Break-Even Analysis and Costing Methods, Quizzes of Accounting

Download Break-Even Analysis and Costing Methods and more Quizzes Accounting in PDF only on Docsity! ACCT 212 ACCOUNTING CONCEPTS QUESTIONS WITH VERIFIED ANSWERS LATEST 2024 (CHAPTER 2, CHAP 5, CHAPT 19 &20) If unit sales prices are $7 and variable costs are $5 per unit how many units would have to be sold to break-even if fixed costs equal $8,000? A. 2,000 B. 3,000 C. 4,000 D. 3,800 - ANS-C. 4,000 The margin of safety is the excess of: A) Break-even sales over expected sales. B) Expected sales over variable costs. C) Expected sales over fixed costs. D) Fixed costs over expected sales. E) Expected sales over break-even sales. - ANS-E) Expected sales over break-even sales. A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000. The break-even point in units is: A) 5,158. B) 7,000. C) 8,167. D) 14,000. E) 19,600. - ANS-D) 14,000 Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio. If the company has set a target monthly income of $15,000, what dollar amount of sales must be made to produce the target income? A) $245,000 B) $207,500 C) $37,300 D) $170,000 E) $39,200 - ANS-A) $245,000 A classification of costs that determines whether a cost is expensed to the income statement or capitalized to inventory is: A) Fixed versus variable. B) Direct versus indirect. C) Financial versus managerial. D) Service versus manufacturing. E) Product versus period. - ANS-E) Product versus period. A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is: A) $91,680. B) $68,760. C) $2,292. D) $275,040. E) $206,280 - ANS-D) $275,040. a company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is: A) 91,680 B) 68,760 C) 2,292 D) 275,040 E) 206,280 - ANS-D) 275,040 A company's relevant range of production is: A. The production range from zero to 100% of plant capacity. B. The production range over which CVP assumptions are valid. C. The production range beyond the break-even point. D. The production range that covers fixed but not variable costs - ANS-B. The production range over which CVP assumptions are valid A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 .pretax income, how many units must be sold? If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A) be equal to the net operating income under variable costing. B) be greater than net operating income under variable costing. C) be equal to the net operating income under variable costing plus total fixed manufacturing costs. D) be equal to the net operating income under variable costing less total fixed manufacturing costs. - ANS-B) be greater than net operating income under variable costing In cost volume- profit analysis, the unit contribution margin is: A) Sales price per unit less cost of goods sold per unit. B) Sales price per unit less unit fixed cost per unit. C) Sales price per unit less total variable cost per unit. D) Sales price per unit less unit total cost per unit. E) The same as the contribution margin ratio. - ANS-C) Sales price per unit less total variable cost per unit. In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to: A. Covering the fixed costs of the business and providing operating income. B. Fixed expenses and variable expenses. C. Variable expenses and interest charges. D. Variable expenses when production is at normal capacity. - ANS-A. Covering the fixed costs of the business and providing operating income. Job order costing systems normally use: A) Periodic inventory systems. B) Perpetual inventory systems. C) Real inventory systems. D) General inventory systems. E) All of the above. - ANS-B) Perpetual inventory systems. Kendall Company has sales of 1,000 units at $60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are $30,000, the degree of operating leverage is: A) 1.50 B) 5.00 C) 1.67 D) 3.50 - ANS-D) 3.50 Margin of Safety - ANS-expected sales - break even sales / expected sales McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break- even point in composite units. A) 2,092 B) 3,805 C) 1,350 D) 1,395 E) 1,550 - ANS-C) 1,350 Mott Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units? A) 1,111 composite units. B) 1,600 composite units. C) 2,666 composite units. D) 4,000 composite units. E) 5,000 composite units. - ANS-E) 5,000 composite units. O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is O.K. Company's overhead application rate? A) 6.25% B) 62.5% C) 160% D) 1600% E) 67% - ANS-C) 160% On a cost-volume-profit graph, the break-even point is located: A. at the origin. B. where the total revenue line intersects the volume axis. C. where the total expenses line intersects the dollars axis. D. where the total revenue line intersects the total expenses line. - ANS-D. where the total revenue line intersects the total expenses line. Once the break-even point is reached: A) the total contribution margin changes from negative to positive B) net operating income will increase by the unit contribution margin for each additional item sold C) variable expenses will remain constant in total D) the contribution margin ratio begins to decrease - ANS-B) net operating income will increase by the unit contribution margin for each additional item sold production greater than sales means - ANS-absorption costing is greater than variable costing raw material turnover - ANS-raw materials used / average raw materials (ending + beginning) / 2 sales greater than production means - ANS-variable cost is greater than absorption costing Target profit analysis is used to answer which of the following