CHAPTER 2 INTRODUCTION TO COST BEHAVIOR AND COST-VOLUME RELATIONSHIPS-HORNGREN TESTBANK

CHAPTER 2 INTRODUCTION TO COST BEHAVIOR AND COST-VOLUME RELATIONSHIPS LEARNING OBJECTIVE 1 1. On a day-to-day basis, managers must manage the activities required to make products and services. True 2. Cost drivers are output measures of both resources and activities. True 3. Cost behavior pertains to how costs affect the activities of an organization. False 4. A key factor in controlling costs is associating costs with activities. True 5. A good example of a cost driver for production labor wages is the number of machine hours. False 6. A good example of a cost driver for production supervisor salaries is the number of people supervised. True 30 LEARNING OBJECTIVE 2 7. A fixed cost changes in direct proportion to changes in a cost driver. False 8. When analyzing costs, two rules of thumb are useful: (1) think of fixed costs on a per-unit basis; and (2) think of variable costs as a total. False 9. The relevant range is the limit of cost-driver activity within which a specific relationship between costs and the cost driver is valid. True 10. Costs may behave in a linear and nonlinear way. True 11. Only one cost driver may affect a cost at any given time. False 12. With very short time spans, costs become more fixed and less variable. True LEARNING OBJECTIVE 3 13. The break-even point is the level of sales at which revenue equals fixed costs. False 14. Gross profit margin is the sales price minus the variable cost per unit. False 15. The income statement can be expressed as: Sales - Variable Expenses - Fixed Expenses = Net Income True 16. The margin of safety is the difference between planned unit sales and break-even sales. True 17. Only managers of profit-seeking organizations find that the cost-volume-profit analysis is useful. False 18. A major simplifying assumption of cost-volume-profit analysis is that costs can be classified as either variable or fixed with respect to a single measure of the volume of output activity. True 19. At the break-even point, net income may be positive. False 31 20. After a certain point, a unit sold does not generate marginal income. False 21. The break-even point is when enough units are sold that total contribution margin equals total variable costs. False 22. Total contribution margin / total sales = 100% - variable cost percentage. True 23. Break-even volume in units = fixed costs / unit contribution margin. True 24. Break-even volume in dollars = variable costs / contribution-margin ratio. False LEARNING OBJECTIVE 4 25. The break-even point is located at the intersection of the total revenue line and the total expenses line on a cost-volume-profit graph. True 26. The CVP graph shows profit and loss at any rate of activity. True 27. The CVP graph shows how costs behave over multiple relevant ranges. False 28. The CVP graph uses the assumption that costs are linear over the relevant range. True 29. The horizontal axis on the CVP graph is the dollars of cost and revenue. False 30. On the CVP graph, the horizontal difference between the sales line and the total expenses line measures the net income or net loss. False 31. An assumption of the CVP analysis is that changes in efficiency or productivity are expected. False 32. An assumption.......................