Managerial Accounting 10th Edition Crosson Test Bank 1

Managerial Accounting 10th Edition
Crosson Test Bank

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Chapter 5: Cost-Volume-Profit Analysis
Student: ___________________________________________________________________________
1. Costs are not affected by the changes in the volume of production.

True False
2. Cost behavior is defined as the manner in which costs respond to changes in volume or activity.
True False
3. Understanding cost behavior helps managers in planning the optimal mix of services or products to offer.
True False
4. Cost behavior analysis is not useful to a service business.

True False
5. Within the relevant range, total fixed cost and variable cost per unit remain constant.
True False
6. Unit fixed costs will be the same regardless of how many units are produced.
True False
7. Unit variable costs vary with changes in productive output, whereas total variable costs remain constant.
True False
8. The relevant range of activity is the range in which actual operations of a company are likely to occur.
True False
9. Fixed costs remain constant in a relevant range of activity.

True False
10. Unit fixed costs vary inversely with activity or volume.

True False
11. Cost can only be classified as either variable or fixed.

True False
12. An organization’s theoretical operating capacity is the level at which its management expects to operate
during a normal business environment.
True False
13. An organization’s practical capacity is its theoretical or ideal capacity reduced by normal and anticipated
work stoppages, such as machine breakdowns.
True False
14. An organization’s normal capacity is the average annual level of operating capacity needed to meet its
expected sales demand.
True False
15. Costs that change, in total, in direct proportion to changes in productive output, or activity, are called
variable costs.
True False
16. Linear approximation is a method of converting nonlinear variable costs into linear fixed costs.
True False
17. Practical capacity and engineering capacity are synonymous terms.

True False
18. Depreciation calculated using the straight-line method is an example of a fixed cost.
True False
19. Depreciation cost of a controller's computer calculated using the straight-line method is an example of a
variable cost.
True False
20. Electric power charges are an example of a mixed cost.

True False
21. A mixed costs line, plotted on a graph, will start at the Y axis at the amount of fixed cost.
True False
22. The high-low method allows managers to differentiate between fixed and variable costs when dealing with
mixed costs.
True False
23. When using the high-low method, the accountant assumes the fixed portion of mixed costs to be the lowest
fixed amount incurred during the period under review.
True False
24. Contribution margin income statement helps managers to view revenue and cost relationships on a per unit
basis or as a percentage of sales.
True False
25. A contribution margin income statement is formatted to emphasize cost behavior rather than organizational
functions.
True False
26. Contribution margin is calculated by deducting total fixed costs from total sales.
True False
27. All variable costs except manufacturing costs are subtracted from sales to determine the total contribution
margin.
True False
28. Operating income is determined by deducting all fixed costs related to production, selling, and
administration from contribution margin.
True False
29. The contribution margin income statement divides costs into variable and fixed costs.
True False
30. Gross margin and contribution margin are always equal.

True False
31. Regression analysis takes into consideration only the highest and the lowest level of activities to predict cost
behavior.
True False
32. A scatter diagram helps to determine if a linear relationship exists between a cost item and its related
activity measure.
True False
33. The engineering method of separating costs is sometimes called a regression analysis.
True False
34. CVP analysis can also be applied by a company selling multiple products.
True False
35. Cost-volume-profit analysis assumes a constant sales mix.

True False
36. An increase in the unit sales price will increase unit variable price.
True False
37. Cost-volume-profit analysis assumes costs and revenues have a close linear approximation.
True False
38. To find out the breakeven point in dollars, we divide fixed costs by gross margin ratio.
True False
39. The contribution margin equals zero at the breakeven point.

True False
40. Contribution margin is calculated by deducting variable costs from sales.

True False
41. A product line's contribution margin represents its contribution to paying off variable costs and to
generating a profit.
True False
42. Using or not using the contribution margin for cost-volume-profit computations will not change the
resulting amount of breakeven units in a given situation.
True False
43. If fixed costs are $24,000, variable costs are $25 per unit, and the product sells for $45, the total
contribution margin at the breakeven point is $24,000.
True False
44. The sales mix is the proportion of each product's unit sales relative to the company's total unit sales.
True False
45. The weighted-average contribution margin is computed by multiplying each product's unit contribution
margin by the sales mix percentage of each product.
True False
46. The weighted-average breakeven point is the breakeven point for the entire company.
True False
47. Last year, RC Rancho's revenue was $120,000,000, variable costs were $90,000,000 and fixed costs were
$15,000,000. RC Rancho's contribution margin ratio was 25 percent.
True False
48. Breakeven is when total fixed costs equal total revenues.

True False
49. The point at which the total cost line intersects with the total revenue line is the breakeven point.
True False
50. The breakeven point is the level of activity at which only variable costs are recovered.
True False
51. Margin of safety is the excess of actual sales over break even sales.
True False
52. Breakeven analysis helps in finding the level of activity at which sales revenue equals the sum of all
variable and fixed costs.
True False
53. A project breaks even when total revenues less variable costs equals fixed costs.
True False
54. In a breakeven scatter diagram, the loss area continues till the total costs line is below total revenues line.
True False
55. “Breakeven” is the point at which a company can begin to earn a profit.
True False
56. If fixed costs are $180,000, variable costs are $38 per unit, and the product sells for $70, the breakeven
point in sales dollars is $5,625.
True False
57. In a breakeven graph, the slope the total cost line is dependent on the variable costs per unit.
True False
58. The unit contribution margin of a product cannot be more than its selling price.
True False
59. Adding a desired profit level to breakeven computations will lower the number of units required to be sold.
True False
60. In cost-volume-profit analysis, sales revenue is computed by multiplying units sold by the selling price per
unit, and the targeted profit is projected by management.
True False
61. One of the assumptions of CVP analysis assumes production and sales to be approximately equal.
True False
62. Breakeven sales in dollars can be obtained without knowing the dollar value of contribution margin per
unit.
True False
63. If direct materials costs are increased, the breakeven point will decrease.
True False
64. In breakeven analysis adjusted for a profit factor, increasing the unit sales price will decrease the number of
units needed to meet the targeted profit.
True False
65. Service businesses do not have any overhead costs.

True False
66. Cost-volume-profit analysis is not appropriate for service businesses, as they do not have any direct
manufacturing costs.
True False
67. Cost-volume-profit analysis cannot be used to estimate a targeted profit for service businesses.
True False
68. If a company wants to know how many units of a certain product it must sell to make a desired level of
profit, it should add the amount of profit to the numerator in the breakeven analysis.
True False
69. If targeted sales are 12,000 units, the sales price per unit is $70, fixed costs are $130,000, and variable costs
are $40 per unit, then planned profit must be $360,000.
True False
70. If fixed costs are increased, then a breakeven analysis with an adjustment for profit will yield an increase in
targeted sales units.
True False
71. Which of the following would not require the use of cost behavior analysis?
A. Recording the transfer of production costs from one department to another
B. Projecting anticipated costs of a new project
C. Buying an existing business
D. Changing an existing product or service
72. Which of the following statements most accurately explains the behavior of costs?
A. Costs can be fixed, variable, or a combination of both.
B. The majority of costs are variable per unit of production.
C. The majority of costs are fixed per unit of production.
D. Mixed costs are treated as variable costs.
73. Which of the following statements is true of fixed and variable costs?
A. Both costs are constant when considered on a total basis.
B. Variable costs are constant in total, and fixed costs are constant per unit.
C. Both costs are constant when considered on a per unit basis.
D. Fixed costs are constant in total, and variable costs are constant per unit.
74. Speed Zone Inc., dealers in automobiles, pays its employees a commission of 5 percent on each sale. What
is the proper classification of the cost of sales commissions?
A. Scattered cost
B. Variable cost
C. Mixed cost
D. Fixed cost
75. Which of the following best describes the typical relationship between variable costs and volume?
A. Total variable costs increase in an erratic, unpredictable fashion with changes in volume.
B. Total variable costs stay constant with changes in volume.
C. Unit variable costs increase with changes in volume up to a certain point and then remain constant.
D. Total variable costs increase in direct proportion to increases in volume.
76. Which of the following costs is a variable manufacturing cost?
A. Machinery depreciation (calculated with the units-of-production method)
B. Rent expenses for factory building
C. Factory equipment depreciation (calculated with the straight line method)
D. Telephone charges
77. Which of the following decreases with increase in number of units sold?
A. Total variable costs
B. Total fixed costs
C. Unit variable cost
D. Unit fixed cost
78. Suppose a company rents a building for $225,000 a year for the purpose of manufacturing between 100,000
and 180,000 units (the relevant range of activity). The rental cost per unit of production will __________ with
increase in production level.
A. behave in a nonlinear fashion
B. increase
C. decrease
D. remain fixed
79. As production decreases, fixed costs per unit will

A. increase.
B. decrease.
C. remain the same.
D. either increase or decrease, depending on the variable cost.
80. Theoretical capacity reduced by normal and expected work stoppages is called
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.
81. Which of the following is the realistic measure of what an organization is likely to produce, not what it can
produce?
A. Practical capacity
B. Normal capacity
C. Ideal capacity
D. Excess capacity
82. Theoretical capacity refers to
A. the actual activity level at which a business is operating.
B. the maximum productive output possible for a business.
C. an output level that allows for normal work stoppages.
D. the operating capacity that will meet expected sales demand.
83. In terms of cost behavior, supervisory salaries and direct labor are classified as
A. fixed and variable, respectively.
B. variable.
C. fixed.
D. mixed and fixed, respectively.
84. Which of the following costs is most likely to remain fixed within a relevant range?
A. Indirect labor
B. Property taxes
C. Operating supplies
D. Direct labor
85. In terms of cost behavior, telephone expenses are often classified as

A. sunk costs.
B. variable costs.
C. fixed costs.
D. mixed costs.
86. Given below are the costs and activity observations for Ncwin Company's maintenance costs.
Cost Units Produced

March $130,000 25,000
April 180,500 35,000
May 151,100 28,000
Using the high-low method, what is Ncwin’s monthly fixed costs for maintenance?
A. $11,250
B. $4,550
C. $3,750
D. $2,650
87. Clark International produces designer watches. Each watch requires materials worth $14.50 and three direct
labor hours. The company pays its production supervisor a salary of $500 per week. Hourly wage rate at Clark
is $5. If 25 watches are produced in a week, what is the fixed cost per watch?
A. $14.50
B. $5.00
C. $20.00
D. $34.50
88. Dapper Hat Makers is in the business of designing and producing specialty hats. The material used for
derbies costs $4.50 per unit, and Dapper pays each of its two full-time employees $250 per week. If the
company makes 30 derbies in a week, what is the variable cost per derby?
A. $4.50
B. $15.00
C. $16.67
D. $21.17
89. Using the high-low method and the information below, compute the variable cost per telephone hour for
PSA Corporation.
Month Telephone Hours Telephone

