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Introduction to Management Accounting, 15e (Horngren)
Chapter 2 Introduction to Cost Behavior and Cost-Volume Relationships
2.1 Questions
1) To predict costs and manage them on a day-to-day basis, managers must identify:
A) cost of resources used
B) cost drivers
C) key activities and resources used to perform activities
D) all of the above
Answer: D
Diff: 2 Page Ref: 35
LO: 2-1
AACSB: None
2) Cost drivers are ________.
A) the different functions in the value chain
B) different types of functional areas in the firm
C) measures of activities that require the use of resources and thereby cause costs
D) different types of cost calculations
Answer: C
Diff: 2 Page Ref: 35
LO: 2-1
AACSB: None
3) Which of the following statements about costs is FALSE?
A) An organization may have cost drivers across various activities of its value chain.
B) It is important to identify the appropriate cost drivers.
C) One of the main goals of management accounting is helping managers control costs.
D) Managers can control costs without understanding how activities of an organization affects its costs.
Answer: D
Diff: 2 Page Ref: 35-36
LO: 2-1
AACSB: None
4) To control costs, managers should focus their efforts on managing ________.
A) products or services
B) revenues from products or services
C) activities required to make, sell and deliver products or services
D) production costs of products or services
Answer: C
Diff: 2 Page Ref: 36
LO: 2-1
AACSB: None
2
5) Consider the following activity: The installation of seats by an airplane manufacturer in a commercial
airplane. What is an appropriate cost driver for the labor resources used for this activity?
A) number of service center hours
B) number of labor hours used for installation
C) number of mechanic hours
D) number of engineering hours
Answer: B
Diff: 2 Page Ref: 36
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
6) Consider the following activity: The installation of seats by an airplane manufacturer in a commercial
airplane. What is an appropriate cost driver for the cost of the seats?
A) number of seats installed
B) number of labor hours used for installation
C) number of mechanic hours
D) number of engineering hours
Answer: A
Diff: 2 Page Ref: 36
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
7) Consider the following activity: The installation of seats by an airplane manufacturer in a commercial
airplane. What is an appropriate cost driver for the salary of the supervisor in charge of this activity?
A) number of mechanic hours
B) number of engineering hours
C) number of workers supervised
D) weight of the seats installed
Answer: C
Diff: 2 Page Ref: 36
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
8) Which of the following cost drivers would NOT be appropriate for the customer services activity of the
value chain?
A) number of service calls
B) hours spent servicing products
C) number of engineering hours by research and development staff
D) number of service call workers
Answer: C
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
3
9) Consider the following activity: Several product and process engineers are working to make
improvements to several existing products. These improvements revolve around safety and durability
issues. What is an appropriate cost driver for this activity?
A) number of engineering hours
B) number of products
C) number of parts per product
D) all of the above
Answer: D
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
10) Several machines are used in the factory to manufacture a simple product. What is an appropriate
cost driver for the depreciation expense on the machines?
A) number of advertisements
B) number of service calls
C) number of machine hours
D) number of hours spent servicing defective products
Answer: C
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
11) Which value chain function would use the following cost driver: number of advertisements?
A) production
B) distribution
C) marketing
D) customer service
Answer: C
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
12) Which value chain function would use the following cost driver: weight of items delivered?
A) marketing
B) distribution
C) customer service
D) none of the above
Answer: B
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills, Reflective Thinking
4
13) A key factor in controlling costs is focusing on the revenues a product or service generates.
Answer: FALSE
Diff: 1 Page Ref: 36
LO: 2-1
AACSB: None
14) A good example of a cost driver for production labor wages is the number of engineering hours
worked.
Answer: FALSE
Diff: 1 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills
15) A good example of a cost driver for production supervisor salaries is the number of people
supervised.
Answer: TRUE
Diff: 2 Page Ref: 37
LO: 2-1
AACSB: Analytic Skills
2.2 Questions
1) When analyzing costs, accountants should think of variable costs on a ________ basis and fixed costs
on a ________ basis.
