cost accounting test bank chapter 3

31) How many dresses are sold when operating income is zero? A) 225 dresses B) 150 dresses C) 100 dresses D) 90 dresses Answer: B

Explanation: B) $1,000N - $400N - $90,000 = 0; $600N = $90,000; N = 150 dresses

Diff: 3

Objective: 2

AACSB: Application of knowledge

32) Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month.What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 200 times? A) 40 times B) 30 times C) 20 times D) 10 times Answer: A

Explanation: A) $1,000N - $500N - $20,000 = 0; $500N = $20,000; N = 40 times

Diff: 3

Objective: 2

AACSB: Application of knowledge

33) Pearl Lights sells only pearl necklaces. 8,000 units were sold resulting in $240,000 of sales revenue,

$60,000 of variable costs, and $40,000 of fixed costs. The breakeven point in total sales dollars is ________. A) $40,000 B) $53,334 C) $100,000 D) $58,334 Answer: B

Explanation: B) $40,000 / ($240,000 - 60,000) / 240,000 = $53,334 (rounded up)

Diff: 2

Objective: 2

AACSB: Application of knowledge

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34) Zealz Manufacturing produces a single product that sells for $80. Variable costs per unit equal $30. The company expects total fixed costs to be $70,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. What is the current breakeven point in terms of number of units?

A) 1,400 units B) 2,250 units C) 3,333 units D) 1725 units Answer: A

Explanation: A) $80X ? $30X ? $70,000 = 0; X = 1,400 units

Diff: 2

Objective: 2

AACSB: Application of knowledge

35) Lights Manufacturing produces a single product that sells for $125. Variable costs per unit equal $50. The company expects total fixed costs to be $75,000 for the next month at the projected sales level of 1,000 units. What is the current breakeven point in terms of number of units? A) 800 units B) 1033 units C) 667 units D) 1,000 units Answer: D

Explanation: D) $75,000/($125 ? $50) = 1,000 units

Diff: 2

Objective: 2

AACSB: Application of knowledge

36) Which of the following will increase a company's breakeven point? A) increasing variable cost per unit

B) increasing contribution margin per unit C) reducing its total fixed costs

D) increasing the selling price per unit Answer: A

Diff: 1

Objective: 2

AACSB: Analytical thinking

37) The breakeven point is the quantity of output at which total revenues equal fixed costs. Answer: FALSE

Explanation: The breakeven point is the quantity of output at which total revenues equal fixed costs.

Diff: 1

Objective: 2

AACSB: Analytical thinking

38) Breakeven point is the point at which operating income is zero. Answer: TRUE

Diff: 1

Objective: 2

AACSB: Analytical thinking

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39) In the graph method of CVP analysis, the horizontal line above the x-axis represents the total cost line. Answer: FALSE

Explanation: In the graph method of CVP analysis, the horizontal line above the x-axis represents the fixed cost line.

Diff: 2

Objective: 2

AACSB: Analytical thinking

40) A profit-volume graph shows the impact on operating income from changes in the output level. Answer: TRUE

Diff: 1

Objective: 2

AACSB: Analytical thinking

41) In the profit-volume graph the point at which the profit-volume line and x-axis intersect is the breakeven point. Answer: TRUE

Diff: 1

Objective: 2

AACSB: Analytical thinking

42) Digital Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500.

Required:

a. What is the contribution margin per phone? b. What is the breakeven point in phones?

c. How many phones must be sold to earn pretax income of $7,500? Answer:

a. CM per phone = $100 - $50 - 0.1($100) = $40

b. N = Breakeven in phones $100N - $50N - $10N - $1,250 - $2,500 = 0 $40N - $3,750 = 0 N = $3,750 / $40 = 93.75 phones Breakeven is 94 phones

c. N = Phones to be sold $100N - $50N - $10N - $1,250 - $2,500 = $7,500 $40N = $11,250 N = $11,250 / $40 = 281.25 phones 282 phones must be sold

Diff: 3

Objective: 2

AACSB: Application of knowledge

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43) What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point and what helps them study the breakeven analysis?

Answer: The breakeven point is the level of production and sales at which total revenues equal total costs. Managers should be concerned about the breakeven point because it helps determine when a

business venture will be profitable. Breakeven point shows a company how far sales can decline before a net loss will be incurred. It helps to assess the risk of loss. The graph method helps managers visualize the relationships between total revenues and total costs. The graph shows each relationship as a line.

Diff: 2

Objective: 2

AACSB: Analytical thinking

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