Used Expenses
June 90 $4,400
July 110 4,800
August 160 5,100
A. $10.00
B. $40.00
C. $26.91
D. $45.00
90. The delivery trucks of Italiana's Pizzeria incurred maintenance costs of $2,400 during its busiest month of
2014, in which 8,000 miles were driven collectively. During its slowest month, the trucks were driven for only
5,000 miles, for a maintenance cost of $1,800. Using the high-low method, calculate the expected maintenance
cost for a month in which trucks are driven for 5,350 miles?
A. $1,870
B. $1,770
C. $2,020
D. $1,720
91. Using the high-low method and the information below, compute the monthly total fixed costs for Coral
Corporation.
Month Telephone Hours Used Telephone

Expenses
October 110 $4,400

November 120 4,700
December 160 5,300
A. $8,000
B. $2,420
C. $5,500
D. $5,580
92. Retleb Manufacturing Company noticed that, during its busiest month of 2014, maintenance costs totaled
$15,400, resulting from the production of 32,000 units. During its slowest month, $12,600 in maintenance costs
were incurred, resulting from the production of 24,000 units. Use the high-low method to estimate the
maintenance cost that the company will incur if it produces 20,000 units?
A. $7,000
B. $11,200
C. $8,400
D. $2,800
93. Which of the following is true of the engineering method of separating costs?
A. It is generally used to estimate the cost of activities and new products.
B. It is sometimes called a time and motion study.
C. It separates costs by performing a step-by-step analysis of various elements involved.
D. All of these choices are correct.
94. Repair bills for large machinery may include a flat fee for the visit to the company's premises plus
additional labor charges per hour of repair work and various costs of replacement parts needed. What type of
cost is the repair?
A. Selling cost
B. Variable cost
C. Fixed cost
D. Mixed cost
95. The salary of a retail organization's sales personnel consist of a base amount plus a commission of 5 percent
on each sale. Which of the following would properly classify the cost of sales salaries?
A. Fixed and product
B. Mixed and period
C. Mixed and product
D. Fixed and period
96. The high-low method

A. calculates variable costs per unit by dividing the difference in the high and low activity levels by the high
and low costs.
B. gives accurate results of cost estimation, irrespective of the relevant range.
C. helps in determining the fixed and variable components of a mixed cost.
D. is based on the premise that all data points are necessary to define a linear cost-volume relationship.
97. Given the following cost and activity observations for Levo Enterprises' utilities, use the high-low method
to calculate Levo's variable utilities cost per machine hour. Round your answer to two decimal places.
Month Cost Machine Hours

September $4,100 22,000
October 3,700 16,000
November 4,000 20,000
December 4,500 25,000
A. $0.09
B. $4.32
C. $0.25
D. $12.50
98. You have calculated, using the high-low method, a variable cost per machine hour of $0.80 for your
production power costs. Power costs at 6,000 machine hours are $5,400; at 9,000 machine hours, they are
$7,800. What are the total fixed costs that you would use to estimate production power costs for your company
at any level within your relevant range?
A. $600
B. $6,400
C. $2,400
D. $4,800
99. Product X sells for $20 per unit and has variable costs of $10 per unit. If the fixed costs amount to $45,000,
the breakeven point will be:
A. 4,500 units.
B. 1,500 units.
C. 2,250 units.
D. 6,225 units.
100. The new Corina watch has an expected selling price per watch of $42, the projected variable cost per unit
is $24, and estimated fixed costs per month are $24,120.
The expected breakeven point in units per month is
A. 1,115 watches.
B. 1,590 watches.
C. 1,340 watches.
D. 1,780 watches.
The expected breakeven point in sales dollars is
A. $48,240.
B. $32,160.
C. $40,200.
D. $56,280.
102. In a graph of cost-volume-profit analysis, the

A. total revenue line typically begins at a required minimum level.
B. slope of the total cost line is dependent on the variable cost per unit.
C. total cost line normally begins at zero.
D. sales level at which total cost and total revenue lines intersect is also equal to fixed costs.
103. At production levels below the breakeven point,

A. fixed costs are recovered.
B. profit is negative.
C. variable costs are zero.
D. fixed costs are zero.
104. Which of the following equations provides the breakeven point in units? (Here, BE refers to breakeven, SP
refers to selling price, VC refers to variable costs, FC refers to fixed costs, and CM refers to contribution
margin.)
A. BE units = (SP VC)  FC per unit.
B. VC per unit + FC = SP per unit ´ BE units.
C. BE units = FC  CM per unit.
D. SP per unit + VC per unit = FC  BE units.
105. Myrid Inc. sells each crystal goblet that it produces for $75. The contribution margin per goblet is $20.
Total monthly fixed costs are estimated to be $82,600. How many units should Myrid sell in a month to
breakeven? (Round your answer to the nearest whole number.)
A. 4,130 goblets.
B. 1,101 goblets.
C. 1,502 goblets.
D. 869 goblets.
106. The breakeven point is the point at which

A. fixed costs equal variable costs.
B. total revenues equal total costs.
C. sales equal variable costs.
D. fixed costs equal sales.
107. Campbell Inc. earned sales revenue of $150,000 in 2014. Campbell sells each unit of its product for $6.00
and has a 32 percent contribution margin. Campbell has fixed costs of $36,000.
What is Cambell’s breakeven point in sales dollars?
A. $205,714
B. $112,500
C. $150,000
D. $69,120
108. Cristy Lake Inc. sold goods worth $144,000 in 2014. It sells each unit for $5.50 and has a 30 percent
contribution margin. The company’s fixed costs amount to $33,000.
Calculate Cristy’s breakeven point in units.
A. 43,200 units
B. 9,900 units
C. 26,182 units
D. 20,000 units
109. At the breakeven point, the total contribution margin
A. is at the maximum.
B. minus total fixed costs equals a negative number.
C. equals fixed costs.
D. is at the minimum.
110. Contribution margin equals fixed costs plus

A. cost of goods sold.
B. sales.
C. variable costs.
D. operating income.
111. How many total dollars of sales must Windblow Company sell to break even, if the selling price per unit is
$10, variable costs are $5.00 per unit, and fixed costs are $10,000?
A. $20,000
B. $6,667
C. $10,000
D. $12,000
112. When fixed costs are $18,000 and the contribution margin per unit is $4, the breakeven point is
A. 4,500 units.
B. 2,230 units.
C. $22,300.
D. $72,000.
113. How many units must BAC Company sell to break even if the selling price per unit is $8.50, variable costs
are $4.00 per unit, and fixed costs are $9,000?
A. 1,000 units
B. 1,059 units
C. 2,000 units
D. 2,250 units
114. Threshold Inc. has provided the following data:
Unit Sales Price Unit Variable Costs Unit Sales

Product A $34.00 $20.00 35,000
Product B 26.00 14.50 7,000
Product C 18.00 10.50 14,000
The sales mix for Products A, B, and C is

A. 62.5 percent, 12.5 percent, and 25 percent, respectively.
B. 40 percent, 20 percent, and 40 percent, respectively.
C. 100 percent, 25 percent, and 50 percent, respectively.
D. 44 percent, 33 percent, and 23 percent, respectively.
115. Using the contribution margin approach, find the breakeven point in units if the selling price per unit is
$10, the variable cost per unit is $6, and the fixed costs are $9,000.
A. 643 units
B. 1,500 units
C. 2,250 units
D. 900 units
116. Manix Company has gathered the following data:

Product 1 $18.00 $10.00 24,500
Product 2 27.00 17.00 17,500
Product 3 35.00 28.00 28,000
Fixed costs are $233,280. Calculate the weighted-average breakeven point for Manix. (Do not round your intermediate calculations.)
A. 34,500 units
B. 28,800 units
C. 25,200 units
D. 29,900 units
117. In 2014, a small publishing company sold 60,000 copies of Super Travel paperbacks (its only product) at
$5 per book; total fixed costs were $15,000; and total variable costs were $3 per book. What is this company's
breakeven point in units?
A. 10,500 units
B. 7,500 units
C. 30,000 units
D. 15,000 units
118. Which of the following equations represents a breakeven point?
A. Sales Price + Variable Cost Fixed Cost = 0
B. Variable Cost Fixed Cost = Sales Price
C. Sales Price + Fixed Cost = Variable Cost
D. Sales Price Variable Cost = Fixed Cost
119. The breakeven point is

A. where fixed and variable costs reach the upper level of the relevant range.
B. the level of activity where all fixed costs are recovered.
C. the level of activity where total revenue are the same as total fixed costs.
D. the level of activity where the operating profits equal the variable costs.
120. Riverside has gathered the following data in order to calculate the weighted-average contribution margin:
Round intermediate and final answers to two decimal places.
Products Unit Sales Price Unit Variable Costs Unit Sales

Regular $200 $100 18,000
Deluxe 250 175 4,000
The weighted-average contribution margin is

A. $175.
B. $100.
C. $95.50
D. $75.50
121. Lakeside has gathered the following data in order to calculate the weighted-average breakeven point:

Product A $150 $100 8,000
Product B 100 60 2,000
Fixed costs incurred
is $480,000
The weighted-average breakeven point is

A. 11,429 units.
B. 10,000 units.
C. 5,333 units.
D. 10,667 units.
122. Walton reported sales of $640,000, fixed costs of $314,000, and a profit of $92,000. If the contribution
margin is $8 per unit, how many units did Walton sell?
A. 11,500 units
B. 31,125 units
C. 50,750 units
D. 70,375 units
123. For every unit that a company produces and sells above the breakeven point, its profitability is improved
(ignoring taxes) by the unit's
A. gross margin.
B. selling price minus fixed cost.
C. variable cost.
D. contribution margin.
124. Which of the following is not an assumption underlying cost-volume-profit analysis?

A. Product sales mix will not change during the period.
B. The breakeven point will be reached and surpassed during the period.
C. Cost behavior can be determined accurately.
D. Productivity is constant within the relevant range.
125. Edward Cheezer's Inc. makes and sells frozen four-cheese pizzas, New York–style. The expected selling
price is $10 per pizza. The projected variable cost per pizza is $6. The estimated fixed costs per month are
$10,000.
The number of pizzas that must be sold to obtain a monthly profit of $20,000 is
A. 2,000 pizzas.
B. 5,000 pizzas.
C. 2,500 pizzas.
D. 7,500 pizzas.
$10,000.
If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000, the overall profit is
A. $15,000.
B. $19,000.
C. $20,000.
D. $9,000.
127. Excerpts from cost-volume-profit analysis of Nutshell Inc. indicate fixed costs of $85,000, a contribution
margin per unit of $40, a selling price of $95, and a sales level of 4,000 units. What must be the targeted level
of profit?
A. $116,875
B. $103,125
C. $85,000
D. $75,000
128. If the contribution margin on a new product line is $15, fixed costs are $165,000, and the total market for
the product is 22,000 units, then the breakeven analysis would recommend that the company
A. abandon the new product line.
B. decrease the sales price per unit.
C. increase fixed costs (such as advertising) to lower the breakeven units.
D. adopt the new product line.
129. Breakeven analysis adjusted for a targeted profit

A. is a difficult computation that is not normally employed.
B. decreases the number of units required to breakeven.
C. is excellent for performing “what-if” analysis.
D. is a poor basis for evaluating the profitability of a venture.
130. Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000, a variable cost per unit of $36,
a selling price of $60, and a sales level of $125,000. The targeted level of profit must be
A. $20,000.
B. $50,000.
C. $95,000.
D. $75,000.
131. Fusion Inc. sells a single product which has a contribution margin of $125 per unit. The fixed cost of
Fusion is $195,000. If the company wants to earn $55,000 as operating income, it should sell:
A. 2,000 units.
B. 1,560 units.
C. 440 units.
D. 2,500 units.
132. The breakeven formula adjusted for profits may be stated as
A. Sales Revenue = Variable Costs Fixed Costs + Profit
B. Sales Revenue = Variable Costs Fixed Costs Profit
C. Variable Costs + Fixed Costs Profit = Sales Revenue
D. Sales Revenue = Variable Costs + Fixed Costs + Profit
133. Hike Sports Corporation’s income statement data for last year is as follows:
Sales revenue $200,000

Variable costs 140,000
Fixed costs 30,000
Operating income 30,000
What is Hike’s breakeven point in dollars?