A) total; total
B) per-unit; per-unit
C) total; per-unit
D) per-unit; total
Answer: D
Diff: 1 Page Ref: 37
LO: 2-2
AACSB: None
2) As sales volume decreases in the relevant range, fixed costs per unit ________, but total fixed costs
________.
A) increase; do not change
B) decrease: do not change
C) do not change; increase
D) do not change; decrease
Answer: A
Diff: 2 Page Ref: 37
LO: 2-2
AACSB: None
5
3) As sales volume increases in the relevant range, a fixed cost does not change ________, but the fixed
cost ________ becomes progressively smaller.
A) per-unit; total
B) in total; per-unit
C) per-unit; per-unit
D) in total; per year
Answer: B
Diff: 1 Page Ref: 37
LO: 2-2
AACSB: Analytic Skills
4) As the sales volume increases in the relevant range, variable costs per unit ________ but total variable
costs ________.
A) do not change; increase
B) do not change; decrease
C) increase; do not change
D) decrease; do not change
Answer: A
Diff: 1 Page Ref: 37
LO: 2-2
AACSB: Analytic Skills
5) Which of the following costs is a variable cost?
A) rental expense for factory building for manufacturer of electronics
B) lease cost for factory machine for manufacturer of electronics
C) fuel for airplane for airline
D) depreciation expense of airplane for airline
Answer: C
Diff: 1 Page Ref: 37-38
LO: 2-2
AACSB: Analytic Skills
6) Last year, XYZ Company sold 10,000 units that cost $40,000 to produce. This cost included $4,000 in
fixed computer resource costs, $6,000 in fixed labor cost and $3.00 per unit for communications resource
costs. XYZ Company expects to sell 20,000 units next year. Resource costs are expected to be in the same
relevant range next year. What are the total estimated costs for next year?
A) $70,000
B) $75,000
C) $80,000
D) $84,000
Answer: A
Diff: 2 Page Ref: 37-38
LO: 2-2
AACSB: Analytic Skills
6
7) What happens when the cost-driver level increases within the relevant range?
A) total fixed costs remain unchanged
B) fixed costs per unit increases
C) total variable costs decrease
D) variable costs per unit increases
Answer: A
Diff: 2 Page Ref: 38
LO: 2-2
AACSB: Analytic Skills
8) What happens when the cost-driver activity level increases within the relevant range?
A) total fixed costs increase
B) fixed costs per unit decrease
C) total variable costs decrease
D) variable costs per unit decrease
Answer: B
Diff: 2 Page Ref: 38
LO: 2-2
AACSB: Analytic Skills
9) What happens when the cost-driver activity level decreases within the relevant range?
A) total fixed costs increase
B) fixed costs per unit decrease
C) total variable costs decrease
D) variable costs per unit decrease
Answer: C
Diff: 2 Page Ref: 38
LO: 2-2
AACSB: Analytic Skills
10) What happens when the cost-driver activity level decreases within the relevant range?
A) total fixed costs increase
B) fixed costs per unit decrease
C) total variable costs increase
D) variable costs per unit are unchanged
Answer: D
Diff: 2 Page Ref: 38
LO: 2-2
AACSB: Analytic Skills
7
11) Fixed costs ________.
A) are fixed on a per-unit basis, but vary in total
B) vary on a per-unit basis, but are fixed in total
C) are fixed on a per-unit basis, and fixed in total
D) vary on a per-unit basis, and vary in total
Answer: B
Diff: 1 Page Ref: 38
LO: 2-2
AACSB: None
12) Variable costs ________.
A) vary per unit
B) are fixed in total
C) decrease in total as the cost-driver activity level increases
D) are fixed per unit and vary in total
Answer: D
Diff: 1 Page Ref: 38
LO: 2-2
AACSB: None
13) Which of the following costs is a fixed cost?
A) cost of dairy ingredients used to produce ice cream
B) factory supervisory salaries
C) fuel used by delivery trucks
D) labor wages of workers who mix dairy ingredients to make ice cream
Answer: B
Diff: 2 Page Ref: 40
LO: 2-2
AACSB: Analytic Skills, Reflective Thinking
14) An increase in total variable costs usually indicates ________.
