cost accounting test bank chapter 3

Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 3 Cost-Volume-Profit Analysis

Objective 3.1

1) Managers use cost-volume-profit (CVP) analysis to ________. A) forecast the cost of capital for a given period of time

B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income

C) estimate the risks associated with a given job

D) analyse a firm's profitability and help to decide wealth distribution among its stakeholders Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) One of the first steps to take when using CVP analysis to help make decisions is ________. A) calculating the break-even point

B) identifying the variable and fixed costs

C) calculation of the degree of operating leverage for the company D) estimating the volume of sales to make a good profit Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

3) Which of the following is true of cost-volume-profit analysis? A) The theory assumes that all costs are variable.

B) The theory assumes that units manufactured equal units sold.

C) The theory states that total variable costs remain the same over a relevant range. D) The theory states that total costs remain the same over the relevant range. Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

4) The selling price per unit less the variable cost per unit is the ________. A) fixed cost per unit B) gross margin C) margin of safety

D) contribution margin per unit Answer: D

Diff: 1

Objective: 1

AACSB: Analytical thinking

1

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5) In the graph method of CVP analysis, the total revenues line always begins from the x-axis and the total costs line begins from the fixed cost line. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

6) Which of the following is an assumption of CVP analysis?

A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.

B) When graphed, total costs curve upward.

C) The unit-selling price is variable as it is subject to demand and supply.

D) Total costs can be divided into inventoriable and period costs with respect to the level of output. Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

7) Which of the following is true of CVP analysis?

A) Costs may be separated into separate inventoriable and period components with respect to the level of output.

B) Total revenues and total costs are linear in relation to output units.

C) Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.

D) Proportion of different products will vary according to demand and supply when multiple products are sold. Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

8) A revenue driver is defined as ________. A) any factor that affects costs and revenues B) any factor that affects revenues

C) the only factor that can influence a change in selling price D) the only factor that can influence a change in demand Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

9) As per CVP, operating income calculations use ________. A) net income and dividends

B) income tax expense and net income C) contribution margins and fixed costs

D) nonoperating revenues and nonoperating expenses Answer: C

Diff: 1

Objective: 1

AACSB: Analytical thinking

2

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10) Which of the following is true about the assumptions underlying basic CVP analysis? A) Selling price varies with demand and supply of the product.

B) Only selling price and variable cost per unit are known and constant.

C) Only selling price, variable cost per unit, and total fixed costs are known and constant.

D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant. Answer: C

Diff: 1

Objective: 1

AACSB: Analytical thinking

11) The contribution margin income statement ________. A) reports gross margin

B) is allowed for external reporting to shareholders C) categorizes costs as either direct or indirect

D) can be used to predict future profits at different levels of activity Answer: D

Diff: 1

Objective: 1

AACSB: Analytical thinking

12) Contribution margin equals ________. A) revenues minus period costs B) revenues minus product costs C) revenues minus variable costs D) revenues minus fixed costs Answer: C

Diff: 1

Objective: 1

AACSB: Analytical thinking

Answer the following questions using the information below:

Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs.

13) Contribution margin per unit is ________. A) $4.00 B) $11.00 C) $10.00 D) $8.00 Answer: C

Explanation: C) ($7,000 ? $3,000) / 400 units = $10 per unit

Diff: 2

Objective: 1

AACSB: Application of knowledge

3

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14) Calculate the variable cost per unit. A) $11.00 B) $7.00 C) $8.00 D) $7.50 Answer: D

Explanation: D) $3,000 / 400 = $7.50

Diff: 2

Objective: 1

AACSB: Application of knowledge

Answer the following questions using the information below:

Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs. 15) Contribution margin per software is ________. A) $10.00 B) $30.00 C) $40.00 D) $36.00 Answer: B

Explanation: B) ($440,000 ? $110,000) / 11,000 = $30 per software

Diff: 2

Objective: 1

AACSB: Application of knowledge

16) If sales increase by $60,000, operating income will increase by ________. A) $10,000 B) $40,000 C) $45,000 D) $60,000 Answer: D

Explanation: D) Price = $440,000 / 11,000 = $40.00 Sales in softwares = $60,000 / $30.00 = 2,000 softwares

Operating income increase = 2,000 softwares × $30.00 per = $60,000

Diff: 2

Objective: 1

AACSB: Application of knowledge

4

Copyright ? 2015 Pearson Education, Inc.