Accounting Case

ACCOUNTING VL1

1. Within the relevant range, if the contribution margin increases, operating profit: increases by an equal amount

2. If the production level decreases by 20%, then the total variable cost: decreases by 20%

3. Variable costs are costs that vary in proportion to changes in the level of production. True

4. Which one of the following statements is incorrect? Fixed costs per unit increase with an increase in production volume.

• A Total fixed cost remain constant with respect to changes in production volume

• Discretionary fixed costs often result from the strategic and tactical decisions of managers

• Committed fixed costs are those made available before demand for them is known

5. Within relevant range, the relationship between cost and activity is assumed to be linear although many activity costs do not behave in a linear fashion. True

6. The breakeven point is the production level at which the sales revenue exactly equals the sum of the fixed and variable costs. True

7. The breakeven point in pounds (£) decreases if: Unit variable costs decrease

8. Easy-Wash Ltd provides car washing facilities. Five workers are hired to fill daily 8-hour shifts. Each car wash takes a worker 15 minutes. Regular daily wages, including benefits average £80 per worker. What is the normal labour cost per car-wash at Easy-wash Ltd at full capacity? £2.50

9. Contribution margin is the difference between total sales revenue and total variable costs while gross profit is the difference between total sales revenue and cost of goods sold. True

10. An example of a fixed cost is A. factory rent B. direct material costs C. sales commissions D. postage. A. factory rent

11. The contribution margin ratio increases if: Unit variable costs decrease

12. Mixed costs are costs that: D. compromise both fixed and variable costs

13. Cleveland Company manufactures a single product that sells for £20.00 per unit. Variable manufacturing costs are £10.00 per unit. Variable selling costs are 10% of the selling price. Annual fixed costs are estimated to be £60,000 if the sales volume does not exceed 10,000 units. What is the unit contribution margin? £8.00

14. Cleveland Company manufactures a single product that sells for £20.00 per unit. Variable manufacturing costs are £10.00 per unit. Variable selling costs are 10% of the selling price. Annual fixed costs are estimated