2. Which costs will change with a decrease in activity within the relevant range?

A) Total fixed costs and total variable cost.

B) Unit fixed costs and total variable cost. Answer

C) Unit variable cost and unit fixed cost.

D) Unit fixed cost and total fixed cost.

3. An increase in the activity level within the relevant range results in:

A) an increase in fixed cost per unit.

B) a proportionate increase in total fixed costs.

C) an unchanged fixed cost per unit.

D) a decrease in fixed cost per unit. Answer

Use the following to answer questions 4-5:

The following information has been provided by the Evans Retail Stores, Inc., for the first quarter of the year:

Sales $350,000

Variable selling expense 35,000

Fixed selling expenses 25,000

Cost of goods sold (variable) 160,000

Fixed administrative expenses 55,000

Variable administrative expenses 15,000

4. The gross margin of Evans Retail Stores, Inc. for the first quarter is:

A) $210,000.

B) $140,000.

C) $220,000.

D) $190,000. Answer Sales 350,000 – CGS 160,000 = 190,000

5. The contribution margin of Evans Retail Stores, Inc. for the first quarter is:

A) $300,000.

B) $140,000.

C) $210,000.

D) $190,000.

5. The contribution margin of Evans Retail Stores, Inc. for the first quarter is:

A) $300,000.

B) $140,000. Answer B Sales 350,000 – CGS (variable) 160,000 – Var Sell and Adm 35,000

– Var Adm 15,000 = 140,000

C) $210,000.

D) $190,000.

6. The total contribution margin decreases if sales volume remains the same and:

A) fixed expenses increase.

B) fixed expenses decrease.

C) variable expense per unit increases. Answer

D) variable expense per unit decreases.

7. A company has provided the following data:

Sales 3,000 units

Sales price $70 per unit

Variable cost $50 per unit

Fixed cost $25,000

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net income will:

A) decrease by $31,875.

B) decrease by $15,000.

C) increase by $20,625.

D) decrease by $3,125.

Answer:

A Orig data CM 20.00 X 3000 = 60,000 – FC 25,000 = NI 35,000

New scenario CM 12.50 X 2250 = 28,125 – FC 25,000 = NI 3,125

Decrease of 31,875

8. Wallace, Inc., prepared the following budgeted data based on a sales forecast of $6,000,000:

Variable Fixed

Direct materials $1,600,000

Direct labor 1,400,000

Factory overhead 600,000 $ 900,000

Selling expenses 240,000 360,000

Administrative expenses 60,000 140,000

Total $3,900,000 $1,400,000

What would be the amount of sales dollars at the break-even point?

A) $2,250,000

B) $3,500,000

C) $4,000,000

D) $5,300,000

Answer:

C BEP Sales = Fixed Exp/CM ratio = 1,400,000/.35 (2,100.000/6,000,000) =

4,000,000

9. The following information pertains to Rica Company:

Sales (50,000 units) $1,000,000

Manufacturing costs:

Variable 340,000

Fixed 70,000

Selling and admin. expenses:

Variable 10,000

Fixed 60,000

How much is Rica's break-even point in number of units?

A) 9,848

B) 10,000

C) 18,571

D) 26,000

Answer: B BEP Units = Fixed Exp/Unit CM ratio = 130,000 / 13.00 = 10,000 130,000 = Fixed Manu of 60,000 + Fixed selling and adm of 70,000 The 13.00 unit cm margin is calculated by dividing sales and var costs by 50,000.

Use the following to answer questions 10-11:

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

10. The variable expense per unit is:

A) $31.20.

B) $24.00.

C) $36.00.

D) $28.80.

Answer: C Var Exp/Unit = Unit Price – contribution margin ratio 36.00 = 60.00 - 24.00 (40% of $60.00 per unit)

11. The break-even point in sales dollars is:

A) $48,000.

B) $72,000.

C) $28,800.

D) $0....