A) the cost-driver activity level is decreasing
B) the cost-driver activity level is increasing
C) variable costs per unit is decreasing
D) fixed costs per unit is increasing
Answer: B
Diff: 2 Page Ref: 41
LO: 2-2
AACSB: Analytic Skills
8
15) An accountant may have difficulty classifying costs as fixed or variable because ________.
A) costs may behave in a nonlinear way
B) costs may be affected by more than one cost driver
C) it depends on the decision situation
D) all of the above
Answer: D
Diff: 2 Page Ref: 41-42
LO: 2-2
AACSB: None
16) The relevant range applies to ________.
A) variable costs
B) fixed costs
C) fixed costs and variable costs
D) none of the above
Answer: C
Diff: 2 Page Ref: 41
LO: 2-2
AACSB: None
17) Total fixed costs increase when volume increases in the relevant range.
Answer: FALSE
Diff: 1 Page Ref: 37
LO: 2-2
AACSB: None
18) The relevant range is the limit of cost-driver level within which a specific relationship between costs
and the cost driver is valid.
Answer: TRUE
Diff: 1 Page Ref: 41
LO: 2-2
AACSB: None
19) Costs may behave in a linear or a nonlinear manner.
Answer: TRUE
Diff: 1 Page Ref: 41-42
LO: 2-2
AACSB: None
20) Only one cost driver may affect a cost at any given time.
Answer: FALSE
Diff: 1 Page Ref: 42
LO: 2-2
AACSB: None
9
21) With very short time spans, more costs are fixed and fewer are variable.
Answer: TRUE
Diff: 1 Page Ref: 42
LO: 2-2
AACSB: None
2.3 Questions
1) The level of sales at which revenues equal expenses and net income is zero is called the ________.
A) margin of safety
B) contribution margin
C) break-even point
D) point of no return
Answer: C
Diff: 1 Page Ref: 43
LO: 2-3
AACSB: None
2) Hot Company, a producer of salsa, has the following information:
Income tax rate 30%
Selling price per unit $8.00
Variable cost per unit $3.00
Total fixed costs $90,000.00
The contribution margin per unit is ________.
A) $2.00
B) $3.00
C) $5.00
D) $8.00
Answer: C
Diff: 1 Page Ref: 44, 45
LO: 2-3
AACSB: Analytic Skills
3) Walnut Corporation sells desks at $480 per desk. The variable costs associated with each desk are $372.
Total fixed costs for the period are $456,840. The contribution margin per desk is ________.
A) $51
B) $108
C) $126
D) $195
Answer: B
Diff: 1 Page Ref: 44, 45
LO: 2-3
AACSB: Analytic Skills
10
4) Cherry Wood Company sells desks at $480 per desk. The variable costs are $372 per desk. Total fixed
costs for the period are $456,840. The contribution margin ratio is ________.
A) 22.5%
B) 29.0%
C) 40.6%
D) 77.5%
Answer: A
Diff: 1 Page Ref: 45
LO: 2-3
AACSB: Analytic Skills
5) On Fire Company, a producer of electronic devices, has the following information:
Selling price per unit $5.00
Variable cost per unit $3.00
Total fixed costs $90,000.00
The contribution-margin ratio is ________.
A) 30%
B) 40%
C) 60%
D) 100%
Answer: B
Diff: 1 Page Ref: 45
LO: 2-3
AACSB: Analytic Skills
6) Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-
room hotel. Average daily room rents are $50 per room and average variable costs are $10 for each room
rented. It operates 365 days per year. If the hotel is completely full throughout the year, what is net
income for one year?
A) $(1,188,000)
B) $3,180,000
C) $4,275,000
D) $5,475,000
Answer: B
Diff: 2 Page Ref: 45
LO: 2-3
AACSB: Analytic Skills
11
7) Company ZZZ has the following information available:
Selling price per unit $100
Variable cost per unit $45
Fixed costs per year $420,000
Expected sales per year 20,000 units
What is the expected operating income for a year?
