MCQ Practice

Phillips and Company produces educational software. Its current unit cost, based upon an anticipated volume of 150,000 units, is:

Selling Price $150

Variable Cost $60

Contribution Margin $90

Fixed Cost $60

Operating Income $30

Sales for the coming year are estimated at 175,000 units, which is within the relevant range of Phillip's cost structure. Cost management initiatives are expected to yield a 20% reduction in variable costs and a reduction of $750,000 in fixed costs. Phillip's cost structure for the coming year will include:

• per unit contribution margin of $72 and fixed costs of $55

• total contribution margin of $15,300,000 and fixed costs of $8,250,000

• variable cost ratio (VCR) of 32% and operating income of $9,600,000

• contribution margin ratio of 68% and operating income of $7,050,000

The number of units produced or the number of units sold describes:

• cost behaviour

• activity level

• sales mix

• contribution margin

Kator Co. is a manufacturer of industrial components. One of their products that is used as a sub-component in auto manufacturing is KB-96. This product has the following financial structure per unit.

Selling Price $150

Direct Material $20

Direct Labor $15

Variable Manufacturing Overhead $12

Fixed Manufacturing Overhead $30

Shipping and Handling $3

Fixed Selling and Administrative $10

Total Costs $90

Kator Co. has received a one-time special order for 1,000 KB-96 parts. Assume that Kator is operating at full capacity and the product that would be displaced on existing equipment is LB-64 that produces a contribution of $10,000. The minimum price that is acceptable, using the original data, for this one-time special order is in excess of:

• $60

• $87

• $57

• $100

A fixed cost is a cost which:

• varies in total with changes in the level of activity

• remains constant per unit with changes in the level of activity

• varies inversely in total with changes in the level of activity

• remains constant in total with changes in the level of activity

Cost behavior analysis is a study of how a firm's costs:

• relate to competitors' costs

• relate to general price level changes

• respond to changes in the level of business activity

• respond to changes in the gross national product

The relevant range of activity refers to the:

• levels of activity over which the company expects to operate

• geographical areas where the company plans to operate

• activity level where all costs are curvilinear

• level of activity where all costs are constant

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

• All units produced are sold.

• Sales mix remains constant.

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

• All costs are variable costs.

If a company had a contribution margin of $750,000 and a contribution margin ratio of 40%, total variable costs must have been

• $1,125,000

• $450,000

• $1,875,000

• $300,000

At the break-even point of 2,000 units, variable costs are $110,000, and fixed costs are $64,000. How much is the selling price per unit?

• $87

• $23

• $32

• Not enough information

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. How many MP3 players must Cunningham sell to earn net income of $210,000?

• 5,250

• 15,000

• 3,750

• 4,500