1.

A cost is $34,500 at an activity level of 23,000 units, and $42,000 at an activity level of 28,000
units. What type of cost is this?
A. Fixed costs
B. Variable costs
C. Mixed costs
D. Sunk costs

2. Duradyne, Inc. has total costs of $18,000 when 2,000 units are produced and $26,000 when 5,200
units are produced. During March, 4,000 units were produced and sold for $8 each. If the high-
low method is used, how much is the variable cost per unit?
A. $2.50
B. $0.40
C. $2.00
D. $4.00

3. Ranger Pressure Cleaners has total monthly costs of $5,800 when 3,200 units are produced and
$6,425 when 3,700 units are produced. If the high-low method is used, how much is the estimated
total monthly fixed cost?
A. $625
B. $6,113
C. $7,250
D. $1,800

4. C-Drive Components has collected the following production data for the past four months:
Units produced Total cost
7,000 $16,500
10,000 22,500
8,500 17,750
9,000 21,000

If the high-low method is used, what is the monthly total cost equation?
A. Total cost = $2,500 + ($2.00 × units produced)
B. Total cost = $3,750 + ($2.75 × units produced)
C. Total cost = $1,500 + ($2.00 × units produced)
D. Total cost = $500 + ($2.25 × units produced)
5. Diva Products produces scarves. The estimated fixed costs for the year are $164,500, and the
estimated variable costs per unit are $9. The company expects to produce and sell 40,000 scarves
at a unit selling price of $16 per unit. By how much can sales revenue drop before Diva Products
incurs a loss?
A. $16,500
B. $264,000
C. $23,500
D. $115,500

6. At Bahama Foods, the break-even point is 1,600 units. If fixed costs total $44,000 and variable
costs are $12 per unit, what is the selling price per unit?
A. $15.50
B. $39.50
C. $63,200
 D. There is not enough information provided to determine the answer.
7. Widgely Sales Company’s break-even point is 12,200 units. Each unit incurs variable costs of
$2.20 and is sold for $4.90. How much are total fixed costs?
A. $24,400
B. $26,840
C. $59,780
D. $32,940

8. Splurge Electronics sells homework machines for $80 each. Variable costs per unit are $45 and total
fixed costs are $43,750. Splurge is considering the purchase of new equipment that would
increase fixed costs to $48,700, but decrease the variable costs per unit by $5. At that level,
Splurge Electronics expects it can sell 1,500 units next year. What is the company’s break-even
point in units if it purchases the new equipment, assuming the selling price remains constant?
(Round your answer to the nearest whole number.)
A. 1,250 units
B. 1,218 units
C. 650 units
D. 2,312 units
9. Oak Hill Furniture has a contribution margin ratio of 20%, and a contribution margin per unit of
$12. If fixed costs are $156,000, how much sales revenue must the company generate in order to
reach its break-even point?
A. $780,000
B. $13,000
C. $15,600
D. $31,200

10. Randolph Corporation sells a single product at a price of $275 per unit. Variable cost per unit is
$135 and fixed costs total $356,860. If sales are expected to be $825,000, what is the company’s
margin of safety?
A. $468,140
B. $124,025
C. $700,975
D. $405,000
11. One Finger Staples produces a single stapler that it sells for $15 per unit. If variable costs per unit
are $6 and fixed costs total $42,300, how many units must the company sell in order to earn a
profit of $12,150?
A. 3,350 units
B. 4,700 units
C. 3,630 units
D. 6,050 units

12. Anders Supply experienced the following costs in May:

Direct materials $6.50 per unit
Direct labor $2.20 per unit
Manufacturing overhead costs
Variable $3.10 per unit
Fixed $44,000
Selling & administrative costs
Variable selling costs $1.50 per unit
Fixed selling costs $21,000
 Fixed administrative costs $16,000
During May, the company manufactured 22,000 units and sold 24,000 units. Beginning inventory
totaled 3,400 units. If the average selling price per unit was $28, how much is the company’s
contribution margin?
A. $327,400
B. $352,800
C. $323,400
D. $344,800

13. Harrison Enterprises currently produces 8,000 units of part B13. Current unit costs for part B13
are as follows:
Direct materials $12
Direct labor 9
Factory rent 7
Administrative costs 10
General factory overhead (allocated) 7
Total $45
If Harrison decides to buy part B13, 50% of the administrative costs would be avoided. All of the
company’s items, including part B13, are manufactured in the same rented production facility.
The company has an offer from a wholesaler that wishes to sell the part to Harrison for $31 per
unit. What will occur if the company accepts the offer?
A. The cost for this part will increase by $5 per unit.
B. The cost for this part will be the same.
C. The cost for this part will decrease by $14 per unit.
D. The cost for this part will decrease by $10 per unit.
14. Publix has 2,700 pounds of bananas with a total cost of $864. Because the bananas have become
too ripe, Publix is contemplating whether it should use the bananas to bake banana bread or sell
the bananas ‘as is’ to the homeless center for $1,485. In addition to the cost of the bananas, it
would cost $2,565 to convert the bananas into bread, which could then be sold for a total of
$4,480. However, a special oven to bake the bread will have to be rented for an additional $300.
What is the incremental effect on income if Publix converts the bananas to banana bread?
A. Increase of $130
B. Increase of $430
C. Decrease of $734
D. Increase of $1,615