A. $100,000
B. $18,000
C. $142,000
D. $48,000
134. Loyal Enterprises has sales revenue of $125,000 for 2014. Its product sells for $10 and has a 25 percent
contribution margin. Fixed costs are $26,000. What is Loyal Enterprises' operating income for 2014?
A. $2,600
B. $26,000
C. $31,250
D. $5,250
135. Share and Care International is trying to determine how many clients must be serviced in order to cover its
monthly service overhead. Using the high-low method, it has determined that the variable cost per client is $800
and that the monthly fixed overhead is $28,000.
Assuming an average fee of $1,200 per client, the breakeven point per month is
A. 35 clients.
B. 80 clients.
C. 70 clients.
D. 55 clients.
Assuming an average fee of $1,400 per client and a targeted profit of $26,000, the number of clients to be
serviced is
A. 80 clients.
B. 120 clients.
C. 47 clients.
D. 90 clients.
137. Using the contribution margin approach, find the contribution margin ratio for Consumer Products if the
selling price per unit is $15, the variable cost per unit is $7.50, and the fixed costs are $8,000.
A. 25%
B. 75%
C. 50%
D. 100%
138. Field Legal Services is trying to determine the variable and fixed elements of its service overhead. The
following data have been collected from recent activity:
Total Service Overhead Cases Worked

March $22,900 112
April 20,800 98
May 26,400 138
The formula for total service overhead costs is

A. $5,600 + $140 per case.
B. $5,600 + $40 per case.
C. $7,823 + $134.62 per case.
D. $7,080 + $140 per case.
139. Lopez Inc. sells 400 watches at $59 per watch and has variable costs of $26 per watch and fixed costs of
$4,000, what is the projected profit?
A. $4,000
B. $9,200
C. $7,248
D. $23,600
140. Lilly LLC wants to make a profit of $30,000. It has variable costs of $99 per unit and fixed costs of
$20,000. How much must it charge per unit if 5,000 units are sold?
A. $84
B. $69
C. $99
D. $109
141. The graph below depicts two different types of costs. Questions related to the graph should be answered in
the spaces provided.
a. The line H-B represents what type of cost? ______________________

b. Total variable costs for production at point J would be ___________ than at point L.
c. Fixed costs per unit at point J would be _________ than at point L.
d. What is a possible reason that line G-A increases at point A to a new horizontal line?
e. What kind of cost is depicted by the line from point G to point A?
142. Briefly explain the use of statistical methods to separate mixed cost components.
143. Explain what cost-volume-profit analysis is and how managers use it.
144. The following graphical breakeven analysis is for Nicronea's new line of desktop computers. Questions
related to the graph should be answered in the spaces provided.
a. Production at point J would be at a __________.

b. The area depicting profitable operations is __________.
c. The fixed costs line is depicted by letters __________.
d. The breakeven point for sales units is at letter __________.
e. Letter A represents __________.
f. The line H-B represents what CVP element? ___________.
g. Total cost of operations is reflected in line __________.
145. a. What is the formula for breakeven units?
b. How is knowledge of the contribution margin of a product helpful?
In your answer, explain two possible benefits of computing the contribution margin of a product.
146. a. Provide two different ways of computing breakeven units: one with the contribution margin in the
computation and one without the contribution margin.
b. Compare and contrast the two different methods of computing breakeven units. Does the use of the
contribution margin alter the resulting number of breakeven units? Why or why not?
c. Comment on how the contribution margin affects the computation of breakeven units. Would an increase in
the contribution margin increase or decrease the number of breakeven units required?
147. Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.
148. Listed below are selected costs of a sports car manufacturer at a production level of 4,000 cars. (a) Identify
three variable costs. (b) Support your answer by illustrating the cost behavior pattern per unit and in total as the
annual volume of cars produced increases from 4,000 cars to 8,000 cars, for one variable cost. (Note: The
production increase is within the relevant range.)
Assume there are 52 weeks in a year and existing workers are working at full capacity.
Monthly machine rental charge $ 8,000

Monthly insurance premiums on the plant 800
Sports car tire cost (per tire) 100
Salaried employees' weekly payroll cost 51,000
Manufacturing hourly employees' weekly payroll 88,000
Depreciation on the equipment for the month 6,000
Car battery (one battery) 70
three fixed costs. (b) Support your answer by illustrating the cost behavior pattern per unit and in total as the
annual volume of cars produced increases from 4,000 cars to 8,000 cars, for one fixed cost. (Note: The

150. The following are monthly totals taken from the log of laser printer used by the Hardcopy Printing
International. Cost was based on a flat fee plus a declining cost per copy made after a minimum number of
copies had been made each month.
Month Number of Copies Made Total Cost

July 38,720 $11,880
August 33,440 10,560
September 36,190 11,248
October 44,330 13,283
November 42,240 12,760
December 53,790 15,648
To differentiate the variable and fixed costs in the use of this machine for future planning, use the high-low method to (a) determine the variable cost
per copy (round your answers to two decimal places) and (b) compute the fixed and variable costs for the months of August and December (round
your answers to nearest whole number).
151. Denapasa Manufacturing leases a vacuum cleaning system for a basic monthly fee plus an additional cost
per hour used above a given minimum for each month. Given below is the information for the most recent six-
month period on the number of machine hours of use and the total cost under this lease.
Month Machine Hours Total Cost

7 6,300 $58,200
8 4,400 49,935
9 4,700 52,390
10 5,200 54,440
11 5,600 56,620
12 5,000 53,800
You are to provide information for planning concerning the variable and fixed cost elements in this lease. Use the high-low method to (a) determine
the variable cost per machine hour and (b) compute the fixed and variable costs for months 7 and 8.
152. If Johnson Inc. sells 400 widgets at $180 per widget and has variable costs of $80 per widget and fixed
costs of $30,000, what is the projected profit?
153. Pixel Inc. is a manufacturer of video cameras and is preparing production and sales forecasts for the
coming fiscal year. The company needs to determine the point at which the projected sales revenue will equal
the total of all fixed and variable costs. Fixed costs are estimated to be $259,000, and variable costs are
expected to be maintained at $125 per camera. Each camera will sell for $300.
Compute (a) the breakeven point in sales units and (b) the breakeven point in sales dollars.
154. Neverlate is world famous for its precision pocket watches. The company has estimated that variable
manufacturing costs and variable selling costs per watch will be $72 and $43, respectively, for 2014. Also
during 2014, the company is expecting fixed manufacturing costs to total $291,600 and fixed general and
administrative expenses to amount to $253,175. The anticipated selling price of each watch is $500. Compute
(a) the breakeven point in sales units and (b) the breakeven point in sales dollars.
155. Campground Inc. is considering the production and sale of propane lamps. Annual fixed costs associated
with the project are expected to total $60,000. In addition, each lamp would sell for $12 and would require $7 in
variable costs. Calculate (a) the breakeven point in units, (b) the breakeven point in dollars, (c) the number of
lamps that must be sold to earn a profit of $120,000, and (d) the operating income or loss at a sales volume of
16,000 lamps.
156. The Raquet Business is planning to manufacture a new type of tennis ball. Each tennis ball would sell for
$3.75 and would require $1.75 in variable costs. In addition, annual fixed costs associated with the project
would total $64,000.
a. Use the contribution margin approach to calculate:

(1) the breakeven point in units
(2) the breakeven point in dollars
b. Determine the operating income or loss at a sales volume of 30,000 tennis balls.
c. Determine the number of tennis balls that must be sold to earn a profit of $80,000.
157. Plunda Co. is planning production for the coming year. The information to be used is based on a projection
of cost information for the current year. Projections of the following costs are as follows:
Variable costs per unit:

Direct materials $15.80
Direct labor 11.60
Overhead 18.40
Selling costs 8.20
Fixed cost estimates:

Production costs $212,400
Selling and administrative costs 417,600
Plunda Co. sells its product for $90.00 per unit. Compute the following, showing your calculations:
a. The breakeven point in sales units

b. The breakeven point in sales dollars
c. The sales level in both sales units and dollars if a profit of $122,400 is projected
158. Luther Inc. has two products: Normal (unit sales price, $30; unit variable cost, $15) and Hybrid (unit sales
price, $35; unit variable cost, $20). The company's sales mix of the Normal to the Hybrid is 3:2 and fixed costs
are $42,000.
a. Determine the weighted-average contribution margin.

b. Calculate the weighted-average breakeven point.
c. Compute the breakeven point for each product.
159. A digitized music tuner has been a staple in Smooth Sounds' product line for several years. Annual fixed
costs of production and administration related to this product in the past have been $643,500. Variable costs of
production and sales have been $17 per unit. The selling price in the past has been $28 per unit. Based on the
appearance of competing products on the market, management has asked you to do the following:
a. Compute the breakeven point in units and sales dollars for the present product.
b. Compute the breakeven point in units and sales dollars if the variable costs increased by $3 per unit and the
fixed costs increased by $14,375 per month.
c. Using the information from (b), an expected additional monthly advertising charge of $10,000, and a monthly
sales rate of 15,000 units, compute the competitive selling price that the company must obtain in order to have a
profit of $32,000 per month. (Round answers to two decimal places.)
160. A new product, an easy to store guitar stand, is being planned, with the following cost estimates: variable
cost per unit, $9, and total fixed costs, $58,000. The projected sales price is $13 each.
a. Using the contribution margin approach, compute the number of units that must be sold to break even.
b. Using the same approach and assuming that fixed costs can be reduced by $8,000, how many units must be
sold to produce a profit of $65,000?
c. Given the original information and the projection that 50,000 units can be sold, compute the selling price that
the producer must use to obtain a profit of $150,000.
161. J & C Stacy Enterprises is expecting to earn a profit of $180,000 in 2014. The company manufactures
wrought iron lamps. Each lamp requires variable costs of $13 for direct materials, $9 for direct labor, and $12
for overhead. Total variable costs are thus $34 per lamp. Fixed costs for 2014 are expected to be $630,000.
Each lamp will sell for $79.
a. Determine how many lamps the company must sell to earn its targeted profit, and convert this amount to sales
dollars.
b. Compute breakeven sales in dollars.
c. Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the
targeted profit. Use the contribution margin as part of your explanation.
162. Ryan's Landscaping sells a quality brand of hoes, shovels, and rakes in a sales mix of 2:4:2. The company's
fixed costs are $61,600. Product data include the following:
Unit Sales Price Unit Variable Costs

