CVP Prep Test 2025 – Fully Updated Study Guide with
Correct Answers! (Graded A+)
cost per unit - the same for each unit
- paper costs $.05 for each paper airplane
total costs - change with changes in quantity of units produced
- more units made = more total costs
-> ex. 10 airplanes total paper cost = $.50
- less units made = less total costs
-> ex. 5 airplanes total paper cost = $.25
variable costs - remain constant per unit but change in total as volume changes
fixed costs - - cost per unit changes with quantity produced
-> more units made = less cost per unit
- $200 rent/10 airplanes = $20 each
-> less units made = more cost per unit
- $200 rent/ 5 airplanes = $40 each
- total costs remain fixed regardless of number of units produced
- rent = $200 per month
*t/f: total fixed costs remain constant, but the cost per unit is is inversely
proportional to changes in volume - true
out of the relevant range - - at some point, fixed costs may rise to meet
increase demand
, - one machine makes 100,000 units per day but Sales requires 125,000 units
per day
-> capacity is less than demand = lost sales (100,000<125,000)
- purchase a new machine, capacity is now 200,000 units per day
-> capacity is greater than demand = higher fixed costs to absorb
(200,000>125,000)
t/f: fixed cost is only good for a certain range - true
-> think of an apartment and squeezing roommates in
- will decrease cost per unit
- but you can only squeeze to a certain extent
effect of higher fixed costs - - new machine increases fixed MOH
(manufacturing overhead) costs - depreciate two machines vs one
-> depreciation per machine is $50,000 per year, now have $100,000 in
depreciation expense to allocate to manufactured units vs $50,000
- cost per unit is increased until demand (quality sold) increases to meet
capacity
( refer to chart in folder)
which costs change on a per unit basis with quantity produced?
a. fixed costs
b. variable costs
Correct Answers! (Graded A+)
cost per unit - the same for each unit
- paper costs $.05 for each paper airplane
total costs - change with changes in quantity of units produced
- more units made = more total costs
-> ex. 10 airplanes total paper cost = $.50
- less units made = less total costs
-> ex. 5 airplanes total paper cost = $.25
variable costs - remain constant per unit but change in total as volume changes
fixed costs - - cost per unit changes with quantity produced
-> more units made = less cost per unit
- $200 rent/10 airplanes = $20 each
-> less units made = more cost per unit
- $200 rent/ 5 airplanes = $40 each
- total costs remain fixed regardless of number of units produced
- rent = $200 per month
*t/f: total fixed costs remain constant, but the cost per unit is is inversely
proportional to changes in volume - true
out of the relevant range - - at some point, fixed costs may rise to meet
increase demand
, - one machine makes 100,000 units per day but Sales requires 125,000 units
per day
-> capacity is less than demand = lost sales (100,000<125,000)
- purchase a new machine, capacity is now 200,000 units per day
-> capacity is greater than demand = higher fixed costs to absorb
(200,000>125,000)
t/f: fixed cost is only good for a certain range - true
-> think of an apartment and squeezing roommates in
- will decrease cost per unit
- but you can only squeeze to a certain extent
effect of higher fixed costs - - new machine increases fixed MOH
(manufacturing overhead) costs - depreciate two machines vs one
-> depreciation per machine is $50,000 per year, now have $100,000 in
depreciation expense to allocate to manufactured units vs $50,000
- cost per unit is increased until demand (quality sold) increases to meet
capacity
( refer to chart in folder)
which costs change on a per unit basis with quantity produced?
a. fixed costs
b. variable costs