15. Watson Wheels currently makes 6,000 wheels annually that are used in other products it
manufactures. Current unit costs for the wheels are as follows:
Direct materials $22.00
Direct labor 16.00
Variable manufacturing overhead 12.00
Fixed manufacturing overhead 15.00
Total $65.00
The company has an offer from a manufacturer to produce the wheels for $60 per wheel. If the
company decides to buy the wheels, the empty warehouse space could be rented for $22,000
annually. In addition, half of the fixed manufacturing overhead costs would be avoided if the
company decides to buy the wheels. If the company decides to accept the offer, what is the
incremental effect on the company’s net income?
 A. A savings of $7,000
B. A savings of $37,000
C. A decrease in net income of $15,000
D. An increase in net income of $52,000
16. Trebecker Construction plans to discontinue its roofing segment which last year generated a
contribution margin of $65,000 and incurred $70,000 in fixed costs. If the segment is
discontinued, half of the fixed costs will be avoided. What effect is expected to occur to the
company’s overall profit?
A. A decrease of $5,000
B. A decrease of $30,000
C. An increase of $5,000
D. An increase of $30,000

17. Tannimen Square has 800 obsolete calculators in its inventory which have a cost of $16 each. If
the calculators are reworked they could be sold for $23 each. If sold ‘as-is’, the revenue would be
only $12 each. If Tannimen decides to rework the calculators, how much should the company be
willing to invest to ensure that no additional loss occurs on the sale of the calculators?
A. $5,600
B. $8,800
C. $0
D. $3,200
18. Blue Chip Company sells gears for $9 per unit. The unit cost of each gear follows:
Direct materials $1.50
Direct labor 2.20
Manufacturing overhead 2.10
Total $5.80
An order to purchase 4,000 gears was recently received from a new customer. There is enough
capacity to fill the order and filling this order would not disrupt current operations. Blue Chip
Company would incur an additional $1.80 per gear for shipping costs. Half of the manufacturing
overhead costs are fixed and would be incurred no matter how many units are produced. In
negotiating a price, how much is the minimum acceptable selling price?
A. $7.60
B. $5.80
C. $4.75
D. $6.55
19. Barnett Brass sells economy door knobs for $15 each. Unit product costs are as follows:
Direct materials $3
Direct labor 2
Manufacturing overhead 4
Total $9
An order to purchase 4,000 units was recently received from a new customer. There is enough
capacity to fill the order and filling this order would not disrupt current operations. Barnett Brass
would incur an additional $1.50 per unit for shipping costs. Thirty percent of the manufacturing
overhead costs are fixed and would be incurred no matter how many units are produced. In
negotiating a price, how much is the minimum acceptable selling price?
A. $10.50
B. $7.80
C. $9.30
D. $7.70
20. Zanatech’s market for its remote control has changed significantly, and Zanatech has had to drop
the selling price per unit from $45 to $38. There are some units in the work in process inventory
that have costs of $30 per unit associated with them. Zanatech can sell these units in their current
state for $22 each. It will cost Zanatech $11 per unit to rework these units so that they can be sold
for $38 each. Which of the following is the amount of sunk costs in this problem?
A. $30 per unit
B. $11 per unit
C. $38 per unit
D. $15 per unit
21. Winton Corporation currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls
annually in the production of deli sandwiches. The costs to make the rolls are given below:
Materials $0.24 per roll
Labor $0.40 per roll
Variable overhead $0.16 per roll
Fixed overhead $0.20 per roll
A potential supplier has offered to sell Winton the rolls for $0.90 each. If the rolls are purchased,
30% of the fixed overhead could be avoided. If Winton accepts the offer, what will the effect on
profit be?
A. $1,200 decline in profit
B. $1,200 increase in profit
C. $3,000 decline in profit
D. $3,000 increase in profit
22. Tool Time manufactures carpenter-grade screwdrivers. The company is trying to decide whether
to continue to make the case in which the screwdrivers are sold, or to outsource the case to
another company. The direct material and direct labor cost to produce the cases total $2.00 per
case. The overhead cost is $1.00 per case which consists of $0.40 in variable overhead that would
be eliminated if the cases are bought from the outside supplier. The $0.60 of fixed overhead is
based on expected production of 200,000 cases per year and consists of the salary of the case
production manager of $40,000 per year, along with the remainder consisting of rent, insurance,
and depreciation on equipment that will have no resale value. The manager will be laid off if the
cases were bought externally. The outside supplier has offered to supply the cases for $2.80 each.
How much will Tool Time save or lose if the cases are bought externally?
A. Save $0.40 per case
B. Lose $0.10 per case
C. Lose $0.80 per case
D. Save $0.10 per case
23. Diamond Brands manufactures rice, wheat, and oat cereals. Sanders Company has approached
Diamond Brands with a proposal to sell the company the rice cereals at a price of $22,000 for
20,000 pounds. The following costs are associated with production of 20,000 pounds of rice
cereal:
Direct material $13,000
Direct labor 5,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated
to fixed costs, which are 30% unavoidable. What is the incremental cost per pound that Diamond
will (incur) or save if it buys the rice cereal from Sanders?
A. $1.175 savings
B. $0.10 cost
C. $0.075 savings
D. $23.50 cost