Hoes $12 $8
Shovels 15 7
Rakes 16 8
a. Compute the weighted-average contribution margin.

b. Determine the weighted-average breakeven point.
c. Calculate the breakeven point for each product.
d. Determine the breakeven point in sales dollars.
163. Projected cost information for a new product to be produced by Kolier Manufacturing is as follows:
Expected variable unit costs:

Direct labor 7.18
Overhead 1.92
Selling costs 4.00
Annual fixed costs:

Taxes on property used $ 8,870
Depreciation on building and equipment 18,920
Advertising 38,840
Other 2,070
The product is to be sold for $49.
a. Compute the number of units that must be sold to earn a profit of $80,000.
b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained.
c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.
d. The most in annual sales that could be projected is 20,000 units. Determine the added amount that could be spent on fixed advertising costs if the
highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.
164. Loren Inc. sold 30,000 units of its product last year with the following results:

Fixed costs 190,000
Operating income $ 80,000
The company expects variable costs to increase by $4.00 per unit this year.
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year. (Round
percentage value to one decimal place.)
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales
price the company must charge to cover the expected increase in variable costs.(Round your answers to two decimal places.)
165. Native American Pottery expects to earn a profit of $95,000 in 2014. The company manufactures
ornamental ceramic tiles. Each lot of 100 blocks requires variable costs of $5.00 for direct materials, $3.50 for
direct labor, and $4.50 for overhead. Total variable costs are thus $13 per lot. Fixed costs for 2014 are expected
to be $130,000. Each hundred-block lot will sell for $33.
a. Determine how many lots of ceramic tiles the company must sell to earn its targeted profit, and convert this
amount to sales dollars.
166. Ben & Harry Co. sold 100,000 units last year with the following results:

Contribution margin $240,000
Fixed costs 100,000
Operating income $140,000
a. Management thinks that a 5 percent reduction in the unit sales price and a $31,000 increase in fixed advertising costs will create a 30 percent
increase in unit sales. Assess this proposal and make a recommendation on what action should be taken.
b. Assume that the marketing manager thinks that the unit sales price and advertisement costs should not be changed. Instead, he recommends a
$0.40 per unit increase in sales commissions to generate the 30 percent increase in unit sales and a 20 percent increase in operating income. This
results in reduction of fixed costs to a certain extent.
Assess this proposal.
167. Meredith Marshall owns a home inspection business, offering her services to homeowners. She currently
charges $180 per inspection but wants to know if her fee should be raised. She has provided the following data
from the past six months:
Month Number of Inspections Overhead Costs

March 60 $3,420
April 64 3,555
May 76 3,989
June 90 4,044
July 97 4,101
August 110 4,120
Meredith takes her daughter with her on all inspections and pays her $40 per inspection. Due to slower business in the cooler months, Meredith
estimates she will average 60 inspections per month for the next six months. Prepare a schedule showing Meredith 's estimated total cost per
inspection.
Chapter 5: Cost-Volume-Profit Analysis Key
1. Costs are not affected by the changes in the volume of production.

FALSE
2. Cost behavior is defined as the manner in which costs respond to changes in volume or activity.
TRUE
3. Understanding cost behavior helps managers in planning the optimal mix of services or products to offer.
TRUE
4. Cost behavior analysis is not useful to a service business.

FALSE
5. Within the relevant range, total fixed cost and variable cost per unit remain constant.
TRUE
6. Unit fixed costs will be the same regardless of how many units are produced.
FALSE
7. Unit variable costs vary with changes in productive output, whereas total variable costs remain constant.
FALSE
8. The relevant range of activity is the range in which actual operations of a company are likely to occur.
TRUE
9. Fixed costs remain constant in a relevant range of activity.

TRUE
10. Unit fixed costs vary inversely with activity or volume.
TRUE
11. Cost can only be classified as either variable or fixed.

FALSE
12. An organization’s theoretical operating capacity is the level at which its management expects to operate
during a normal business environment.
FALSE
13. An organization’s practical capacity is its theoretical or ideal capacity reduced by normal and anticipated
work stoppages, such as machine breakdowns.
TRUE
14. An organization’s normal capacity is the average annual level of operating capacity needed to meet its
expected sales demand.
TRUE
15. Costs that change, in total, in direct proportion to changes in productive output, or activity, are called
variable costs.
TRUE
16. Linear approximation is a method of converting nonlinear variable costs into linear fixed costs.
FALSE
17. Practical capacity and engineering capacity are synonymous terms.

TRUE
18. Depreciation calculated using the straight-line method is an example of a fixed cost.
TRUE
19. Depreciation cost of a controller's computer calculated using the straight-line method is an example of a
variable cost.
FALSE
20. Electric power charges are an example of a mixed cost.

TRUE
21. A mixed costs line, plotted on a graph, will start at the Y axis at the amount of fixed cost.
TRUE
22. The high-low method allows managers to differentiate between fixed and variable costs when dealing with
mixed costs.
TRUE
23. When using the high-low method, the accountant assumes the fixed portion of mixed costs to be the lowest
fixed amount incurred during the period under review.
FALSE
24. Contribution margin income statement helps managers to view revenue and cost relationships on a per unit
basis or as a percentage of sales.
TRUE
25. A contribution margin income statement is formatted to emphasize cost behavior rather than organizational
functions.
TRUE
26. Contribution margin is calculated by deducting total fixed costs from total sales.
FALSE
27. All variable costs except manufacturing costs are subtracted from sales to determine the total contribution
margin.
FALSE
28. Operating income is determined by deducting all fixed costs related to production, selling, and
administration from contribution margin.
TRUE
29. The contribution margin income statement divides costs into variable and fixed costs.
TRUE
30. Gross margin and contribution margin are always equal.

FALSE
31. Regression analysis takes into consideration only the highest and the lowest level of activities to predict cost
behavior.
FALSE
32. A scatter diagram helps to determine if a linear relationship exists between a cost item and its related
activity measure.
TRUE
33. The engineering method of separating costs is sometimes called a regression analysis.
FALSE
34. CVP analysis can also be applied by a company selling multiple products.
TRUE
35. Cost-volume-profit analysis assumes a constant sales mix.

TRUE
36. An increase in the unit sales price will increase unit variable price.
FALSE
37. Cost-volume-profit analysis assumes costs and revenues have a close linear approximation.
TRUE
38. To find out the breakeven point in dollars, we divide fixed costs by gross margin ratio.
FALSE
39. The contribution margin equals zero at the breakeven point.

FALSE
40. Contribution margin is calculated by deducting variable costs from sales.

TRUE
41. A product line's contribution margin represents its contribution to paying off variable costs and to
generating a profit.
FALSE
42. Using or not using the contribution margin for cost-volume-profit computations will not change the
resulting amount of breakeven units in a given situation.
TRUE
43. If fixed costs are $24,000, variable costs are $25 per unit, and the product sells for $45, the total
contribution margin at the breakeven point is $24,000.
TRUE
44. The sales mix is the proportion of each product's unit sales relative to the company's total unit sales.
TRUE
45. The weighted-average contribution margin is computed by multiplying each product's unit contribution
margin by the sales mix percentage of each product.
TRUE
46. The weighted-average breakeven point is the breakeven point for the entire company.
TRUE
47. Last year, RC Rancho's revenue was $120,000,000, variable costs were $90,000,000 and fixed costs were
$15,000,000. RC Rancho's contribution margin ratio was 25 percent.
TRUE
48. Breakeven is when total fixed costs equal total revenues.

FALSE
49. The point at which the total cost line intersects with the total revenue line is the breakeven point.
TRUE
50. The breakeven point is the level of activity at which only variable costs are recovered.
FALSE
51. Margin of safety is the excess of actual sales over break even sales.
TRUE
52. Breakeven analysis helps in finding the level of activity at which sales revenue equals the sum of all
variable and fixed costs.
TRUE
53. A project breaks even when total revenues less variable costs equals fixed costs.
TRUE
54. In a breakeven scatter diagram, the loss area continues till the total costs line is below total revenues line.
FALSE
55. “Breakeven” is the point at which a company can begin to earn a profit.
TRUE
56. If fixed costs are $180,000, variable costs are $38 per unit, and the product sells for $70, the breakeven
point in sales dollars is $5,625.
FALSE
57. In a breakeven graph, the slope the total cost line is dependent on the variable costs per unit.
TRUE
58. The unit contribution margin of a product cannot be more than its selling price.
TRUE
59. Adding a desired profit level to breakeven computations will lower the number of units required to be sold.
FALSE
60. In cost-volume-profit analysis, sales revenue is computed by multiplying units sold by the selling price per
unit, and the targeted profit is projected by management.
TRUE
61. One of the assumptions of CVP analysis assumes production and sales to be approximately equal.
TRUE
62. Breakeven sales in dollars can be obtained without knowing the dollar value of contribution margin per
unit.
TRUE
63. If direct materials costs are increased, the breakeven point will decrease.
FALSE
64. In breakeven analysis adjusted for a profit factor, increasing the unit sales price will decrease the number of
units needed to meet the targeted profit.
TRUE
65. Service businesses do not have any overhead costs.
FALSE
66. Cost-volume-profit analysis is not appropriate for service businesses, as they do not have any direct
manufacturing costs.
FALSE
67. Cost-volume-profit analysis cannot be used to estimate a targeted profit for service businesses.
FALSE
68. If a company wants to know how many units of a certain product it must sell to make a desired level of
profit, it should add the amount of profit to the numerator in the breakeven analysis.
TRUE
69. If targeted sales are 12,000 units, the sales price per unit is $70, fixed costs are $130,000, and variable costs
are $40 per unit, then planned profit must be $360,000.
FALSE
70. If fixed costs are increased, then a breakeven analysis with an adjustment for profit will yield an increase in
targeted sales units.
TRUE
71. Which of the following would not require the use of cost behavior analysis?
A. Recording the transfer of production costs from one department to another
B. Projecting anticipated costs of a new project
C. Buying an existing business
D. Changing an existing product or service
72. Which of the following statements most accurately explains the behavior of costs?
A. Costs can be fixed, variable, or a combination of both.
B. The majority of costs are variable per unit of production.
C. The majority of costs are fixed per unit of production.
D. Mixed costs are treated as variable costs.
73. Which of the following statements is true of fixed and variable costs?
A. Both costs are constant when considered on a total basis.
B. Variable costs are constant in total, and fixed costs are constant per unit.
C. Both costs are constant when considered on a per unit basis.
D. Fixed costs are constant in total, and variable costs are constant per unit.
74. Speed Zone Inc., dealers in automobiles, pays its employees a commission of 5 percent on each sale. What
is the proper classification of the cost of sales commissions?
A. Scattered cost
B. Variable cost
C. Mixed cost
D. Fixed cost
75. Which of the following best describes the typical relationship between variable costs and volume?
A. Total variable costs increase in an erratic, unpredictable fashion with changes in volume.
B. Total variable costs stay constant with changes in volume.
C. Unit variable costs increase with changes in volume up to a certain point and then remain constant.
D. Total variable costs increase in direct proportion to increases in volume.
76. Which of the following costs is a variable manufacturing cost?

