Chapter 21 Cost Volume Profit Analysis PDF

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Chapter 21 - Cost-Volume-Profit Analysis True / False 1. Cost behavior refers to the methods used to estimate costs for use in managerial decision making. a. True b. False ANSWER: False DIFFICULTY: Bloom's: Remembering Easy LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 2. Cost behavior refers to the manner in which a cost changes as the related activity changes. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 3. The fixed cost per unit varies with changes in the level of activity. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 4. A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 5. Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 6. In order to choose the proper activity base for a cost, a managerial accountant must be familiar with the operations of the entity. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 7. The relevant range is useful for analyzing cost behavior for management decision-making purposes. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 8. The relevant activity base for a cost depends on which base is most closely associated with the cost and the decisionmaking needs of management. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 9. The range of activity over which changes in cost are of interest to management is called the relevant range. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.27 - Managerial Accounting Features/Costs ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 10. Total fixed costs change as the level of activity changes. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 11. Because variable costs are assumed to change in direct proportion to changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 12. Variable costs are costs that remain constant in total dollar amount as the level of activity changes. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 13. Variable costs are costs that remain constant on a per-unit basis as the level of activity changes. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis BUSPROG: Analytic 14. Variable costs are costs that vary in total in direct proportion to changes in the activity level. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 15. Variable costs are costs that vary on a per-unit basis with changes in the activity level. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 16. Direct materials and direct labor costs are examples of variable costs of production. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom’s: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 17. Total variable costs change as the level of activity changes. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis BUSPROG: Analytic 18. Unit variable cost does not change as the number of units of activity changes. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 19. A mixed cost has characteristics of both variable and fixed costs. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 20. Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours are an example of a fixed cost. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 21. A rental cost of $20,000 plus $0.70 per machine hour of use is an example of a mixed cost. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis BUSPROG: Analytic 22. For purposes of analysis, mixed costs can generally be separated into their variable and fixed components. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-01 - 21-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.IMA.07 - Cost Management ACCT.IMA.09 - Performance Measurement BUSPROG: Analytic 23. The contribution margin ratio is the same as the profit-volume ratio. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 24. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 25. The dollars available from each unit of sales to cover fixed cost and profit are the unit variable cost. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.28 - Variable and Fixed Costs ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis BUSPROG: Analytic 26. The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 27. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 60%. a. True b. False ANSWER: False RATIONALE: Contribution Margin Ratio = Contribution Margin/Sales = Sales – Variable Costs/Sales = $2,000,000 – ($2,000,000 × 0.60)/$2,000,000 = ($2,000,000 – $1,200,000)/$2,000,000 = 40% DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 28. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%. a. True b. False ANSWER: True RATIONALE: Contribution Margin Ratio = Contribution Margin/Sales = Sales – Variable Costs/Sales = $2,000,000 – ($2,000,000 × 0.60)/$2,000,000 = ($2,000,000 – $1,200,000)/$2,000,000 = 40% DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-02 - 21-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 29. The data required for determining the break-even point for a business are the total estimated fixed costs for a period, stated as a percentage of net sales. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 30. If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is $0 when sales revenue is $930,000. a. True b. False ANSWER: False RATIONALE: Sales Revenue at which Profit Is $0 = Fixed Cost/Contribution Margin Ratio = $500,000/40% = $1,250,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 31. If fixed costs are $850,000 and the unit contribution margin is $50, profit is $0 when 15,000 units are sold. a. True b. False ANSWER: False RATIONALE: Profit is $0 when 17,000 units are sold ($850,000/$50). DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 32. The point in operations at which revenues and expenses are exactly equal is called the break-even point. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 33. Break-even analysis is one type of cost-volume-profit analysis. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 34. If the property tax rates are increased, this change in fixed costs will result in a decrease in the break-even point. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 35. If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 36. If employees accept a wage contract that increases the unit contribution margin, the break-even point will decrease. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 37. If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 38. If direct materials cost per unit increases, the break-even point will decrease. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 39. If direct materials cost per unit increases, the break-even point will increase. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 40. If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.ACBSP.APC.31 - Break-even point ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 41. If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units. a. True b. False ANSWER: True RATIONALE: Operating Income = Contribution Margin – Fixed Costs $50,000 = ($50 × Number of Units) – $450,000 Number of Units = ($50,000 + $450,000)/$50 = 10,000 units DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 42. If fixed costs are $650,000 and the unit contribution margin is $30, the sales necessary to earn an operating income of $30,000 are 14,000 units. a. True b. False ANSWER: False RATIONALE: Operating Income = Contribution Margin – Fixed Costs $30,000 = ($30 × Number of Units) – $650,000 Number of Units = ($30,000 + $650,000)/$30 = 22,667 units DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18.21-03 - 21-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.ACBSP.APC.30 - Contribution Margin ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic © 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Chapter 21 - Cost-Volume-Profit Analysis 43. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profitvolume chart. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.21-04 - 21-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.29 - CVP Analysis ACCT.IMA.09 - Performance Measurement ACCT.IMA.14 - Decision Analysis BUSPROG: Analytic 44. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the costvolume-profit chart. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACC...