MULTIPLE CHOICE. Select the letter of the correct answer.

26. A variable cost is a cost that

a. varies per unit at every level of activity.

b. occurs at various times during the year.

c. varies in total in proportion to changes in the level of activity.

d. may or may not be incurred, depending on management's discretion.

27. A cost which remains constant per unit at various levels of activity is a

a. variable cost.

b. fixed cost.

c. mixed cost.

d. manufacturing cost.

28. A fixed cost is a cost which

a. varies in total with changes in the level of activity.

b. remains constant per unit with changes in the level of activity.

c. varies inversely in total with changes in the level of activity.

d. remains constant in total with changes in the level of activity.

29. Fixed costs normally will not include

a. property taxes.

b. direct labor.

c. supervisory salaries.

d. depreciation on buildings and equipment.

30. The increased use of automation and less use of the work force in companies has caused

a trend towards an increase in

a. both variable and fixed costs.

b. fixed costs and a decrease in variable costs.

c. variable costs and a decrease in fixed costs.

d. variable costs and no change in fixed costs.

31. If a firm increases its activity level,

a. costs should remain the same.

b. most costs will rise.

c. no costs will remain the same.

d. some costs will change, others will remain the same.

32. Which of the following is not a cost classification?

a. Mixed

b. Multiple

c. Variable

d. Fixed

33. Which of the following costs are variable?

Cost 5,000 Units 15,000 Units

1 $100,000 $300,000

2 40,000 240,000

3 90,000 90,000

4 50,000 150,000

a. 1 and 2.

b. 1 and 4.

c. only 1.

d. only 2.

34. Which of the following is not a fixed cost?

a. Direct materials

b. Depreciation

c. Lease charge

d. Property taxes

35. A mixed cost contains

a. a variable cost element and a fixed cost element.

b. both selling and administrative costs.

c. both retailing and manufacturing costs.

d. both operating and nonoperating costs.

36. At the high level of activity in November, 7,000 machine hours were run and power costs

were $12,000. In April, a month of low activity, 2,000 machine hours were run and power

costs amounted to $6,000. Using the high-low method, the estimated fixed cost element of

power costs is

a. $12,000.

b. $6,000.

c. $3,600.

d. $8,400.

37. Wynne Company's high and low level of activity last year was 60,000 units of product

produced in May and 20,000 units produced in November. Machine maintenance costs

were $39,000 in May and $15,000 in November. Using the high-low method, determine an

estimate of total maintenance cost for a month in which production is expected to be

45,000 units.

a. $33,750.

b. $36,000.

c. $29,250.

d. $30,000.

38. Which of the following is not a mixed cost?

a. Car rental fee

b. Electricity

c. Depreciation

d. Telephone Expense

39. In using the high-low method, the fixed cost

a. is determined by subtracting the total cost at the high level of activity from the total cost at the low activity level.

b. is determined by adding the total variable cost to the total cost at the low activity level.

c. is determined before the total variable cost.

d. may be determined by subtracting the total variable cost from either the total cost at the low or high activity level.

40. Sales are $250,000 and variable costs are $150,000. What is the contribution margin

ratio?

a. 67%

b. 40%

c. 60%

d. cannot be determined because amounts are not expressed per unit.

41. A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The

total sales necessary to break even are

a. $480,000.

b. $600,000.

c. $150,000.

d. $144,000.

42. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $100,000. The number of units the company must sell to break even is

a. 50,000 units.

b. 20,000 units.

c. 200,000 units.

d. 33,333 units.

43. The break-even point is where

a. total sales equals total variable costs.

b. contribution margin equals total fixed costs.

c. total variable costs equal total fixed costs.

d. total sales equals total fixed costs.

44. Fixed costs are $600,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?

a. $1,400,000.

b. $1,800,000.

c. $2,400,000.

d. $800,000.

45. Fixed costs are $900,000 and the contribution margin per unit is $150. What is the breakeven

point?

a. $2,250,000.

b. $6,000,000.

c. 2,250 units.

d. 6,000 units.

46. The break-even point in units is computed by dividing fixed costs by the

a. contribution margin ratio.

b. contribution margin per unit.

c. total contribution margin.

d. unit selling price.

47. In a CVP graph, the break-even point is at the intersection of the sales line and the

a. fixed cost line.

b. variable cost line.

c. total cost line.

d. mixed cost line.

48. The amount by which actual or expected sales exceeds break-even sales is referred to as

a. contribution margin.

b. unanticipated profit.

c. margin of safety.

d. target net income.

49. Barkley Company had actual sales of $500,000 and a break-even point of $400,000. Its

margin of safety ratio was

a. 20%

b. 25%.

c. 80%.

d. 125%.

50. The margin of safety ratio is computed using the following formula:

a. actual sales - break-even sales.

b. (actual sales - break-even sales) actual sales.

c. (actual sales - break-even sales) break-even sales.

d. (actual sales - expected sales) break-even sales.