A. Machinery depreciation (calculated with the units-of-production method)
B. Rent expenses for factory building
C. Factory equipment depreciation (calculated with the straight line method)
D. Telephone charges
77. Which of the following decreases with increase in number of units sold?
A. Total variable costs
B. Total fixed costs
C. Unit variable cost
D. Unit fixed cost
78. Suppose a company rents a building for $225,000 a year for the purpose of manufacturing between 100,000
and 180,000 units (the relevant range of activity). The rental cost per unit of production will __________ with
increase in production level.
A. behave in a nonlinear fashion
B. increase
C. decrease
D. remain fixed
79. As production decreases, fixed costs per unit will
A. increase.
B. decrease.
C. remain the same.
D. either increase or decrease, depending on the variable cost.
80. Theoretical capacity reduced by normal and expected work stoppages is called
A. practical capacity.
B. normal capacity.
C. ideal capacity.
D. excess capacity.
81. Which of the following is the realistic measure of what an organization is likely to produce, not what it can
produce?
A. Practical capacity
B. Normal capacity
C. Ideal capacity
D. Excess capacity
82. Theoretical capacity refers to

A. the actual activity level at which a business is operating.
B. the maximum productive output possible for a business.
C. an output level that allows for normal work stoppages.
D. the operating capacity that will meet expected sales demand.
83. In terms of cost behavior, supervisory salaries and direct labor are classified as
A. fixed and variable, respectively.
B. variable.
C. fixed.
D. mixed and fixed, respectively.
84. Which of the following costs is most likely to remain fixed within a relevant range?
A. Indirect labor
B. Property taxes
C. Operating supplies
D. Direct labor
85. In terms of cost behavior, telephone expenses are often classified as
A. sunk costs.
B. variable costs.
C. fixed costs.
D. mixed costs.
86. Given below are the costs and activity observations for Ncwin Company's maintenance costs.
Cost Units Produced

March $130,000 25,000
April 180,500 35,000
May 151,100 28,000
Using the high-low method, what is Ncwin’s monthly fixed costs for maintenance?
A. $11,250
B. $4,550
C. $3,750
D. $2,650
87. Clark International produces designer watches. Each watch requires materials worth $14.50 and three direct
labor hours. The company pays its production supervisor a salary of $500 per week. Hourly wage rate at Clark
is $5. If 25 watches are produced in a week, what is the fixed cost per watch?
A. $14.50
B. $5.00
C. $20.00
D. $34.50
88. Dapper Hat Makers is in the business of designing and producing specialty hats. The material used for
derbies costs $4.50 per unit, and Dapper pays each of its two full-time employees $250 per week. If the
company makes 30 derbies in a week, what is the variable cost per derby?
A. $4.50
B. $15.00
C. $16.67
D. $21.17
89. Using the high-low method and the information below, compute the variable cost per telephone hour for
PSA Corporation.
Month Telephone Hours Telephone

Used Expenses
June 90 $4,400
July 110 4,800
August 160 5,100
A. $10.00
B. $40.00
C. $26.91
D. $45.00
90. The delivery trucks of Italiana's Pizzeria incurred maintenance costs of $2,400 during its busiest month of
2014, in which 8,000 miles were driven collectively. During its slowest month, the trucks were driven for only
5,000 miles, for a maintenance cost of $1,800. Using the high-low method, calculate the expected maintenance
cost for a month in which trucks are driven for 5,350 miles?
A. $1,870
B. $1,770
C. $2,020
D. $1,720
91. Using the high-low method and the information below, compute the monthly total fixed costs for Coral
Corporation.
Month Telephone Hours Used Telephone

Expenses
October 110 $4,400

November 120 4,700
December 160 5,300
A. $8,000
B. $2,420
C. $5,500
D. $5,580
92. Retleb Manufacturing Company noticed that, during its busiest month of 2014, maintenance costs totaled
$15,400, resulting from the production of 32,000 units. During its slowest month, $12,600 in maintenance costs
were incurred, resulting from the production of 24,000 units. Use the high-low method to estimate the
maintenance cost that the company will incur if it produces 20,000 units?
A. $7,000
B. $11,200
C. $8,400
D. $2,800
93. Which of the following is true of the engineering method of separating costs?
A. It is generally used to estimate the cost of activities and new products.
B. It is sometimes called a time and motion study.
C. It separates costs by performing a step-by-step analysis of various elements involved.
D. All of these choices are correct.
94. Repair bills for large machinery may include a flat fee for the visit to the company's premises plus
additional labor charges per hour of repair work and various costs of replacement parts needed. What type of
cost is the repair?
A. Selling cost
B. Variable cost
C. Fixed cost
D. Mixed cost
95. The salary of a retail organization's sales personnel consist of a base amount plus a commission of 5 percent
on each sale. Which of the following would properly classify the cost of sales salaries?
A. Fixed and product
B. Mixed and period
C. Mixed and product
D. Fixed and period
96. The high-low method

A. calculates variable costs per unit by dividing the difference in the high and low activity levels by the high
and low costs.
B. gives accurate results of cost estimation, irrespective of the relevant range.
C. helps in determining the fixed and variable components of a mixed cost.
D. is based on the premise that all data points are necessary to define a linear cost-volume relationship.
97. Given the following cost and activity observations for Levo Enterprises' utilities, use the high-low method
to calculate Levo's variable utilities cost per machine hour. Round your answer to two decimal places.
Month Cost Machine Hours

September $4,100 22,000
October 3,700 16,000
November 4,000 20,000
December 4,500 25,000
A. $0.09
B. $4.32
C. $0.25
D. $12.50
98. You have calculated, using the high-low method, a variable cost per machine hour of $0.80 for your
production power costs. Power costs at 6,000 machine hours are $5,400; at 9,000 machine hours, they are
$7,800. What are the total fixed costs that you would use to estimate production power costs for your company
at any level within your relevant range?
A. $600
B. $6,400
C. $2,400
D. $4,800
99. Product X sells for $20 per unit and has variable costs of $10 per unit. If the fixed costs amount to $45,000,
the breakeven point will be:
A. 4,500 units.
B. 1,500 units.
C. 2,250 units.
D. 6,225 units.
The expected breakeven point in units per month is
A. 1,115 watches.
B. 1,590 watches.
C. 1,340 watches.
D. 1,780 watches.
The expected breakeven point in sales dollars is
A. $48,240.
B. $32,160.
C. $40,200.
D. $56,280.
102. In a graph of cost-volume-profit analysis, the

A. total revenue line typically begins at a required minimum level.
B. slope of the total cost line is dependent on the variable cost per unit.
C. total cost line normally begins at zero.
D. sales level at which total cost and total revenue lines intersect is also equal to fixed costs.
103. At production levels below the breakeven point,

A. fixed costs are recovered.
B. profit is negative.
C. variable costs are zero.
D. fixed costs are zero.
104. Which of the following equations provides the breakeven point in units? (Here, BE refers to breakeven, SP
refers to selling price, VC refers to variable costs, FC refers to fixed costs, and CM refers to contribution
margin.)
A. BE units = (SP VC)  FC per unit.
B. VC per unit + FC = SP per unit ´ BE units.
C. BE units = FC  CM per unit.
D. SP per unit + VC per unit = FC  BE units.
105. Myrid Inc. sells each crystal goblet that it produces for $75. The contribution margin per goblet is $20.
Total monthly fixed costs are estimated to be $82,600. How many units should Myrid sell in a month to
breakeven? (Round your answer to the nearest whole number.)
A. 4,130 goblets.
B. 1,101 goblets.
C. 1,502 goblets.
D. 869 goblets.
106. The breakeven point is the point at which
A. fixed costs equal variable costs.
B. total revenues equal total costs.
C. sales equal variable costs.
D. fixed costs equal sales.
107. Campbell Inc. earned sales revenue of $150,000 in 2014. Campbell sells each unit of its product for $6.00
and has a 32 percent contribution margin. Campbell has fixed costs of $36,000.
What is Cambell’s breakeven point in sales dollars?
A. $205,714
B. $112,500
C. $150,000
D. $69,120
108. Cristy Lake Inc. sold goods worth $144,000 in 2014. It sells each unit for $5.50 and has a 30 percent
contribution margin. The company’s fixed costs amount to $33,000.
Calculate Cristy’s breakeven point in units.
A. 43,200 units
B. 9,900 units
C. 26,182 units
D. 20,000 units
109. At the breakeven point, the total contribution margin

A. is at the maximum.
B. minus total fixed costs equals a negative number.
C. equals fixed costs.
D. is at the minimum.
110. Contribution margin equals fixed costs plus

A. cost of goods sold.
B. sales.
C. variable costs.
D. operating income.
111. How many total dollars of sales must Windblow Company sell to break even, if the selling price per unit is
$10, variable costs are $5.00 per unit, and fixed costs are $10,000?
A. $20,000
B. $6,667
C. $10,000
D. $12,000
112. When fixed costs are $18,000 and the contribution margin per unit is $4, the breakeven point is
A. 4,500 units.
B. 2,230 units.
C. $22,300.
D. $72,000.
113. How many units must BAC Company sell to break even if the selling price per unit is $8.50, variable costs
are $4.00 per unit, and fixed costs are $9,000?
A. 1,000 units
B. 1,059 units
C. 2,000 units
D. 2,250 units
114. Threshold Inc. has provided the following data:

Product A $34.00 $20.00 35,000
Product B 26.00 14.50 7,000
Product C 18.00 10.50 14,000
The sales mix for Products A, B, and C is

A. 62.5 percent, 12.5 percent, and 25 percent, respectively.
B. 40 percent, 20 percent, and 40 percent, respectively.
C. 100 percent, 25 percent, and 50 percent, respectively.
D. 44 percent, 33 percent, and 23 percent, respectively.
115. Using the contribution margin approach, find the breakeven point in units if the selling price per unit is
$10, the variable cost per unit is $6, and the fixed costs are $9,000.
A. 643 units
B. 1,500 units
C. 2,250 units
D. 900 units
116. Manix Company has gathered the following data:

Product 1 $18.00 $10.00 24,500
Product 2 27.00 17.00 17,500
Product 3 35.00 28.00 28,000
Fixed costs are $233,280. Calculate the weighted-average breakeven point for Manix. (Do not round your intermediate calculations.)
A. 34,500 units
B. 28,800 units
C. 25,200 units
D. 29,900 units
117. In 2014, a small publishing company sold 60,000 copies of Super Travel paperbacks (its only product) at
$5 per book; total fixed costs were $15,000; and total variable costs were $3 per book. What is this company's
breakeven point in units?
A. 10,500 units
B. 7,500 units
C. 30,000 units
D. 15,000 units
118. Which of the following equations represents a breakeven point?