A) $480,000
B) $680,000
C) $1,580,000
D) none of the above
Answer: B
Diff: 1 Page Ref: 45
LO: 2-3
AACSB: Analytic Skills
8) Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-
room hotel. Average daily room rents are $50 per room and average variable costs are $10 for each room
rented. It operates 365 days per year. If the hotel is one-half full throughout the entire year, what is the
amount of net income for one year?
A) $(1,192,500)
B) $990,000
C) $1,590,000
D) $2,737,500
Answer: B
Diff: 2 Page Ref: 45
LO: 2-3
AACSB: Analytic Skills
9) Mercy Hospital has total variable costs of 80% of total revenues and fixed costs of $20 million per year.
There are 70,000 estimated patient-days for next year. What is the break-even point expressed in total
revenue?
A) $10 million
B) $12.5 million
C) $20 million
D) $100 million
Answer: D
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
12
10) Sizzling Company, a producer of electronic components, has the following information:
Income tax rate 30%
Selling price per unit $5.00
Variable cost per unit $3.00
Total fixed costs $90,000.00
The break-even point in dollars is ________.
A) $150,000
B) $180,000
C) $225,000
D) $270,000
Answer: C
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
11) Oakes Corporation sells desks at $480 per desk. The variable costs are $372 per desk. Total fixed costs
for the period are $456,840. The break-even point in desks is ________.
A) 952
B) 1,228
C) 4,230
D) 5,458
Answer: C
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
12) Knotty Company sells desks at $480 per desk. The variable costs are $372 per desk. Total fixed costs
for the period are $456,840. The break-even volume in dollars is ________.
A) $456,840
B) $1,573,560
C) $2,030,400
D) none of these answers is correct
Answer: C
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
13) HugME Company produces dolls. Each doll sells for $20.00. Variable costs per unit are $14.00 and
total fixed costs for the period are $435,000. What is the break-even point in units?
A) 21,750
B) 31,071
C) 51,176
D) 72,500
Answer: D
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
13
14) HugME Company produces dolls. Each doll sells for $20.00. Variable costs per unit are $14.00 and
total fixed costs for the period are $435,000. What is the break-even volume in dollars?
A) $435,000
B) $621,429
C) $1,023,529
D) $1,450,000
Answer: D
Diff: 1 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
15) HugME Company produces dolls. Each doll sells for $20.00. Variable costs are $14.00 per unit. If the
break-even volume in dollars is $1,446,000, then the total fixed costs for the period are ________.
A) $361,500
B) $433,800
C) $516,425
D) $1,446,000
Answer: B
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
16) Assume the sales price is $34 per unit and the variable cost is $19 per unit. The break-even point is
12,000 units. What are total fixed costs?
A) $180,000
B) $190,000
C) $340,000
D) $530,000
Answer: A
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
17) Assume the sales price is $100 per unit and the variable cost is $75 per unit. Total fixed costs are
$150,000. Then the break-even volume in dollar sales is ________.
A) $1,500
B) $150,000
C) $200,000
D) $600,000
Answer: D
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
14
18) Assume the sales price is $100 per unit and the total fixed costs are $75,000. The break-even volume
in dollar sales is $250,000. What is the variable cost per unit?
A) $30
B) $70
C) $100
D) $125
Answer: B
Diff: 3 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
19) General Hospital has variable costs of 90% of total revenues and total fixed costs of $50 million per
year. There are 50,000 patient-days estimated for next year. What is the average daily revenue per
patient necessary to breakeven?
A) $250
B) $1,000
C) $4,000
D) $10,000
Answer: D
Diff: 3 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills, Reflective Thinking
20) Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-
room hotel. Average daily room rents are $50 per room, and average variable costs are $10 for each room
rented. It operates 365 days per year. What is the break-even point in number of rooms rented?
A) 24,000
B) 30,000
C) 100,000
D) 120,000
Answer: B
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
21) Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-
room hotel. Average daily room rents are $50 per room and average variable costs are $10 for each room
rented. It operates 365 days per year. What percent of occupancy is needed to breakeven?
