Accounting Exam 2 Questions and Graded Answers.
Assume fixed costs total $280,000 per month, the variable cost per unit is $80, and each unit
sells for $150.
What is the contribution margin ratio (rounded)?
47%
56%
25%
65% - 47%
Contribution margin ratio is calculated by Contribution margin per unit / Sales price per unit. In
this case, ($150 - $80) / $150 = 47%
Assume fixed costs total $180,000 per month, the variable cost per unit is $70, and each unit
sells for $160.
What is the contribution margin ratio (rounded)?
56%
44%
25%
65% - 56%
Contribution margin ratio is calculated by Contribution margin per unit / Sales price per unit. In
this case, ($160 - $70) / $160 = 56%
Consider the following total costs and the units produced:
,Time period Units Produced Total Costs1st Quarter 300 $1,5002nd Quarter 360 $1,7003rd
Quarter 420 $1,900 4th Quarter 500 $2,000
Using the High-Low method, what is the estimated variable cost per unit? - $2.50 per unit
Under the high-low method, we must identify the time periods with the highest and lowest
production. Then you
you must calculate the change in total cost and divide that by the change in volume of activity
using the data for the highest activity and the lowest activity.
($2,000 - $1,500)/(500 - 300) = $500/200 = $2.50 variable cost per unit
Which of the following statements are correct regarding the relevant range? - Total fixed
costs can differ from one relevant range to another.
It is a range of volume where the fixed cost per unit remains constant.
To estimate costs, managers need to know the relevant range assumption.
Assume that sales are $200,000, variable costs are $50,000, and fixed costs are $20,000.
What is the degree of operating leverage? - 1.15
Degree of operating leverage
=
Contribution margin/
Operating income
=
$200,000 in sales - $50,000 in variable costs/
contribution margin of $150,000 - $20,000 fixed costs
,=
$150,000/$130,000
=
1.15
Consider the following costs and activity levels.
Units Produced Total Cost1st Quarter 200 $1,500 2nd Quarter 360 $1,7003rd Quarter 420
$1,900 4th Quarter 600 $2,000
Using the high-low method, what is the estimated fixed cost each quarter? - 1,250
Using the high-low method, you must identify the quarters with the highest and lowest
production. First calculate the variable cost per unit, which in this case is $1.25 per unit found as
follows as the change in costs (using the cost of the highest activity and the lowest activity)
divided by the change in activity (high versus low):
($2,000 - $1,500)/(600 - 200) = $500/400 = $1.25 variable cost per unit
To calculate the estimated fixed cost:
$2,000 - (600 x $1.25) = $2,000 - $750 = $1,250 of fixed cost
Which of the following is a false statement regarding the effect of changes in sales price and
costs? - An increase in total fixed costs decreases the contribution margin per unit and
increases the break-even point.
If a company decreases its sales price per unit, the new breakeven point will ________. -
increase
On a CVP graph, where the total cost line intersects the total revenue line is the ________. -
breakeven point
, Jones Company has fixed costs totaling $48,000 per month, the variable cost per unit is $60, and
selling price per unit is $100. Current sales are 1,500 units.
What is the margin of safety in units? - 300 units
Fixed costs / Contribution margin per unit. In this case, $48,000 / ($100 - $60) = 1,200 units.
Then take current sales of 1,500 - 1,200 units for breakeven = 300 units margin of safety.
Monthly rent on a factory building is a ________. - fixed cost
ABC Company has the following data for mixed costs:
Total units produced
2,000
units
Total costs
$30,000
The variable portion of the mixed cost has been calculated at $8.00 per unit.
What is the total fixed cost? - 14,000
Total fixed cost = Total mixed cost - (Variable cost per unit x Number of units).
In this case, $30,000 - ($8.00 x 2,000) = $14,000 fixed cost.
Assume that sales are $100,000, variable costs are $40,000, and fixed costs are $10,000.
