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Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:

expense A has decreased.

Which costs will change with a decrease in activity within the relevant range?

Unit fixed costs and total variable cost.

An example of a discretionary fixed cost is:

management training

The contribution approach to the income statement:

is useful to managers in planning and decision making.

Within the relevant range, the variable cost per unit:

remains constant as activity changes

An increase in the activity level within the relevant range results in:

a decrease in fixed cost per unit.

The linear equation Y = a + bX is often used to express cost formulas. In this equation:

the b term represents variable cost per unit of activity.

An example of a discretionary fixed cost is:

management training.

An example of a cost that is variable with respect to the number of units produced and sold is:

power to run production equipment

The cost of goods sold in a merchandising company typically would be classified as a:

variable cost.

A cost driver is:

a factor that causes variations in a cost.

A disadvantage of the high-low method of cost analysis is that:

it uses two extreme data points, which may not be representative of normal conditions.

The contribution approach to the income statement

is useful to managers in planning and decision making.

Contribution margin is the excess of revenues over:

all variable costs.

The _______________ approach to the income statement organizes costs by function.


_________________ is a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors.

least-square regression method

The difference between total sales in dollars and total variable expenses is called:

the contribution margin.

With regard to the CVP graph, which of the following statements is not correct

The CVP graph assumes that variable costs go down as volume goes up.

Which of the following formulas is used to calculate the contribution margin ratio?

(Sales - Variable expenses) ÷ Sales

The break-even point in unit sales is found by dividing total fixed expenses by:

the contribution margin per unit

Break-even analysis assumes that:

the average variable expense per unit is constant

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

F ÷ (P-V).

The break-even point in unit sales increases when variable expenses

increase and the selling price remains unchanged

The margin of safety percentage is computed as:

(Total sales - Break-even sales) ÷ Total sales

The amount by which a company's sales can decline before losses are incurred is called the:

margin of safety.

The degree of operating leverage can be calculated as:

contribution margin divided by net operating income.

Which of the following is an assumption that is NOT made in most cost-volume-profit calculations?

Selling price, variable expense per unit, and fixed expense per unit do not change

On a cost-volume-profit graph, the break-even point is located:

where the total revenue line intersects the total expenses line.

If a company increases advertising by $500,000, this will cause net operating income to increase if the resulting increase in sales dollars is greater than:

$500,000 divided by the contribution margin ratio.

Once the break-even point is reached:

net operating income will increase by the unit contribution margin for each additional item sold.

Which of the following is true regarding the contribution margin ratio of a single product company?

If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales

Assuming that the unit sales are unchanged, the total contribution margin will decrease if:

variable expense per unit increases.

To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following?

(Selling price per unit - Variable expense per unit)/Selling price per unit.

A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point?

The effect cannot be determined from the information given

The ratio of fixed expenses to the unit contribution margin is the:

break-even point in unit sales.

The margin of safety is equal to:

Sales - (Fixed expenses/Contribution margin ratio).

. Witczak Company has a single product and currently has a degree of operating leverage of 5. Which of the following will always increase Witczak's degree of operating leverage?

A. change in variable cost per unit increase and change in total fixed expense increase

If company A has a higher degree of operating leverage than company B, then:

company A's profits are more sensitive to percentage changes in sales.

Which of the following would a manufacturing company expect to experience as it automates and shifts from variable expenses to fixed expenses?

D. both A and B above

Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to decrease the company's overall break-even point?

A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's:

C. variable expense per unit is $9.

Under variable costing, costs that are treated as period costs include

all fixed costs.

Selling and administrative expenses are considered to be:

a period cost under variable costing.

A portion of the total fixed manufacturing overhead cost incurred during a period may

be excluded from cost of goods sold under absorption costing.

A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because:

production is geared to sales under lean production and thus there would be little or no ending inventory

Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:

production exceeds sales for that period.

If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will:

be greater than net operating income under variable costing

Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be:

the same as those reported under variable costing

In an income statement segmented by product line, a fixed expense that cannot be allocated among product lines on a cause-and-effect basis should be:

classified as a common fixed expense and not allocated

A common cost that should not be assigned to a particular product on a segmented income statement is:

the salary of the corporation president.

All other things being equal, if a division's traceable fixed expenses increase

the division's segment margin will decrease

All other things equal, if a division's traceable fixed expenses decrease:

the division's segment margin will increase

Segment margin is sales minus

variable expenses and traceable fixed expenses

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