1. Why is identification of a relevant range important?
It is required under Generally Accepted Accounting Principles (GAAP).
Cost behavior outside of the relevant range distorts CVP analysis.
It directly impacts the number of units of product a customer buys.
It is a cost that is incurred by a company that must be accounted for.
2. The relevant range of activity refers to what?
the geographical areas where the company plans to operate.
the activity level where all costs are curvilinear.
the levels of activity over which the company expects to operate.
the level of activity where all costs are constant.
3. Under variable costing, what happens to fixed manufacturing costs?
They are considered to be a period cost.
They are not reported in the income statement.
They are charged to the product.
They are reported on the balance sheet as a prepayment.
4. Fixed costs are $750,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?
$562,500
$187,500
$1,000,000
$3,000,000
5. Cost-volume-profit analysis includes all of the following assumptions except for what?
cost behavior is curvilinear within the relevant range.
costs can be classified accurately as either variable or fixed.
changes in activity are the only factors that affect costs.
all units produced are sold.
6. A company desires to sell a sufficient quantity of products to earn a profit of $300,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $500,000, how many units must be sold to earn net income of $300,000?
40,000 units
62,500 units
66,666 units
100,000 units