questions? A. What sales volume is needed to cover all expenses? B. What sales volume is needed to cover fixed expenses? C. What sales volume is needed to earn a specific amount of net operating income? D. What sales volume is needed to avoid a loss? - ANS-C. What sales volume is needed to earn a specific amount of net operating income? The contribution margin ratio: A) Is the percent of each sales dollar that remains after deducting total unit variable cost. B) Is the percent of each sales dollar that remains after deducting total unit fixed cost C) Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers' incomes D) Cannot be used in conjunction with other analytical tools E) Is the same as the unit contribution margin - ANS-A) Is the percent of each sales dollar that remains after deducting total unit variable cost. The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is: A. variable costing. A contribution margin income statement shows: Multiple choice question. sales-cost of goods sold sales-variable costs variable costs - sales sales-fixed costs - ANS-sales-variable costs A contribution margin income statement shows: sales-cost of goods sold sales-fixed costs variable costs - sales sales-variable costs - ANS-sales-variable costs A system of rewarding managers by linking bonuses to income computed under absorption costing may result in: Multiple choice question. insufficient inventory sales negatively affected excess inventory buildup no effect on inventory - ANS-Excess Inventory Build Up Absorption Costing - ANS-consists of direct materials, direct labor, variable overhead, and fixed overhead An income statement which shows the excess of sales over variable costs is referred to as a _____ ______ income statement. - ANS-Contribution Margin Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost? - ANS-$10 Cost information from _____ (neither, both) costing method(s) is helpful to management in setting prices. - ANS-both CVP analysis relies on all of the following assumptions except: Multiple choice question. inventory levels do not change mixed costs can be used sales mix is constant costs must be linear within the relevant range - ANS-mixed costs can be used Differences in income between variable costing and absorption costing is due to Multiple choice question. timing reporting sales expenses - ANS-Timing Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is: Multiple choice question. $12 $11 $8 $9 - ANS-$12 Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement? Multiple select question. net income variable expenses cost of goods sold gross profit contribution margin - ANS-net income cost of goods sold gross profit Makum Company is using variable costing. Which of the items below would you see on Makum's income statement? Multiple select question. gross profit variable expenses contribution margin cost of goods sold net income - ANS-variable expenses contribution margin net income Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.) Multiple select question. costs are linear within the relevant range. some units produced are not sold. costs can be classified as variable or fixed. constant unit sales. constant total variable costs. constant fixed cost per uni - ANS-costs are linear within the relevant range. costs can be classified as variable or fixed. Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.) Multiple select question. some units produced are not sold. constant fixed cost per unit. costs can be classified as variable or fixed. constant total variable costs. constant unit sales. costs are linear within the relevant range. - ANS-costs can be classified as variable or fixed. costs are linear within the relevant range. Managers should accept special orders if the special-order price Multiple choice question. is equal to fixed and variable costs. is greater than fixed cost is greater than variable cost is equal to the variable cost - ANS-is greater than variable cost Over the ____ run, selling prices must cover both fixed and variable costs. - ANS- long Production planning is important because producing too much can lead to (excess, insufficient) inventory. - ANS-excess Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be (similar, different, indeterminable). - ANS-different Variable costing - ANS-absorption A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are: - ANS-$40,000 (50,000-x)/50,000=20% A company has break-even sales of $200,000. If the company expects sales of $500,000, the margin of safety is - ANS-60% expected sales - break-even sales=? ?/expected sales A company has fixed costs of $50,000 while manufacturing a product that has variable costs of $4 per unit and sells for $14 per unit. The break-even point is____units - ANS-5,000 selling-variable=CM fixed/CM=break-even point A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The break-even point in sales dollars is $___ - ANS-$46,875 125,000-45,000=80,000 30,000/80,000=.375 .375x125,000=46,875 A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ratio is____% - ANS-64% 125,000-45,000=80,000 80,000/125,000=.64 A company incurs $12,000 in direct labor costs when they produce 480 units and $12,500 in direct labor costs when they produce 500 units. The direct labor cost per unit is $___ - ANS-$25 12,000/480=25 12,500/500=25 A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs, expects to sell 2,500 units income is $____ - ANS-$28,000 2,500x36=90,000 90,000-62,000=28,000 A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $___ - ANS-$26,000 selling-variable=CM CM/selling=CMR fixed+target=? ?