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Exam 5: Merchandising Operations and the Multiple-Step Income Statement

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Question 1

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Walters Corporation sells radios for $50 per unit.The fixed costs are $525,000 and the variable costs are 60% of the selling price.As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price.The new break-even point in units is:

A) 26,250
B) 26,000
C) 25,750
D) 21,000

E) A) and D)
F) None of the above

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Question 2

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Which one of the following is not an assumption of CVP analysis?

A) All units produced are sold.
B) All costs are variable costs.
C) Sales mix remains constant.
D) The behavior of costs and revenues are linear within the relevant range.

E) A) and B)
F) A) and C)

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Question 3

Multiple Choice

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At the break-even point of 2,000 units, variable costs are $165,000, and fixed costs are $96,000.How much is the selling price per unit?

Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $110, and the total monthly fixed costs are $300,000.How much is Weatherspoon's contribution margin ratio?

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?

Contribution margin

Which of the following would be the least controllable fixed costs?

Portman Company's activity for the first three months of 2016 are as follows: $\begin{array} { l c c } & \text { Machine Hours } & \text { Electrical Cost } \\\text { January } & 2,100 & \$ 4,800 \\\text { February } & 2,600 & \$ 5,800 \\\text { March } & 2,900 & \$ 6,400\end{array}$ Using the high-low method, how much is the cost per machine hour?

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000.What is Boswell's contribution margin ratio?

The relevant range of activity refers to the

Which of the following is not an underlying assumption of CVP analysis?

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000.The number of units the company must sell to break even is

The high-low method is criticized because it

Two costs at Bradshaw Company appear below for specific months of operation. $\begin{array}{llrr}&\text { Month }&\text { Amount }&\text { Units Produced }\\\text { Delivery costs } & \text { September } & \$ 40,000 & 40,000 \\& \text { October } & 55,000 & 60,000 \\\text { Utilities } & \text { September } & \$ 84,000 & 40,000 \\& \text { October } & 126,000 & 60,000\end{array}$ Which type of costs are these?

The graph of variable costs that behave in a curvilinear fashion will

A CVP income statement shows contribution margin instead of gross profit.

For planning purposes, mixed costs are generally grouped with fixed costs.

Fixed costs normally will not include

If a firm increases its activity level,

If volume increases, all costs will increase.