A) 3.65%
B) 25%
C) 27.4%
D) 34.3%
Answer: C
Diff: 3 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills, Reflective Thinking
15
22) Deadwood Hospital has variable costs of 50% of total revenues and fixed costs of $40 million per year.
There are 40,000 patient-days estimated for the next year. The break-even point expressed in total
revenue is ________.
A) $10 million
B) $40 million
C) $80 million
D) $90 million
Answer: C
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
23) Medina Hospital has variable costs of 75% of total revenues and fixed costs of $40 million per year.
There are 40,000 patient-days estimated for next year. What is the average daily revenue per patient
necessary to breakeven?
A) $250
B) $1,000
C) $4,000
D) $20,000
Answer: C
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
24) The sales price is $30 per unit, the contribution margin is $8 per unit and total fixed costs are $32,000.
What is the break-even point in units?
A) 857
B) 1,200
C) 2,000
D) 4,000
Answer: D
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
25) If the total amount of fixed costs increases, what is the effect on the break-even point? (Assume no
other changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point will be zero.
Answer: A
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
16
26) If the variable cost per unit increases, what is the effect on the break-even point? (Assume no other
changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
Answer: A
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
27) If the selling price per unit increases, what is the effect on the break-even point? (Assume no other
changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
Answer: B
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
28) The break-even point is the level of sales at which revenue equals fixed costs.
Answer: FALSE
Diff: 1 Page Ref: 43
LO: 2-3
AACSB: None
29) At the break-even point, net income may be positive.
Answer: FALSE
Diff: 1 Page Ref: 43
LO: 2-3
AACSB: Analytic Skills
30) The break-even point is when enough units are sold that total contribution margin equals total
variable costs.
Answer: FALSE
Diff: 1 Page Ref: 43
LO: 2-3
AACSB: None
31) The equation for the income statement is:
Sales — Variable Expenses- Fixed Expenses = Net Income
Answer: TRUE
Diff: 1 Page Ref: 45
LO: 2-3
AACSB: None
17
32) Wildwood Corporation produces one product. Total fixed costs are $500,000.
The unit selling price is $68.50 and the unit variable cost is $50.95.
Required:
A) Compute the contribution margin per unit.
B) Compute the contribution-margin ratio.
C) Compute the break-even point in units.
D) Compute the break-even volume in dollars.
Answer:
A) $68.50-$50.95= $17.55
B) $17.55/$68.50= 0.2562
C) $500,000/$17.55 = 28,490 units
D) 28,490 x $68.50 = $1,951,565
Diff: 2 Page Ref: 44-46
LO: 2-3
AACSB: Analytic Skills
33) Brunswick Manufacturing has prepared the following income statement:
Sales $450,000
Cost of goods sold 200,000
Gross margin 250,000
Operating expenses 196,000
Operating income $54,000
According to company records, $50,000 of Cost of Goods Sold and $166,000 of Operating Expenses are
fixed.
Required:
A) Compute the contribution margin.
B) Compute the contribution margin ratio.
C) Compute the break-even volume in sales dollars.
Answer:
A) Fixed costs = $50,000 + $166,000 = $216,000
Variable costs = $150,000 + $30,000 = $180,000
Contribution Margin = $450,000 – $180,000 = $270,000
B) $270,000/$450,000 = 60%
C) $216,000/60% = $360,000
Diff: 2 Page Ref: 44-46
LO: 2-3
AACSB: Analytic Skills
18
34) Explosion Company produces one type of product. Total fixed costs are $100,000. Unit variable costs
are $6.00. The break-even point is 25,000 units. Planned unit sales are 30,000.
Required:
A) Compute the selling price per unit.
B) Compute the contribution-margin ratio.
C) Compute the break-even volume in dollars.
Answer:
A) $100,000 = 25,000
X – $6
(X – 6)25,000 = 100,000
X = $10
B) ($10 – $6)/$10 = 0.40
C) 25,000 x $10 = $250,000
Diff: 2 Page Ref: 45-46
LO: 2-3
AACSB: Analytic Skills
35) The Eastman Family Restaurant is open 24 hours per day. Fixed costs are $24,000 per month.