A. Sales Price + Variable Cost Fixed Cost = 0
B. Variable Cost Fixed Cost = Sales Price
C. Sales Price + Fixed Cost = Variable Cost
D. Sales Price Variable Cost = Fixed Cost
119. The breakeven point is

A. where fixed and variable costs reach the upper level of the relevant range.
B. the level of activity where all fixed costs are recovered.
C. the level of activity where total revenue are the same as total fixed costs.
D. the level of activity where the operating profits equal the variable costs.
120. Riverside has gathered the following data in order to calculate the weighted-average contribution margin:
Round intermediate and final answers to two decimal places.
Products Unit Sales Price Unit Variable Costs Unit Sales

Regular $200 $100 18,000
Deluxe 250 175 4,000
The weighted-average contribution margin is

A. $175.
B. $100.
C. $95.50
D. $75.50
121. Lakeside has gathered the following data in order to calculate the weighted-average breakeven point:

Product A $150 $100 8,000
Product B 100 60 2,000
Fixed costs incurred
is $480,000
The weighted-average breakeven point is

A. 11,429 units.
B. 10,000 units.
C. 5,333 units.
D. 10,667 units.
122. Walton reported sales of $640,000, fixed costs of $314,000, and a profit of $92,000. If the contribution
margin is $8 per unit, how many units did Walton sell?
A. 11,500 units
B. 31,125 units
C. 50,750 units
D. 70,375 units
123. For every unit that a company produces and sells above the breakeven point, its profitability is improved
(ignoring taxes) by the unit's
A. gross margin.
B. selling price minus fixed cost.
C. variable cost.
D. contribution margin.
124. Which of the following is not an assumption underlying cost-volume-profit analysis?
A. Product sales mix will not change during the period.
B. The breakeven point will be reached and surpassed during the period.
C. Cost behavior can be determined accurately.
D. Productivity is constant within the relevant range.
$10,000.
The number of pizzas that must be sold to obtain a monthly profit of $20,000 is
A. 2,000 pizzas.
B. 5,000 pizzas.
C. 2,500 pizzas.
D. 7,500 pizzas.
$10,000.
If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000, the overall profit is
A. $15,000.
B. $19,000.
C. $20,000.
D. $9,000.
127. Excerpts from cost-volume-profit analysis of Nutshell Inc. indicate fixed costs of $85,000, a contribution
margin per unit of $40, a selling price of $95, and a sales level of 4,000 units. What must be the targeted level
of profit?
A. $116,875
B. $103,125
C. $85,000
D. $75,000
128. If the contribution margin on a new product line is $15, fixed costs are $165,000, and the total market for
the product is 22,000 units, then the breakeven analysis would recommend that the company
A. abandon the new product line.
B. decrease the sales price per unit.
C. increase fixed costs (such as advertising) to lower the breakeven units.
D. adopt the new product line.
129. Breakeven analysis adjusted for a targeted profit
A. is a difficult computation that is not normally employed.
B. decreases the number of units required to breakeven.
C. is excellent for performing “what-if” analysis.
D. is a poor basis for evaluating the profitability of a venture.
130. Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000, a variable cost per unit of $36,
a selling price of $60, and a sales level of $125,000. The targeted level of profit must be
A. $20,000.
B. $50,000.
C. $95,000.
D. $75,000.
131. Fusion Inc. sells a single product which has a contribution margin of $125 per unit. The fixed cost of
Fusion is $195,000. If the company wants to earn $55,000 as operating income, it should sell:
A. 2,000 units.
B. 1,560 units.
C. 440 units.
D. 2,500 units.
132. The breakeven formula adjusted for profits may be stated as

A. Sales Revenue = Variable Costs Fixed Costs + Profit
B. Sales Revenue = Variable Costs Fixed Costs Profit
C. Variable Costs + Fixed Costs Profit = Sales Revenue
D. Sales Revenue = Variable Costs + Fixed Costs + Profit
133. Hike Sports Corporation’s income statement data for last year is as follows:

Fixed costs 30,000
Operating income 30,000
What is Hike’s breakeven point in dollars?

A. $100,000
B. $18,000
C. $142,000
D. $48,000
134. Loyal Enterprises has sales revenue of $125,000 for 2014. Its product sells for $10 and has a 25 percent
contribution margin. Fixed costs are $26,000. What is Loyal Enterprises' operating income for 2014?
A. $2,600
B. $26,000
C. $31,250
D. $5,250
Assuming an average fee of $1,200 per client, the breakeven point per month is
A. 35 clients.
B. 80 clients.
C. 70 clients.
D. 55 clients.
Assuming an average fee of $1,400 per client and a targeted profit of $26,000, the number of clients to be
serviced is
A. 80 clients.
B. 120 clients.
C. 47 clients.
D. 90 clients.
137. Using the contribution margin approach, find the contribution margin ratio for Consumer Products if the
selling price per unit is $15, the variable cost per unit is $7.50, and the fixed costs are $8,000.
A. 25%
B. 75%
C. 50%
D. 100%
138. Field Legal Services is trying to determine the variable and fixed elements of its service overhead. The
following data have been collected from recent activity:
Total Service Overhead Cases Worked

March $22,900 112
April 20,800 98
May 26,400 138
The formula for total service overhead costs is

A. $5,600 + $140 per case.
B. $5,600 + $40 per case.
C. $7,823 + $134.62 per case.
D. $7,080 + $140 per case.
139. Lopez Inc. sells 400 watches at $59 per watch and has variable costs of $26 per watch and fixed costs of
$4,000, what is the projected profit?
A. $4,000
B. $9,200
C. $7,248
D. $23,600
140. Lilly LLC wants to make a profit of $30,000. It has variable costs of $99 per unit and fixed costs of
$20,000. How much must it charge per unit if 5,000 units are sold?
A. $84
B. $69
C. $99
D. $109
141. The graph below depicts two different types of costs. Questions related to the graph should be answered in
the spaces provided.
a. The line H-B represents what type of cost? ______________________

b. Total variable costs for production at point J would be ___________ than at point L.
c. Fixed costs per unit at point J would be _________ than at point L.
d. What is a possible reason that line G-A increases at point A to a new horizontal line?
e. What kind of cost is depicted by the line from point G to point A?
a. Variable costs
b. less
c. greater
d. Production has increased beyond the relevant range, resulting in an increase in total fixed costs.
e. Fixed costs
142. Briefly explain the use of statistical methods to separate mixed cost components.
The relationship between costs and activities is mathematically described with the help of statistical methods.
Statistical methods, such as regression analysis, are used to separate mixed costs into variable and fixed
components. Because all data observations are used, the resulting linear equation is more representative of cost
behavior than either the high-low or scatter diagram methods. Regression analysis can be performed using one
or more activities to predict costs.
143. Explain what cost-volume-profit analysis is and how managers use it.
Cost-volume-profit analysis is an analysis of the cost behavior patterns that underlie the relationships among
cost, volume of output, and profit. The profit planning equation (S = VC + FC + P), breakeven analysis, and
contribution margin analysis are all tools used for planning and control of future cost structure, prices, and
product mix.
144. The following graphical breakeven analysis is for Nicronea's new line of desktop computers. Questions
related to the graph should be answered in the spaces provided.
a. Production at point J would be at a __________.

b. The area depicting profitable operations is __________.
c. The fixed costs line is depicted by letters __________.
d. The breakeven point for sales units is at letter __________.
e. Letter A represents __________.
f. The line H-B represents what CVP element? ___________.
g. Total cost of operations is reflected in line __________.
a. loss
b. B-A-C
c. G-D
d. E
e. the point where sales equal total costs, or the breakeven point
f. total revenue
g. G-C
145. a. What is the formula for breakeven units?
b. How is knowledge of the contribution margin of a product helpful?
In your answer, explain two possible benefits of computing the contribution margin of a product.
a. Breakeven (units) = Fixed Costs  Contribution Margin per Unit
b. A product line's contribution margin represents its net contribution to paying off fixed costs and providing a
profit. Thus, knowledge of a product's contribution margin is helpful in evaluating its profitability. Benefits of
computing the contribution margin includes the following: contribution margins may be utilized in assessing the
feasibility of a new product line. A product's contribution margin may also be utilized in profit planning and
marketing. A firm wishing to maximize profit should try to shift the sales mix toward those products with
higher contribution margins.
146. a. Provide two different ways of computing breakeven units: one with the contribution margin in the
computation and one without the contribution margin.
b. Compare and contrast the two different methods of computing breakeven units. Does the use of the
contribution margin alter the resulting number of breakeven units? Why or why not?
c. Comment on how the contribution margin affects the computation of breakeven units. Would an increase in
the contribution margin increase or decrease the number of breakeven units required?
a. Breakeven analysis with the contribution margin in the analysis:
Breakeven (units) = FC  CM per unit
Breakeven analysis without the contribution margin in the analysis:
[Breakeven point in sales units (represented by x)]
Sx = VCx + FC
(S – VC)x = FC
Breakeven units = FC  (S – VC)
b. The two methods of computing breakeven units are essentially the same. The only difference between the two methods is that (S – VC) per unit is
given a definition ("contribution margin") in the contribution margin approach to breakeven analysis. Use of the two methods will yield the same
results.
c. The contribution margin is the excess of revenue over variable cost. Fixed costs divided by this margin provide information on the number of
product sales necessary to recover fixed costs. An increase in the contribution margin would decrease the number of sales necessary to break even.
147. Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.
Yes. A service organization does not have direct materials costs or merchandise costs. But, it probably will have
a number of other variable costs, such as labor and supplies. Most service organizations also have fixed costs,
such as rent, taxes, depreciation, and salaries. It is just as important to analyze the cost structure and profit
potential of a service-oriented business as that of a product-oriented one.
three variable costs. (b) Support your answer by illustrating the cost behavior pattern per unit and in total as the
annual volume of cars produced increases from 4,000 cars to 8,000 cars, for one variable cost. (Note: The
Assume there are 52 weeks in a year and existing workers are working at full capacity.

a. Sports car tire cost (per tire) ($100), manufacturing hourly employees' weekly payroll ($88,000), and car
battery ($70)
b. The student may select any one of the three variable costs listed in part (a) and illustrate the constant cost per
unit and increasing cost in total as production increases.
Variable Cost
Behavior
Variable Cost
4,000 Cars 8,000 Cars
Per Car Cost Total Annual Per Car Cost Total
Costs Annual
Costs
Sports car tire cost1 $ 400 $1,600,000 $ 400 $3,200,000
Hourly employees' weekly payroll 1,144 4,576,0002 1,144 9,152,0003
Battery cost 70 280,000 70 560,000
1(4 tires per car at $100 per tire)
2(88,000 per week)
3(176,000 per week)
three fixed costs. (b) Support your answer by illustrating the cost behavior pattern per unit and in total as the
annual volume of cars produced increases from 4,000 cars to 8,000 cars, for one fixed cost. (Note: The

a. The student may select any three of the following four fixed costs: monthly machine rental charge ($8,000),
monthly insurance premiums on the plant ($800), salaried employees' weekly payroll cost ($51,000), and
depreciation on the equipment for the month ($6,000).
b. The student may select any one of the four fixed costs listed in part (a) and illustrate the decreasing cost per
unit and constant cost in total as production increases.
Fixed Cost
Behavior
Fixed Cost
4,000 Cars 8,000 Cars
Per Car Cost Total Annual Per Car Cost Total Annual
Costs Costs
Monthly machine rental charge $ 24.00 $ 96,000 $ 12.00 $ 96,000
Monthly insurance premiums 2.40 9,600 1.20 9,600
Salaried employees' weekly payroll 663.00 2,652,000 331.50 2,652,000
Depreciation on equipment for month 18.00 72,000 9.00 72,000
150. The following are monthly totals taken from the log of laser printer used by the Hardcopy Printing
International. Cost was based on a flat fee plus a declining cost per copy made after a minimum number of
copies had been made each month.
Month Number of Copies Made Total Cost

