TUTORIAL TEST 8

COST FUNCTION
1) A 15% increase in production volume will result in a ________.
A) 15% increase in the variable cost per unit
B) 15% increase in total mixed costs
C) 15% increase in total administration costs
D) 15% increase in total variable costs

2) Variable cost per unit, within the relevant range, will ________.
A) increase as production decreases
B) decrease as production decreases
C) remain the same as production levels change
D) decrease as production increases

3) Which of the following statements is TRUE of the behavior of total variable costs, within the
relevant range?
A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.

4) Which of the following statements is TRUE of the behavior of total fixed costs, within the
relevant range?
A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.

5) Louis Petit, a manager of Doggone Gorgeous, Inc., was reviewing the water bills of a dog
daycare and spa. He determined that its highest and lowest bills of $3,800 and $2,000 were
incurred in the months of May and November, respectively. If 600 dogs were washed in May and
200 dogs were washed in November, what was the fixed cost associated with the company's
water bill? (Round any intermediate calculations to the nearest cent and your final answer to the
nearest dollar.)
A) $2,000
B) $3,800
C) $1,100
D) $1,800
6) Mcleod, Inc. incurred fixed costs of $300,000. Total costs, both fixed and variable, are
$500,000 when 59,000 units are produced. It sold 35,000 units during the year. Calculate the
variable cost per unit. (Round your answer to the nearest cent.)
A) $8.47
B) $14.29
C) $5.08
D) $3.39

7) Ferric Chemicals, Inc. has fixed costs of $34,000 per month. The highest production volume
during the year was in January when 100,000 units were produced, 71,000 units were sold, and
total costs of $640,000 were incurred. In June, the company produced only 60,000 units. What
was the total cost incurred in June? (Round any intermediate calculations to the nearest cent and
your final answer to the nearest dollar.)
A) $363,600
B) $397,600
C) $640,000
D) $674,000

8) The phone bill for a company consists of both fixed and variable costs. Refer to the
four-month data below and apply the high-low method to answer the question.

Minutes Total Bill

January 480 $4000
February 200 $2700
March 170 $2640
April 320 $2855

What is the fixed portion of the total cost? (Round any intermediate calculations to the nearest
cent, and your final answer to the nearest dollar.)
A) $2107.20
B) $1360
C) $1893
D) $2640

9) The phone bill for a company consists of both fixed and variable costs. Refer to the
four-month data below and apply the high-low method to answer the question.

Minutes Total Bill

January 460 $3000
February 200 $2675
March 170 $2660
April 310 $2825
What is the variable cost per minute? (Round your answer to the nearest cent.)
A) $1.17
B) $6.52
C) $0.85
D) $0.11

10) Advantage, Inc., a tennis equipment manufacturer, has variable costs of $0.60 per unit of
product. In August, the volume of production was 27,000 units, and units sold were 21,800. The
total production costs incurred were $30,600. What are the fixed costs per month?
A) $14,400
B) $17,520
C) $3600
D) $16,200

11) Hello-E, Inc., an electronic equipment manufacturer, has variable costs of $0.60 per unit of
product. In July, the volume of production was 27,000 units, and units sold were 21,800. The
total production costs incurred were $30,600. For production in August, Hello-E intends to
choose better quality input materials, causing variable costs per unit of production to increase by
$0.1, what will the total cost be incurred in August if the company produces 20,000 units?
A) $28,400
B) $24,400
C) $26,400
D) $31,520

12) Which of the following is the correct formula for calculating total mixed cost?
A) Total mixed cost = (Variable cost per unit / Number of units) + Total fixed cost
B) Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost
C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost
D) Total mixed cost = (Variable cost per unit / Number of units) - Total fixed cost

13) If Smart Touch Learning increases its production of tablet computers, what will be the effects
on the variable and fixed costs per tablet?
A) variable costs per tablet decrease, fixed costs per tablet increase
B) variable costs per tablet increase, fixed costs per tablet is constant
C) variable costs per tablet increase, fixed costs per tablet decrease
D) variable costs per tablet is constant, fixed costs per tablet decrease

14) Choice Creations, Inc. sells hand sewn shirts at $58.00 per shirt. It incurs monthly fixed costs
of $8000. The contribution margin ratio is calculated to be 30%. What is the variable cost per
shirt? (Round any intermediate calculations and your final answer to two decimal places.)
A) $40.60 per shirt
B) $75.40 per shirt
C) $58.00 per shirt
D) $17.40 per shirt
15) Robusta Coffee Importers sold 7000 units in October at a sales price of $45 per unit. The
variable cost is $20 per unit. The monthly fixed costs are $8000. What is the operating income
earned in October?
A) $175,000
B) $315,000
C) $167,000
D) $140,000

16) Peeler's Smoothie Company has provided the following information:

