# Question 1 If Activity Level Increases 10 Total Variable Costs Will

**1. If the activity level increases 10%, total variable costs will**

A. remain the same.

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B. decrease by less than 10%.

C. increase 10%.

D. increase by more than 10%.

**Answer:** *increase 10%. *

**2. Portman Company’s activity for the first three months of 2013 are as follows:**

Machine HoursElectrical Cost

January2,100$3,600

February2,600$4,350

March2,900$4,800

Using the high-low method, how much is the cost per machine hour?

A. *$1.50 *

B. $1.69

C. $2.25

D. $1.34

**Answer:*** $1.50 *

**3. Gribble Company’s high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $104,000 in May and $40,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.**

A. $96,000

B. $80,000

C. $78,000

D. $90,000

**Answer:***$80,000 *

**4. The break-even point is where**

A. total sales equal total fixed costs.

B. total variable costs equal total fixed costs.

C. contribution margin equals total fixed costs.

D. total sales equal total variable costs.

**Answer:** *contribution margin equals total fixed costs. *

**5. Armstrong Industries has a contribution margin of $300,000 and a contribution margin ratio of 30%. How much are total variable costs?**

A. $1,000,000

B. $210,000

C. $700,000

D. $90,000

**Answer:** *$700,000 *

**6. Farmers’ Industries has fixed costs of $400,000 and variable costs are 60% of sales. How much will Farmers report as sales when its net income equals $40,000?**

A. $264,000

B. $733,333

C. $1,040,000

D. $1,100,000

**Answer:** *$1,100,000 *

**7. A cost which remains constant per unit at various levels of activity is a**

A. variable cost.

B. fixed cost.

C. manufacturing cost.

D. mixed cost.

**Answer:** *variable cost.*

**8. Wendy Industries produces only one product. Monthly fixed expenses are $12,000, monthly unit sales are 2,500, and the unit contribution margin is $10. How much is monthly net income?**

A. $13,000

B.* $28,000 *

C. $37,000

D. $0

**Answer:** * $28,000 *

**9. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in**

A. both variable and fixed costs.

B. variable costs and no change in fixed costs.

C. fixed costs and a decrease in variable costs.

D. variable costs and a decrease in fixed costs.

**Answer:** *fixed costs and a decrease in variable costs. *

**10. For an activity base to be useful in cost behavior analysis,**

A. the activity level should be constant over a period of time.

B. the activity should always be stated in dollars.

C. there should be a correlation between changes in the level of activity and changes in costs.

D. the activity should always be stated in terms of units

**Answer:** *there should be a correlation between changes in the level of activity and changes in costs*

**11. Which one of the following is not an assumption of CVP analysis?**

A. All units produced are sold.

B. The behavior of costs and revenues are linear within the relevant range.

C. Sales mix remains constant.

D. All costs are variable costs.

**Answer:** *All costs are variable costs.*

**12. How much sales are required to earn a target income of $160,000 if total fixed costs are $200,000 and the contribution margin ratio is 40%?**

A. $600,000

B. $400,000

C. $900,000

D. $660,000

**Answer:** *$900,000*

**13. Greg’s Golf Carts produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each. If sales of Model 26 increase by 100 units, how much will profit change?**

A. $17,500 increase

B. $22,500 increase

C. $5,000 increase

D. $35,000 increase

**Answer:** *$5,000 increase *

**14. At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of power costs is**

$11,200.

$16,000.

$8,000.

$4,800.

**Answer:** *$4,800.*

**15. The CVP income statement**

a. is distributed internally and externally.

b. discloses contribution margin in the body of the statement.

c. classifies costs by functions.

d. will reflect a different net income than the traditional income statement

**Answer:** *discloses contribution margin in the body of the statement.*

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