July 38,720 $11,880
August 33,440 10,560
September 36,190 11,248
October 44,330 13,283
November 42,240 12,760
December 53,790 15,648
To differentiate the variable and fixed costs in the use of this machine for future planning, use the high-low method to (a) determine the variable cost
per copy (round your answers to two decimal places) and (b) compute the fixed and variable costs for the months of August and December (round
your answers to nearest whole number).
a.
Copies Made Cost

High 53,790 $15,648
Low 33,440 10,560
Difference 20,350 $ 5,088
The variable cost per copy is $5,088  20,350 = $0.25 per copy.
b.
Month Copies Made ´ Variable Unit Cost = Variable Cost
August 33,440 $0.25 $ 8,360
December 53,790 0.25 13,448
Month Total Costs – Variable Costs = Fixed Costs

August $ 10,560 $ 8,360 $2,200
December 15,648 13,448 2,200
151. Denapasa Manufacturing leases a vacuum cleaning system for a basic monthly fee plus an additional cost
per hour used above a given minimum for each month. Given below is the information for the most recent six-
month period on the number of machine hours of use and the total cost under this lease.
Month Machine Hours Total Cost

7 6,300 $58,200
8 4,400 49,935
9 4,700 52,390
10 5,200 54,440
11 5,600 56,620
12 5,000 53,800
You are to provide information for planning concerning the variable and fixed cost elements in this lease. Use the high-low method to (a) determine
the variable cost per machine hour and (b) compute the fixed and variable costs for months 7 and 8.
a.
Machine Hours Cost
High 6,300 $58,200
Low 4,400 49,935
Difference 1,900 $ 8,265
The variable cost per machine hour is $8,265 1,900 machine hours = $4.35 per machine hour.
b.
Month Total Cost Variable Costs = Fixed Costs
7 $58,200 $27,405 $30,795
8 49,935 19,140 30,795
152. If Johnson Inc. sells 400 widgets at $180 per widget and has variable costs of $80 per widget and fixed
costs of $30,000, what is the projected profit?
Sales 400 ´ $180 = $72,000

Variable Costs 400 ´ $80 = 32,000
Fixed Costs 30,000

= Projected Profit $10,000
153. Pixel Inc. is a manufacturer of video cameras and is preparing production and sales forecasts for the
coming fiscal year. The company needs to determine the point at which the projected sales revenue will equal
the total of all fixed and variable costs. Fixed costs are estimated to be $259,000, and variable costs are
expected to be maintained at $125 per camera. Each camera will sell for $300.
Compute (a) the breakeven point in sales units and (b) the breakeven point in sales dollars.
a.

= $259,000  ($300 – $125)
= $259,000  $175
= 1,480 cameras
b.
Breakeven (dollars) = BE units ´ selling price
= 1,480 ´ $300
= $444,000
154. Neverlate is world famous for its precision pocket watches. The company has estimated that variable
manufacturing costs and variable selling costs per watch will be $72 and $43, respectively, for 2014. Also
during 2014, the company is expecting fixed manufacturing costs to total $291,600 and fixed general and
administrative expenses to amount to $253,175. The anticipated selling price of each watch is $500. Compute
(a) the breakeven point in sales units and (b) the breakeven point in sales dollars.
a.
Contribution Margin
Sales $500
Variable Costs
Variable manufacturing costs (72)
Variable selling costs (43)
Contribution margin $385
Fixed Costs =
$291,600 + $253,175 = $544,775
= $544,775  $385
= 1,415 units
b.
Breakeven (dollars) = BE units ´ selling price
= 1,415 ´ $500
= $707,500
155. Campground Inc. is considering the production and sale of propane lamps. Annual fixed costs associated
with the project are expected to total $60,000. In addition, each lamp would sell for $12 and would require $7 in
variable costs. Calculate (a) the breakeven point in units, (b) the breakeven point in dollars, (c) the number of
lamps that must be sold to earn a profit of $120,000, and (d) the operating income or loss at a sales volume of
16,000 lamps.
a. 12,000 units [$60,000  ($12 – $7)]

b. $144,000 (12,000 ´ $12)
c. 36,000 units [($60,000 + $120,000)  $5]
d. $20,000 operating income [(16,000 ´ $5) $60,000]
156. The Raquet Business is planning to manufacture a new type of tennis ball. Each tennis ball would sell for
$3.75 and would require $1.75 in variable costs. In addition, annual fixed costs associated with the project
would total $64,000.
a. Use the contribution margin approach to calculate:

(1) the breakeven point in units
(2) the breakeven point in dollars
b. Determine the operating income or loss at a sales volume of 30,000 tennis balls.
c. Determine the number of tennis balls that must be sold to earn a profit of $80,000.
a. (1) $64,000  ($3.75 – $1.75) = 32,000 units

(2) 32,000 ´ $3.75 = $120,000
b. (30,000 ´ $2) – $64,000 = ($4,000) operating loss
c. ($64,000 + $80,000)  $2 = 72,000 units
157. Plunda Co. is planning production for the coming year. The information to be used is based on a projection
of cost information for the current year. Projections of the following costs are as follows:
Variable costs per unit:

Direct labor 11.60
Overhead 18.40
Selling costs 8.20
Fixed cost estimates:

Production costs $212,400
Selling and administrative costs 417,600
Plunda Co. sells its product for $90.00 per unit. Compute the following, showing your calculations:
a. The breakeven point in sales units

b. The breakeven point in sales dollars
c. The sales level in both sales units and dollars if a profit of $122,400 is projected
a.
Selling price per unit $90.00
Less: Total variable cost per unit 54.00
Contribution Margin per unit 36.00
Total Fixed Cost $212,400+ $417,600 = $630,000
Breakeven Sales (Units) Total Fixed Costs  Contribution Margin per unit
$630,000  36 = 17,500 units
b. $90 ´ 17,500 = $1,575,000
c.
Total Fixed Cost $630,000
Projected profit 122,400
Fixed Costs + Profit $752,400
Contribution Margin per unit $36.00

Projected Sales level (units) $752,400  $36.00 = 20,900
Projected Sales level (dollars) 20,900 units $90 = $1,881,000
158. Luther Inc. has two products: Normal (unit sales price, $30; unit variable cost, $15) and Hybrid (unit sales
price, $35; unit variable cost, $20). The company's sales mix of the Normal to the Hybrid is 3:2 and fixed costs
are $42,000.
a. Determine the weighted-average contribution margin.

b. Calculate the weighted-average breakeven point.
c. Compute the breakeven point for each product.
a.
Unit Sales Unit Variable Unit Contribution Percentage of Sales Weighted-Average

Price Costs Margin Contribution Margin
Normal $30 $15 $15 60 $9.00
Hybrid 35 20 15 40 6.00
$15.00
b. Weighted-average breakeven point = $42,000 $15.00 = 2,800 units

c. Normal: 2,800 units 0.60 = 1,680 units
Hybrid: 2,800 units 0.40 = 1,120 units
159. A digitized music tuner has been a staple in Smooth Sounds' product line for several years. Annual fixed
costs of production and administration related to this product in the past have been $643,500. Variable costs of
production and sales have been $17 per unit. The selling price in the past has been $28 per unit. Based on the
appearance of competing products on the market, management has asked you to do the following:
a. Compute the breakeven point in units and sales dollars for the present product.
b. Compute the breakeven point in units and sales dollars if the variable costs increased by $3 per unit and the
fixed costs increased by $14,375 per month.
c. Using the information from (b), an expected additional monthly advertising charge of $10,000, and a monthly
sales rate of 15,000 units, compute the competitive selling price that the company must obtain in order to have a
profit of $32,000 per month. (Round answers to two decimal places.)
a.
= $643,500  $11
= 58,500 units
Breakeven (dollars) = 58,500 ´ $28

= $1,638,000
b.
BE units (annual) = FC  CM per unit
= [$643,500 + ($14,375 ´ 12)]  $8
= $816,000  $8
= 102,000 units
Breakeven (dollars) = 102,000 ´ $28

= $2,856,000
c. Computed using monthly data:

Estimated sales = (FC + P)  CM per unit
15,000 = ($78,000* + $32,000)  (x – $20)
15,000(x – $20) = $110,000
15,000 x = $110,000 + $300,000
x = ($110,000 + $300,000)  15,000
x = $27.33 per unit
*$78,000 = ($816,000  12) + $10,000
160. A new product, an easy to store guitar stand, is being planned, with the following cost estimates: variable
cost per unit, $9, and total fixed costs, $58,000. The projected sales price is $13 each.
a. Using the contribution margin approach, compute the number of units that must be sold to break even.
b. Using the same approach and assuming that fixed costs can be reduced by $8,000, how many units must be
sold to produce a profit of $65,000?
c. Given the original information and the projection that 50,000 units can be sold, compute the selling price that
the producer must use to obtain a profit of $150,000.
a.