/CMR=sales level A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in units to achieve the desired target income is___ - ANS-5,200 5.00-2.50=2.50 3,000+10,000=13,000 13,000/2.50=5,200 A company sells 800 units at $16 each, has variable costs of $12 per unit, and fixed costs of $1,200. Income is $____ - ANS-$2,000 800x16=12,800 800x12=9,600 12,800-9,600=2,000 A company sells two models of a product—Alpha and Omega. If the company sells 10,000 Alpha models and 2,500 Omega models, then the sales mix can be expressed as: - ANS-4:1 10,000/2,500 A company sells two models of a product—basic and premium. Break-even in units is 1,000. The basic model has a contribution margin per unit of $25 and unit sales of 750. The premium model has a contribution margin per unit of $40 and unit sales of 250. Fixed costs are $15,000. The contribution margin for the basic model is $___ - ANS-$18,750 A company sells two models of a product—basic and premium. Fixed costs are $150,000. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5 basic models to 3 premium models, then the weighted-average break-even in units is___ - ANS-545 or 546 A company sells two models of a product—basic and premium. If the company sells 5,000 basic models and 2,500 premium models, then the sales mix can be expressed as: - ANS-2:1 5,000/2,500=2 A company sells two models of a product—basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5,000 basic models and 10,000 premium models, then the weighted-average contribution margin per unit is $___ - ANS-$41.75 A company that sells multiple types of products has a selling price per unit of $150, variable cost per unit of $50 and total fixed costs of $25,000. The weighted- average contribution margin per unit is $___ - ANS-$100 150-50=100 A cost which reflects a stair-step pattern in costs is called a___ cost - ANS-step- wise A manufacturing company incurs depreciation costs of $6,000 per month on manufacturing machinery. The depreciation cost per unit is $___when the company manufactures 2,000 units. - ANS-$3.00 6,000/2,000=3 A manufacturing company incurs direct materials costs of $6 per unit. The total direct materials cost is $____ when the company manufactures 2,000 units. - ANS- $12,000 Variable - Direct materials On a CVP chart, on either side of the break-even point, the vertical distance between the total sales line and the total cost line represents: - ANS-total loss to the left of the intersection, total profit to the right of the intersection On a CVP chart, the horizontal line represents ______ costs. - ANS-volume On a CVP chart, the line which starts at the level of fixed costs and slopes upwards represents the ______ cost line. - ANS-total On a CVP chart, the slope of the line which starts at the level of fixed costs and slopes upwards is the: - ANS-variable cost per unit RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. How many units must be produced to break-even? - ANS-7,500 selling-variable=CM fixed/CM=break-even point RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $___ - ANS-$4 10-6=4 selling price per unit - variable cost RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin ratio is___% - ANS-40% 6-10=4 selling-variable=CM 4/10=.40 -> 40% CM/selling=ratio RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a target income of $20,000. The sales level in dollars to achieve the desired target income is $___ - ANS-$125,000 30,000+20,000=50,000 10-6=4 4/10=.40 50,000/.4=125,000 RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The break- even point in sales dollars is $___ - ANS-$75,000 selling-variable=CM fixed/CM=break-even in sales RST Company produces a product that has expected sales of $75,000 and break- even sales of $50,000. The margin of safety is $____ - ANS-$25,000 expected - sales= in dollars Sales mix is the (volume/proportion/mix) of the sales volume for each product. - ANS-proportion Sales mix is the proportion of _____ for various products. - ANS-sales volume The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated fixed costs are $___ - ANS-$50,000 15(variable cost per unit)x4,000=60,000 110,000-60,000=50,000 The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated variable cost per unit is $___ - ANS-$15 110,000-87,500=22,500 4,000-2,500=1,500 22,500/1,500=15 The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and it lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated fixed costs are $___ - ANS-$17,500 25x4,300=107,500 125,000-107,500=17,500 The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and its lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method, the estimated variable cost per hour is $____ - ANS-125,000- 55,000=70,000 4,300-1,500=2,800 70,000/2,800=25 The amount by which a product's unit selling price exceeds its total unit variable cost is the: - ANS-contribution margin per unit The break-even point can be expressed as sales in___ or ____ - ANS-units, dollars The break-even point is the sales level at which a company: - ANS--contribution margin equals fixed costs. -has income of $0. The contribution margin ratio is interpreted as the percent of: - ANS-each sales dollar that remains after deducting unit variable cost The cost accountant at Company C used the high-low method to determine a cost equation of $14,000 plus $1.50 per unit. If the company plans to produce 200,500 units next month, then the total estimated cost will be $___ - ANS-$314,750 200,500x1.50+14,000= 314,750