1. As the level of activity increases, how will a mixed cost in total and per unit behave?

A)
B)
C)
D)
E)

In Total
Increase
Increase
Increase
Decrease
Decrease

Per Unit
Decrease
Increase
No effect
Increase
No effect

2.Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore, always
using natural gas. However, when there is no pizza in the oven, the oven automatically lowers its
flame and reduces its natural gas usage by 70%. The cost of natural gas would best be described
as a:
A) fixed cost.
B) mixed cost.
C) step-variable cost.
D) true variable cost.

3.When the activity level is expected to decline within the relevant range, what effects would be
anticipated with respect to each of the following?

A)
B)
C)
D)

Fixed costs
per unit
Increase
Increase
No change
No change

Variable costs
per unit
Increase
No change
No change
Increase

4.Within the relevant range, variable costs can be expected to:

A) vary in total in direct proportion to changes in the activity level.
B) remain constant in total as the activity level changes.
C) increase on a per unit basis as the activity level increases.
D) increase on a per unit basis as the activity level decreases.
E) none of these.

5.For the past 8 months, Jinan Corporation has experienced a steady increase in its cost per unit even
though total costs have remained stable This cost per unit increase may be due to
_____________ costs because the level of activity at Jinan is _______________.
A) fixed, decreasing
B) fixed, increasing
C) variable, decreasing
D) Variable, increasing

6.In describing the cost formula equation, Y = a + bX, which of the following is correct:
A) Y is the independent variable.
B) a is the variable cost per unit.
C) a and b are valid for all levels of activity.

D) in the high-low method, b equals the change in cost divided by the change in activity.

7. East Company manufactures and sells a single product with a positive contribution margin. If the selling
price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the
effect on the contribution margin per unit and the contribution margin ratio?

Aa)
Bb)
Cc)
Dd)

Contribution
margin per unit
No change
Increase
Increase
Increase

Contribution
margin ratio
No change
Increase
No change
Decrease

8.If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2
per unit, the break-even point in units will:
A) decrease.
B) increase.
C) not change.
D) change but direction cannot be determined.

9.The following information relates to the break-even point at Pezzo Corporation:

Sales dollars.........................
Total fixed expenses.............

$120,000
$30,000

If Pezzo wants to generate net operating income of $12,000, what will its sales dollars have to
be?
A) $132,000
B) $136,000
C) $168,000
D) $176,000
10.The following information pertains to Nova Co.'s cost-volume-profit relationships:
Breakeven point in units sold............................
Variable expenses per unit................................
Total fixed expenses..........................................

1,000
$500
$150,000

How much will be contributed to net operating income by the 1,001st unit sold?
A) $650
B) $500
C) $150
D) $0

11.Carver Company produces a product which sells for $40. Variable manufacturing costs are $18 per

unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed
selling and administrative costs are $4 per unit. A selling commission of 15% of the selling price is
paid on each unit sold. The contribution margin per unit is:
A) $7
B) $17
C) $22
D) $16
12.Variable expenses for Alpha Company are 40% of sales. What are sales at the break-even point,
assuming that fixed expenses total $150,000 per year:
A) $250,000
B) $375,000
C) $600,000
D) $150,000
13.Given the following data:
Selling price per unit........................................
Variable production cost per unit......................
Fixed production cost.......................................
Sales commission per unit...............................
Fixed selling expenses....................................

$2.00
$0.30
$3,000
$0.20
$1,500

The break-even point in dollars is:

A) $6,000
B) $4,500
C) $2,647
D) $4,000

14.Hollis Company sells a single product for $20 per unit. The company's fixed expenses total $240,000
per year, and variable expenses are $12 per unit of product. The company's break-even point is:
A) $400,000
B) $600,000
C) 20,000 units
D) 12,000 units
15.A product sells for $10 per unit and has variable expenses of $6 per unit. Fixed expenses total $45,000
per month. How many units of the product must be sold each month to yield a monthly profit of
$15,000?
A) 6,000 units
B) 3,750 units
C) 15,000 units
D) 10,000 units

Use the following to answer questions

A tile manufacturer has supplied the following data:
Boxes of tiles produced and sold.....................................
Sales revenue..................................................................
Variable manufacturing expense......................................
Fixed manufacturing expense..........................................

580,000
$2,842,000
1,653,000
784,000

Variable selling and administrative expense....................

Fixed selling and administrative expense........................
Net operating income.......................................................

145,000
128,000
$132,000

16.What is the company's unit contribution margin?

A) $0.23
B) $4.90
C) $3.10
D) $1.80
17.The company's contribution margin ratio is closest to:
A) 29.4%
B) 4.7%
C) 63.3%
D) 36.7%
18.If the company increases its unit sales volume by 5% without increasing its fixed expenses, then total
net operating income should be closest to:
A) $6,600
B) $184,200
C) $134,422
D) $138,600

19.Under variable costing, fixed manufacturing overhead is:

A) carried in a liability account.
B) carried in an asset account.
C) ignored.
D) immediately expensed as a period cost.
20.Which of the following is true of a company that uses absorption costing?
A) Net operating income fluctuates directly with changes in sales volume.
B) Fixed production and fixed selling costs are considered to be product costs.
C) Unit product costs can change as a result of changes in the number of units manufactured.
D) Variable selling expenses are included in product costs.

21.Under absorption costing, product costs include:

A)
B)
C)
D)

Fixed factory
overhead
No
No
Yes
Yes

Variable factory
overhead
No
Yes
Yes
No

22.When production exceeds sales, the net operating income reported under absorption costing generally
will be:
A) less than net operating income reported under variable costing.
B) greater than net operating income reported under variable costing.
C) equal to net operating income reported under variable costing.
D) higher or lower because no generalization can be made.

23.When sales exceed production, the net operating income reported under variable costing generally will
be:
A) less than net operating income reported under absorption costing.
B) greater than net operating income reported under absorption costing.
C) equal to net operating income reported under absorption costing.
D) higher or lower because no generalization can be made.

24.The type of costing that provides the best information for breakeven analysis is:
A) job-order costing.
B) variable costing.
C) process costing.
D) absorption costing.
25 A company produces a single product. Variable production costs are $12 per unit and variable selling
and administrative expenses are $3 per unit. Fixed manufacturing overhead totals $36,000 and fixed
selling and administration expenses total $40,000. Assuming a beginning inventory of zero, production of
4,000 units and sales of 3,600 units, the dollar value of the ending inventory under variable costing would
be:
A) $4,800
B) $8,400
C) $6,000
D) $3,600

26.A manufacturing company that produces a single product has provided the following data concerning
its most recent month of operations:
Selling price.....................................................

$123

Units in beginning inventory.............................

Units produced................................................
Units sold.........................................................
Units in ending inventory.................................

0
5,900
5,700
200

Variable costs per unit:

Direct materials............................................
Direct labor...................................................
Variable manufacturing overhead.................
Variable selling and administrative...............

$40
$32
$3
$5

Fixed costs:
Fixed manufacturing overhead.....................
Fixed selling and administrative...................

$135,700
$108,300

The total gross margin for the month under the absorption costing approach is:
A) $245,100
B) $162,100
C) $142,500
D)
$5,700