= $58,000  $4
= 14,500 units
b.
Unit sales = (FC + P)  CM per unit
= ($50,000 + $65,000)  $4
= 28,750 units
c.
Estimated sales = (FC + P)  CM per unit
50,000 = ($58,000 + $150,000)  (x – $9)
50,000(x – $9) = $208,000
50,000 x = $208,000 + $450,000
x = $658,000  50,000
= $13.16 per unit
161. J & C Stacy Enterprises is expecting to earn a profit of $180,000 in 2014. The company manufactures
wrought iron lamps. Each lamp requires variable costs of $13 for direct materials, $9 for direct labor, and $12
for overhead. Total variable costs are thus $34 per lamp. Fixed costs for 2014 are expected to be $630,000.
Each lamp will sell for $79.
a. Determine how many lamps the company must sell to earn its targeted profit, and convert this amount to sales
dollars.
a.
Unit Sales = (FC + P)  CM per unit
= ($630,000 + $180,000)  ($79 – $34)
= $810,000  $45
= 18,000 (units for targeted profit)
= 18,000 ´ $79 (sales price per unit)
= $1,422,000 (sales needed to reach target)
b.
Breakeven = $630,000  $45
= 14,000 units
= 14,000 ´ $79
= $1,106,000 (sales to break even)
c.
Units Dollars
Sales necessary to earn targeted profit 18,000 $1,422,000
Less breakeven sales 14,000 1,106,000
Difference 4,000 $ 316,000
The company must produce and sell 4,000 units over its breakeven point to earn the targeted profit of $180,000. The $316,000 difference shown
above represents all variable costs and profit and is explained below.
Difference in sales amounts $316,000

Less variable costs applicable to the 4,000 excess units: 4,000 units ´ $34 per unit 136,000
Targeted profit $180,000
Proof:
Units in excess of breakeven ´ CM per unit = Targeted profit 4,000 ´ $45 = $180,000
162. Ryan's Landscaping sells a quality brand of hoes, shovels, and rakes in a sales mix of 2:4:2. The company's
fixed costs are $61,600. Product data include the following:
Unit Sales Price Unit Variable Costs

Hoes $12 $8
Shovels 15 7
Rakes 16 8
a. Compute the weighted-average contribution margin.

b. Determine the weighted-average breakeven point.
c. Calculate the breakeven point for each product.
d. Determine the breakeven point in sales dollars.
a.
Unit Sales Price Unit Variable Unit Contribution Percentage of Sales Weighted-Average
Costs Margin Contribution Margin
Hoes $12 $8 $4 0.25 $1
Shovels 15 7 8 0.50 4
Rakes 16 8 8 0.25 2
$7
b. Weighted-average breakeven point = $61,600  $7 = 8,800 units
c.
Hoes: 8,800 units ´ 0.25 = 2,200 units
Shovels: 8,800 units ´ 0.50 = 4,400 units
Rakes: 8,800 units ´ 0.25 = 2,200 units
d.
Hoes: (2,200 units ´ $12) = $ 26,400
Shovels: (4,400 units ´ $15) = 66,000
Rakes: (2,200 units ´ $16) = 35,200
Breakeven point in
sales
dollars $127,600
163. Projected cost information for a new product to be produced by Kolier Manufacturing is as follows:
Expected variable unit costs:

Direct labor 7.18
Overhead 1.92
Selling costs 4.00
Annual fixed costs:

Taxes on property used $ 8,870
Depreciation on building and equipment 18,920
Advertising 38,840
Other 2,070
The product is to be sold for $49.
a. Compute the number of units that must be sold to earn a profit of $80,000.
b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained.
c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.
d. The most in annual sales that could be projected is 20,000 units. Determine the added amount that could be spent on fixed advertising costs if the
highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.
a.
Units sold to obtain $80,000 profit = (FC + P)  CM per unit
= ($68,700 + $80,000)  $25
= 5,948 units
b.
Units sold to obtain target profit = (FC + P)  CM per unit
= ($80,700 + $120,000)  $25
= 8,028 units
c. New selling price to obtain $200,000 profit:

Unit sales = (FC + P)  CM per unit
10,000 = ($68,700 + $200,000)  (x – $24)
10,000 (x – $24) = $268,700
10,000 x = $508,700
x = $50.87
d. Additional dollars available for advertising:

S – VC – (FC + X) =P
(where X equals amount available
for fixed advertising costs.)
$50(20,000) – $24(20,000) – = $225,000
($68,700 + X)
$1,000,000 – $480,000 – $68,700 – = X
$225,000
$226,300 =X
There is $226,300 available that

could be spent on fixed advertising
costs.
164. Loren Inc. sold 30,000 units of its product last year with the following results:

Fixed costs 190,000
Operating income $ 80,000
The company expects variable costs to increase by $4.00 per unit this year.
a. Assuming the unit sale price remains constant, compute the unit contribution margin and the contribution margin ratio for this year. (Round
percentage value to one decimal place.)
b. Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating income as last year?
c. Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year, determine the unit sales
price the company must charge to cover the expected increase in variable costs.(Round your answers to two decimal places.)
a.
Unit sales price ($900,000  30,000 units) $30

Unit variable costs [($630,000  30,000 units) + $4] 25
Unit contribution margin $5
Contribution margin ratio = $5  $30 = 16.7%
b. Desired unit sales = ($190,000 + $80,000)  $5 = 54,000 units
c. Last year's contribution margin ratio = $270,000  $900,000 = 30%
Therefore, last year's variable cost ratio = 1.00 – 0.30 = 0.70, or 70%, and given the requirements of the exercise, this must be the variable cost ratio
for this year.
New unit sales price = $25  70% = $35.71
165. Native American Pottery expects to earn a profit of $95,000 in 2014. The company manufactures
ornamental ceramic tiles. Each lot of 100 blocks requires variable costs of $5.00 for direct materials, $3.50 for
direct labor, and $4.50 for overhead. Total variable costs are thus $13 per lot. Fixed costs for 2014 are expected
to be $130,000. Each hundred-block lot will sell for $33.
a. Determine how many lots of ceramic tiles the company must sell to earn its targeted profit, and convert this
amount to sales dollars.
a.
Unit Sales = (FC + P)  CM per unit

= ($130,000 + $95,000)  ($33 – $13)
= $225,000  $20
= 11,250 (units for target)
= 11,250 ´ $33 (sales price per unit)
= $371,250 (sales needed to reach target)
b.
Breakeven = $130,000  $20
= 6,500 units
= 6,500 ´ $33
= $214,500 (sales to break even)
c.
Units Dollars
Sales necessary to earn targeted profit 11,250 $371,250
Less breakeven sales 6,500 214,500
Difference 4,750 $156,750
The company must produce and sell 4,750 units over its breakeven point to earn the targeted profit of $95,000. The $156,750 difference shown above
represents all variable costs and profit and is explained below.
Difference in sales amounts $156,750

Less variable costs applicable to the 4,750 excess units: 4,750 units ´ $13
per unit 61,750
Targeted profit $ 95,000
Proof:
Units in excess of breakeven ´ CM per unit = Targeted profit 4,750 ´ $20 = $95,000
166. Ben & Harry Co. sold 100,000 units last year with the following results:

Fixed costs 100,000
a. Management thinks that a 5 percent reduction in the unit sales price and a $31,000 increase in fixed advertising costs will create a 30 percent
increase in unit sales. Assess this proposal and make a recommendation on what action should be taken.
b. Assume that the marketing manager thinks that the unit sales price and advertisement costs should not be changed. Instead, he recommends a
$0.40 per unit increase in sales commissions to generate the 30 percent increase in unit sales and a 20 percent increase in operating income. This
results in reduction of fixed costs to a certain extent.
Assess this proposal.
a. If the changes are made, the following will result:
Sales (130,000 units ´ $3.80 per unit) $494,000

Variable costs (130,000 ´ $1.60 per unit) 208,000
Fixed costs ($100,000 + $31,000) 131,000
The resulting operating income would increase by 10.7% ($155,000  $140,000 = 110.7%*); therefore, the changes should be made.
*Rounded
b. The $0.40 per unit increase in sales commissions would increase the variable cost per unit to $2 and reduce the unit contribution margin to $2 ($4 -
$2). Placing the projected changes in unit sales (from 100,000 to 130,000 units), unit contribution margin ($2), and operating income (from $140,000
to $168,000) into an equation format representing the determination of operating income gives the following:
(130,000 units ´ $2) ($100,000 reduction in fixed costs) = $168,000

$260,000 $100,000 + reduction in fixed costs = $168,000
Reduction in fixed costs = $8,000
Therefore, the company can achieve the targeted profits by increasing the sales commissions by $0.40 per unit.
167. Meredith Marshall owns a home inspection business, offering her services to homeowners. She currently
charges $180 per inspection but wants to know if her fee should be raised. She has provided the following data
from the past six months:
Month Number of Inspections Overhead Costs

March 60 $3,420
April 64 3,555
May 76 3,989
June 90 4,044
July 97 4,101
August 110 4,120
Meredith takes her daughter with her on all inspections and pays her $40 per inspection. Due to slower business in the cooler months, Meredith
estimates she will average 60 inspections per month for the next six months. Prepare a schedule showing Meredith 's estimated total cost per
inspection.
Volume Month Number of Inspections Overhead Costs

High August 110 $4,120
Low March 60 3,420
Difference 50 $ 700
Variable overhead costs
per inspection = $700 
50 = $14 per inspection
Fixed overhead costs for
August = $4,120 – (110
inspections ´ $14) =
$2,580
Fixed overhead costs for
March = $3,420 – (60
inspections ´ $14) =
$2,580
Variable costs per

inspection:
Payment to daughter $40
for assistance
Variable overhead 14
costs
Fixed costs per

inspection:
Fixed overhead costs 43
($2,580 per month/60
inspections)
Estimated total cost per $97
inspection

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Managerial Accounting 10th Edition

Crosson Test Bank

Test Bank: https://testbankpack.com/p/test-bank-for-managerial-accounting-

Solution Manual: https://testbankpack.com/p/solution-manual-for-managerial-

Chapter 5: Cost-Volume-Profit Analysis

1. Costs are not affected by the changes in the volume of production.

4. Cost behavior analysis is not useful to a service business.

9. Fixed costs remain constant in a relevant range of activity.

10. Unit fixed costs vary inversely with activity or volume.

11. Cost can only be classified as either variable or fixed.

17. Practical capacity and engineering capacity are synonymous terms.

20. Electric power charges are an example of a mixed cost.

30. Gross margin and contribution margin are always equal.

35. Cost-volume-profit analysis assumes a constant sales mix.

39. The contribution margin equals zero at the breakeven point.

40. Contribution margin is calculated by deducting variable costs from sales.

48. Breakeven is when total fixed costs equal total revenues.

65. Service businesses do not have any overhead costs.

79. As production decreases, fixed costs per unit will

85. In terms of cost behavior, telephone expenses are often classified as

Cost Units Produced

Month Telephone Hours Telephone

Month Telephone Hours Used Telephone

October 110 $4,400

96. The high-low method

Month Cost Machine Hours

102. In a graph of cost-volume-profit analysis, the

103. At production levels below the breakeven point,

106. The breakeven point is the point at which

110. Contribution margin equals fixed costs plus

Unit Sales Price Unit Variable Costs Unit Sales

The sales mix for Products A, B, and C is

116. Manix Company has gathered the following data:

Unit Sales Price Unit Variable Costs Unit Sales

119. The breakeven point is

Products Unit Sales Price Unit Variable Costs Unit Sales

The weighted-average contribution margin is

Unit Sales Price Unit Variable Costs Unit Sales

The weighted-average breakeven point is

124. Which of the following is not an assumption underlying cost-volume-profit analysis?

129. Breakeven analysis adjusted for a targeted profit

Sales revenue $200,000

What is Hike’s breakeven point in dollars?

Total Service Overhead Cases Worked

The formula for total service overhead costs is

a. The line H-B represents what type of cost? ______________________

a. Production at point J would be at a __________.

Monthly machine rental charge $ 8,000

Monthly machine rental charge $ 8,000

Month Number of Copies Made Total Cost

Month Machine Hours Total Cost

a. Use the contribution margin approach to calculate:

Variable costs per unit:

Fixed cost estimates:

a. The breakeven point in sales units

a. Determine the weighted-average contribution margin.

Unit Sales Price Unit Variable Costs

a. Compute the weighted-average contribution margin.

Expected variable unit costs:

Annual fixed costs:

The product is to be sold for $49.

Sales revenue $900,000

Sales revenue $400,000