Sales price per unit $5.50

Variable cost per unit $2.50
Fixed costs per month $1000

Calculate the contribution margin ratio. (Round your answer to two decimal places.)
A) 120%
B) 20%
C) 45.45%
D) 54.55%

17) Martin was a professional classical guitar player until a motorcycle accident left him
disabled. After long months of therapy, he hired an experienced luthier and started a small shop
to make and sell Spanish guitars. The guitars sell for $900, and the fixed monthly operating costs
are as follows:

Rent and utilities $800

Wages and benefits to luthier $2000
Other expenses $474

Martin's accountant told him about contribution margin ratios, and Martin clearly understood that
for every dollar of sales, $0.65 went to cover his fixed costs, and anything above that point was
profit.
Martin wishes to earn $4000 operating profit each month. Calculate the number of guitars Martin
will need to sell to achieve the target profit. (Round your answer up to the nearest whole guitar.)
A) 3 guitars
B) 12 guitars
C) 4 guitars
D) 13 guitars
18) Zeke was a professional classical guitar player until a motorcycle accident left him disabled.
After long months of therapy, he hired an experienced luthier and started a small shop to make
and sell Spanish guitars. The guitars sell for $800, and the fixed monthly operating costs are as
follows:

Rent and utilities $700

Wages and benefits to luthier 2300
Other expenses 479

Zeke's accountant told him about contribution margin ratios, and Zeke understood clearly that for
every dollar of sales, $0.75 went to cover his fixed costs, and anything above that point was
profit.

Zeke wishes to earn $5100 of operating profit each month. Calculate the amount of sales revenue
required to achieve the target profit. (Round your answer to the nearest dollar.)
A) $4,639
B) $13,916
C) $11,439
D) $34,316

19) One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in
the ________.
A) accounts payable
B) cash balance
C) inventory levels
D) account receivables

20) Yarn Basket, Ltd., sells hand-knit scarves. Each scarf sells for $40. The company pays $150
to rent a vending space for one day. The variable costs are $11 per scarf. What total revenue
amount does the company need to earn to break even? (Round any percentages to two decimal
places and your final answer to the nearest cent.)
A) $7.73
B) $206.90
C) $15.17
D) $40.00

21) Ajax was a professional classical guitarist until a motorcycle accident left him disabled.
After long months of therapy, he hired an experienced luthier and started a small shop to make
and sell Spanish guitars. The guitars sell for $800, and the fixed monthly operating costs are as
follows:
Rent and utilities $600
Wages and benefits to luthier 2300
Other expenses 479

Ajax's accountant told him about contribution margin ratios, and Ajax understood clearly that for
every dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was
profit.

How many guitars does Ajax need to sell each month to break even? (Round your answer up to
the nearest whole guitar.)
A) 5 guitars
B) 3 guitars
C) 7 guitars
D) 8 guitars

22) Murphy Company produces flash drives for computers, which it sells for $20 each. Each
flash drive costs $6 of variable costs to make. During April, 700 drives were sold. Fixed costs for
April were $4 per unit for a total of $2,800 for the month. How much does Murphy’s operating
income increase for each $1,000 increase in revenue per month?
A) $700
B) $500
C) $14,000
D) Not enough information to determine the answer

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

24) In the Restin Company, maintenance costs are a mixed cost. At the low level of activity (80
direct labor hours), maintenance costs are $600. At the high level of activity (200 direct labor
hours), maintenance costs are $1,100. Using the high-low method, what is the variable
maintenance cost per unit and the total fixed maintenance cost?
Variable Cost Per Unit Total Fixed Cost
A) $4.17 $267
B) $4.17 $500
C) $5.50 $220
D) $5.50 $400

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

26) Bolton Industries had actual sales of $1,000,000 when break-even sales were $600,000.
What is the margin of safety ratio?
A) 60%
B) 33%
C) 40%
D) 67%

27) Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the
variable costs are $8 per brush. Fixed costs per month are $4,800. If Lansbury sells 30 more units
beyond breakeven, how much does profit increase as a result?
A) $360
B) $600
C) $240
D) $1,200

28) Hayduke Corporation reported the following results from the sale of 5,000 units in May:
sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000. Assume
that Hayduke increases the selling price by 5% on June 1. How many units will have to be sold
in June to maintain the same level of net income?
A) 4,444.
B) 4,600.
C) 4,750.
D) 5,000.

29) Keene, Inc. produces flash drives for computers, which it sells for $20 each. Each flash drive
costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March
were $5.60 per unit for a total of $5,600 for the month. If variable costs decrease by 10%, what
happens to the break-even level of units per month for Keene?
A) It is 10% higher than the original break-even point.
B) It decreases about 16 units.
C) It decreases about 40 units.
D) It depends on the number of units the company expects to produce and sell.

30) Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of
$100,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are
$200,000, how many units must be sold to earn income of $100,000?
A) 1,500,000 units
B) 100,000 units
C) 37,500 units
D) 150,000 units