1. Assumptions and Use of Variables

   Choose the best answer for each of the following multiple-choice questions.

   1. Cost-volume-profit analysis includes some simplifying assumptions. Which of the following is not one of these assumptions?

   1. Cost and revenues are predictable.
   2. Cost and revenues are linear over the relevant range.
   3. Changes in beginning and ending inventory levels are insignificant in amount.
   4. Sales mix changes are irrelevant.
   The correct answer is

   abcd

   .

   2. The term relevant range, as used in cost accounting, means the range

   1. over which costs may fluctuate
   2. over which cost relationships are valid
   3. of probable production
   4. over which production has occurred in the past 10 years
   The correct answer is

   abcd

   .

   3. How would the following be used in calculating the number of units that must be sold to earn a targeted operating income?

   	Price per Unit	Targeted Operating Income
   a.	Denominator	Numerator
   b.	Numerator	Numerator
   c.	Not used	Denominator
   d.	Numerator	Denominator

   The correct answer is

   abcd

   .

   4. Information concerning Korian Corporation's product is as follows:

   Sales	$300,000
   Variable costs	240,000
   Fixed costs	40,000

   Assuming that Korian increased sales of the product by 20 percent, what should the operating income be?

   1. $20,000
   2. $24,000
   3. $32,000
   4. $80,000
   The correct answer is

   abcd

   .

   5. The following data apply to McNally Company for last year:

   Total variable costs per unit	$3.50
   Contribution margin / Sales	30%
   Break-even sales (present volume)	$1,000,000

   McNally wants to sell an additional 50,000 units at the same selling price and contribution margin. By how much can fixed costs increase to generate additional profit equal to 10 percent of the sales value of the additional 50,000 units to be sold?

   1. $50,000
   2. $57,500
   3. $67,500
   4. $125,000
   The correct answer is

   abcd

   .

   6. Bryan Company's break-even point is 8,500 units. Variable cost per unit is $140, and total fixed costs are $297,500 per year. What price does Bryan charge?

   1. $140
   2. $35
   3. $175
   4. cannot be determined from the above data
   The correct answer is

   abcd

   .

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