Question 11

Why is identification of a relevant range important in CVP analysis?

Select one:

a. Linear cost relationships may not hold outside of the relevant range.

b. It directly impacts the number of units of product a customer buys.

c. It is the range over which all costs are constant.

d. It is required under GAAP.

Question 12

Brennan Company currently sells 40,000 units of a product which has a unit sales price of $24, unit variable cost of $16 and total fixed costs of $280,000. The number of units Brennan must sell to earn $30,000 in net income is

Select one:

a. 38,750 units.

b. 35,000 units.

c. 1,250 units.

d. 19,375 units.

If an entity decreases the number of units it produces in an accounting period, the

Select one:

a. unit fixed costs should increase.

b. unit variable costs should increase.

c. unit fixed costs should remain the same.

d. total variable costs should remain the same.

Question 14

If management chooses to reduce the selling price of its product to match that of a competitor, then

Select one:

a. The breakeven point in units will increase.

b. The contribution margin per unit will increase.

c. The contribution margin ratio will not change.

d. The breakeven point in dollars will decrease.

Question 15

DeNaples Company sells two products, A and B. Their contribution margins per unit are $8 and $6, respectively, and their sales mix is 1 unit of A to every 2 units of B. What is the breakeven point in units, assuming total fixed costs are $46,000?

Select one:

a. 2,300 units of A and 4,600 units of B.

b. 1,096 units of A and 2,190 units of B.

c. 1,500 units of A and 1,500 units of B.

d. 2,875 units of A and 3,833 units of B.

Question 16

Example Company currently has net earnings of $1,000 and a degree of operating leverage of 5, A 10% increase in sales should result in a

Select one:

a. 50% increase in net earnings.

b. 5% increase in net earnings.

c. $50 increase in net earnings.

d. $100 increase in net earnings.

Question 17

The area marked by the e (between line c and line i) on this CVP graph (where the vertical axis represents dollars and the horizontal axis represents units) is:

Select one:

a. Total variable cost area.

b. Loss area.

c. Total revenue area.

d. Profit area.

Question 18

The following information is projected for product AA for the up-coming year:

Units

1,000

1,200

Sales ($24 per unit)

$24,000

$28,800

Variable Costs: ($14 per unit)

14,000

16,800

Fixed Costs

10,000

10,000

Net Earnings

$0

$2,000

What is the projected margin of safety for product AA at 1,200 units?

Select one:

a. $4,800.

b. $2,000

c. $2,800

d. $10,000

Question 19

Which one of the following is NOT a product cost?

Select one:

a. Fuel for the truck that delivers the product to the customer

b. Salary of the production supervisor

c. Factory maintenance costs

d. Depreciation on the factory equipment.

Question 20

According to GAAP, for external reporting, cost of goods sold should include

Select one:

a. All manufacturing costs.

b. Prime costs only.

c. Conversion costs only.

d. All costs, both period and product.