What is the degree of operating leverage? - 1.20
Assume fixed costs total $280,000 per month, the variable cost per unit is $80, and each unit
sells for $150.
What is the contribution margin ratio (rounded)?
47%
56%
25%
65% - 47%
Contribution margin ratio is calculated by Contribution margin per unit / Sales price per unit. In
this case, ($150 - $80) / $150 = 47%
Assume fixed costs total $180,000 per month, the variable cost per unit is $70, and each unit
sells for $160.
What is the contribution margin ratio (rounded)?
56%
44%
25%
65% - 56%
Contribution margin ratio is calculated by Contribution margin per unit / Sales price per unit. In
this case, ($160 - $70) / $160 = 56%
Consider the following total costs and the units produced:
,Time period Units Produced Total Costs1st Quarter 300 $1,5002nd Quarter 360 $1,7003rd
Quarter 420 $1,900 4th Quarter 500 $2,000
Using the High-Low method, what is the estimated variable cost per unit? - $2.50 per unit
Under the high-low method, we must identify the time periods with the highest and lowest
production. Then you
you must calculate the change in total cost and divide that by the change in volume of activity
using the data for the highest activity and the lowest activity.
($2,000 - $1,500)/(500 - 300) = $500/200 = $2.50 variable cost per unit
Which of the following statements are correct regarding the relevant range? - Total fixed
costs can differ from one relevant range to another.
It is a range of volume where the fixed cost per unit remains constant.
To estimate costs, managers need to know the relevant range assumption.
Assume that sales are $200,000, variable costs are $50,000, and fixed costs are $20,000.
What is the degree of operating leverage? - 1.15
Degree of operating leverage
=
Contribution margin/
Operating income
=
$200,000 in sales - $50,000 in variable costs/
contribution margin of $150,000 - $20,000 fixed costs
,=
$150,000/$130,000
=
1.15
Consider the following costs and activity levels.
Units Produced Total Cost1st Quarter 200 $1,500 2nd Quarter 360 $1,7003rd Quarter 420
$1,900 4th Quarter 600 $2,000
Using the high-low method, what is the estimated fixed cost each quarter? - 1,250
Using the high-low method, you must identify the quarters with the highest and lowest
production. First calculate the variable cost per unit, which in this case is $1.25 per unit found as
follows as the change in costs (using the cost of the highest activity and the lowest activity)
divided by the change in activity (high versus low):
($2,000 - $1,500)/(600 - 200) = $500/400 = $1.25 variable cost per unit
To calculate the estimated fixed cost:
$2,000 - (600 x $1.25) = $2,000 - $750 = $1,250 of fixed cost
Which of the following is a false statement regarding the effect of changes in sales price and
costs? - An increase in total fixed costs decreases the contribution margin per unit and
increases the break-even point.
If a company decreases its sales price per unit, the new breakeven point will ________. -
increase
On a CVP graph, where the total cost line intersects the total revenue line is the ________. -
breakeven point
, Jones Company has fixed costs totaling $48,000 per month, the variable cost per unit is $60, and
selling price per unit is $100. Current sales are 1,500 units.
What is the margin of safety in units? - 300 units
Fixed costs / Contribution margin per unit. In this case, $48,000 / ($100 - $60) = 1,200 units.
Then take current sales of 1,500 - 1,200 units for breakeven = 300 units margin of safety.
Monthly rent on a factory building is a ________. - fixed cost
ABC Company has the following data for mixed costs:
Total units produced
2,000
units
Total costs
$30,000
The variable portion of the mixed cost has been calculated at $8.00 per unit.
What is the total fixed cost? - 14,000
Total fixed cost = Total mixed cost - (Variable cost per unit x Number of units).
In this case, $30,000 - ($8.00 x 2,000) = $14,000 fixed cost.
Assume that sales are $100,000, variable costs are $40,000, and fixed costs are $10,000.
What is the degree of operating leverage? - 1.20
