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Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

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Question 51

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What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?

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Operating leverage is the extent or rela...

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Question 52

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A step-wise variable cost can be separated into a fixed component and a variable component.

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Question 53

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A product has a contribution margin per unit of $17 and sells at $25 per unit. If the break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed costs.

A special case of cost-volume-profit analysis is:

The contribution margin per unit is equal to the sales price per unit minus the variable costs per unit.

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product. (Assume that the sales mix is known.)

Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to do cost-volume-profit analysis.

Variable costs per unit increase proportionately with increases in output activity.

Curvilinear costs are also known as nonlinear costs.

Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last 6 months: -Using the high-low method and the Willco data above, what is the approximate fixed cost component of the monthly maintenance costs?

Brown Company's contribution margin ratio is 24%. Total fixed costs are $84,000. What is Brown's break-even point in sales dollars?

When graphing cost-volume-profit data on a CVP chart:

Scatter diagrams plot volume on the vertical axis and cost on the horizontal axis.

A company has a contribution margin per unit of $8.25 and a contribution margin ratio of 12%. What is the selling price of the product?

Which one of the following statements is not true?

Davison Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If sales are expected to be $1,500,000, what is the margin of safety in percent?

Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%. What is the selling price of the product?

___________________________ is a statistical method of identifying an estimated line of cost behavior.

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

To determine the slope of the variable cost from a scatter diagram, divide the change in volume by the change in cost.