# 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%.

## 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

A. \$96,000

B. \$80,000

C. \$78,000

D. \$90,000

## 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.

A. \$1,000,000

B. \$210,000

C. \$700,000

D. \$90,000

A. \$264,000

B. \$733,333

C. \$1,040,000

D. \$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.

A. \$13,000

B. \$28,000

C. \$37,000

D. \$0

## 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.

A. \$600,000

B. \$400,000

C. \$900,000

D. \$660,000

## 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

\$11,200.

\$16,000.

\$8,000.

\$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. 