overhead is treated as an expense for the period in which it is incurred.

c.Variable factory overhead is not considered while calculating total cost.

d.Fixed factory overhead is included in the product cost.

Which of the following is a characteristic of variable costs?

a.Total variable costs change in inverse proportion to changes in the activity base.

b.Variable cost per unit changes in direct proportion to changes in the activity base.

c.Variable cost per unit remains the same irrespective of changes in the activity base.

d.Total variable costs remain the same irrespective of changes in the activity base.

Calculate the change in operating income for Maple Waffle Inc. from the information given below:

Change in sales units 12,000 units

Change in sales dollars $240,000

Unit contribution margin $9

Unit variable cost $11 Fixed costs $35,000 a.$132,000

b.$108,000

c.$73,000

d.$24,000

Any additional contribution margin after covering fixed costs increases _____. a.unrealized income

b.opportunity income

c.operating income

d.gross income

_____ is the excess of sales over variable costs. a.Incremental margin

b.Contribution margin

c.Gross profit

d.Net profit

The _____ indicates the percentage of each sales dollar available to cover fixed costs and to provide operating income. a.net profit margin ratio

b.cash flow coverage ratio

c.operating profit margin ratio

d.contribution margin ratio

Calculate the sales in dollars required to earn the target profit of $100,000 for Happy Inc. using the following information:

Unit selling price $60

Unit contribution margin $24 Fixed costs $250,000 a.$625,000

b.$775,000

c.$850,000

d.$875,000

Which of the following statements is true about the effect of changes in unit variable cost on the break-even point?

a.A change in the unit selling price does not affect the break-even point.

b.A decrease in the unit variable cost increases the contribution margin and increases the breakeven point.

c.An increase in the unit variable cost decreases the contribution margin and increases the breakeven point.

d.A decrease in the unit variable cost decreases the contribution margin and decreases the breakeven point.

How do changes in fixed costs affect the break-even point?

a.A decrease in per-unit fixed costs increases the break-even point.

b.Any change in fixed costs does not affect the break-even point.

c.An increase in total fixed costs decreases the break-even point.

d.An increase in total fixed costs increases the break-even point.

An increase in the unit selling price _____.

a.increases the contribution margin and increases the break-even point

b.increases the contribution margin and decreases the break-even point

c.decreases the contribution margin and increases the break-even point

d.decreases the contribution margin and decreases the break-even point

A _____ graphically shows sales, costs, and the related profit or loss for various levels of units sold.

a.break-even graph

b.total cost function graph

c.net profit graph

d.variable-volume graph

On a cost-volume-profit graph, the break-even point is the intersection of the: a.total sales and variable cost lines.

b.total cost and total sales lines.

c.total cost and variable cost lines.

d.total cost and fixed cost lines.

Which of the following statements is true of operating leverage?

a.Companies with high operating leverage generate less revenue.

b.Companies with low contribution margin have a high operating leverage.

c.Companies with high fixed costs will normally have a high operating leverage.

d.Companies with low fixed costs will normally have a high operating leverage.

Dusk and Dawn Inc. manufactures and sells two products, Alumine and Blizumine. The fixed costs are $780,000. The sales mix is 40% for Alumine and 60% for Blizumine. The unit selling price and the unit variable cost for each product are as follows:

Product Unit Selling Price Unit Variable Cost

Alumine $2,400 $1,200

Blizumine $1,800 $600

Compute the break-even sales of the overall product. a.250 units

b.300 units

c.650 units

d.600 units

The relationship of a company’s contribution margin to operating income is measured by _____. a.margin of operations

b.the break-even point

c.the operating income ratio

d.operating leverage

The difference between contribution margin and operating income is _____. a.fixed costs

b.break-even sales

c.the margin of safety

d.variable costs

Which of the following is an underlying assumption of cost-volume-profit analysis? a.Costs are either fixed costs or variable costs but not both.

b.Costs can be divided into fixed and variable components.

c.All costs are variable costs.

d.All costs are fixed costs.

Which of the following is an underlying assumption of cost-volume-profit analysis? a.The sales mix is variable.

b.The inventory quantities change twice during the relevant period.

c.Within the relevant range of operating activity, the efficiency of operations does not change.

d.Total sales and total costs cannot be represented by straight lines.

Which of the following statements is true of the margin of safety?

a.If the margin of safety is high, even a small decline in sales revenue may result in an operating loss.

b.If the margin of safety is low, even a small decline in sales revenue may result in an operating loss.

c.It indicates the operating loss that would result due to an increase in variable cost.

d.It indicates the decrease in fixed costs necessary to achieve the target profit.

From the information given below, calculate the margin of safety expressed in percent of current sales.

Actual sales $900,000

Sales at the break-even point $720,000 Variable costs 60% of fixed costs a.20%

b.40%

c.32%

d.55%

The _____ indicates a possible decrease in sales that may occur before an operating loss occurs. a.break-even point

b.margin of safety

c.degree of operating leverage

d.contribution margin

The margin of safety is computed by:

a.deducting variable costs from current sales.

b.deducting target profit from current sales.

c.deducting budgeted sales from current sales.

d.deducting breakeven sales from current sales.