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Chapters 7 & 8-1A

Acct 202

Select the best answer.

1. The relationship between cost and activity is termed: 
A) cost estimation. 
B) cost prediction. 
C) cost behavior. 
D) cost analysis. 
E) cost approximation. 

Ans: C

2. A variable cost that has a definitive physical relationship to the activity measure is called a(n): 
A) discretionary cost. 
B) engineered cost. 
C) managed cost. 
D) programmed cost. 
E) committed cost. 

Ans: B

Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company's utilities cost. The company's relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year:



Machine Hours



















3. Using the high-low method, the utilities cost associated with 980 machine hours would be: 
A) $9,510. 
B) $9,660. 
C) $9,700. 
D) $9,790. 
E) an amount other than those listed above. 

Ans: D

4. The break-even point is that level of activity where: 
A) total revenue equals total cost. 
B) variable cost equals fixed cost. 
C) total contribution margin equals the sum of variable cost plus fixed cost. 
D) sales revenue equals total variable cost. 
E) profit is greater than zero. 

Ans: A

5. A company that desires to lower its break-even point should strive to: 
A) decrease selling prices. 
B) reduce variable costs. 
C) increase fixed costs. 
D) sell more units. 
E) pursue more than one of the above actions. 

Ans: B

6. Adams has a break-even point of 40,000 units. If the firm's sole product sells for $24 and fixed costs total $240,000, the variable cost per unit must be: 
A) $6. 
B) $10. 
C) $18. 
D) an amount that cannot be derived based on the information presented. 
E) an amount other than those in choices "a," "b," and "c" but one that can be derived based on the information presented. 

Ans: C

7. The contribution margin ratio is: 
A) the difference between the selling price and the variable cost per unit. 
B) fixed cost per unit divided by variable cost per unit. 
C) variable cost per unit divided by the selling price. 
D) unit contribution margin divided by the selling price. 
E) unit contribution margin divided by fixed cost per unit. 

Ans: D

8. If a company desires to increase its safety margin, it should: 
A) increase fixed costs. 
B) decrease the contribution margin. 
C) decrease selling prices, assuming the price change will have no effect on demand. 
D) stimulate sales volume. 
E) attempt to raise the break-even point. 

Ans: D

9. Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions? 
A) Product prices will remain constant as volume varies within the relevant range. 
B) Expenses can be categorized as fixed, variable, or semivariable. 
C) The efficiency and productivity of the production process and workers will change to reflect manufacturing advances. 
D) Total fixed expenses remain constant as activity changes. 
E) Unit variable expense remains constant as activity changes. 

Ans: C

10. The contribution income statement differs from the traditional income statement in which of the following ways? 
A) The traditional income statement separates costs into fixed and variable components. 
B) The traditional income statement subtracts all variable expenses from sales to obtain the contribution margin. 
C) Cost-volume-profit relationships can be analyzed from the contribution income statement. 
D) The effect of sales volume changes on profit is readily apparent on the traditional income statement. 
E) The contribution income statement separates costs into product and period categories. 

Ans: C

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