Variable costs are estimated at $9.60 per meal. The average revenue is $12 per meal.
Required:
A) Compute the break-even point in meals.
B) Compute the break-even volume in dollars.
Answer:
A) $24,000/($12.00 – $9.60) = 10,000 meals
B) 10,000 meals × $12 per meal = $120,000
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
36) Frances Company produces only one product. The selling price is $95 per unit and the variable cost is
$65 per unit. Total fixed costs are $130,000.
Required:
A) Compute break-even point in units.
B) Compute break-even volume in dollars.
Answer:
A) $130,00/($95 -$65) = 4,333 units
B) 4,333 units × $95 = $411,635
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
19
37) Southwest Hospital has fixed costs of $100 million per year. Variable costs represent approximately
80% of the total revenue. There are 50,000 patient-days estimated for next year.
Required:
A) What is the break-even point expressed in total revenue?
B) What is the average daily revenue per patient necessary to break even?
Answer:
A) $100 million/(1 — 0.80) = $500 million
B) $500 million/ 50,000 = $10,000
Diff: 2 Page Ref: 46
LO: 2-3
AACSB: Analytic Skills
2.4 Questions
1) The horizontal axis on the cost-volume-profit graph is the ________.
A) dollars of cost
B) sales volume in units
C) dollars of revenue
D) net income
Answer: B
Diff: 1 Page Ref: 47
LO: 2-4
AACSB: None
2) The vertical axis on the cost-volume-profit graph is the ________.
A) dollars of cost
B) sales volume in units
C) dollars of revenue
D) dollars of cost and revenue
Answer: D
Diff: 1 Page Ref: 47
LO: 2-4
AACSB: None
3) Which of the following is NOT an underlying assumption of cost-volume-profit analysis?
A) We can classify expenses into fixed and variable categories.
B) Sales mix will be constant.
C) Revenues and expenses are linear over the relevant range.
D) There will be changes in efficiency or productivity.
Answer: D
Diff: 1 Page Ref: 48
LO: 2-4
AACSB: None
20
4) What action will decrease a company’s break-even point?
A) reducing total fixed costs
B) decreasing contribution margin per unit
C) increasing variable cost per unit
D) decreasing the selling price per unit
Answer: A
Diff: 2 Page Ref: 48
LO: 2-4
AACSB: Analytic Skills
5) Assume ZZZ Company has the following information available:
Selling price per unit $100
Variable cost per unit $45
Fixed costs per year $420,000
Expected sales per year (units) 20,000
If fixed costs increase $200,000, what is the expected operating income?
A) $280,000
B) $480,000
C) $680,000
D) $1,380,000
Answer: B
Diff: 2 Page Ref: 48
LO: 2-4
AACSB: Analytic Skills
6) Assume ZZZ Company has the following information available:
Selling price per unit $100
Variable cost per unit $45
Fixed costs per year $420,000
Expected sales per year(units) 20,000
If fixed costs increase $200,000, what is the break-even point in units?
A) 11,273
B) 12,000
C) 13,000
D) none of the above
Answer: A
Diff: 2 Page Ref: 48
LO: 2-4
AACSB: Analytic Skills
21
7) The following information is available for Donald Corporation:
Total fixed costs $333,500
Variable costs per unit $99
Selling price per unit $154
If total fixed costs increased to $394,850, then the break-even volume in dollars would increase by
________.
A) 10.0%
B) 12.3%
C) 18.4%
D) 34.3%
Answer: C
Diff: 3 Page Ref: 48
LO: 2-4
AACSB: Analytic Skills
8) Assume the following information for Janice Company:
Selling price per unit $144
Variable costs per unit $80
Total fixed costs $80,000
If fixed costs increased by 10% and management wanted to maintain the original break-even point, then
the selling price per unit would have to be increased to ________.
A) $150.40
B) $155.20
C) $158.40
D) $208.00
Answer: A
Diff: 3 Page Ref: 48
LO: 2-4
AACSB: Analytic Skills
