Hollis industries produces flash drives for computers

A variable cost is a cost that

may or may not be incurred, depending on management's discretion.

varies per unit at every level of activity.

occurs at various times during the year.

varies in total in proportion to changes in the level of activity.

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:

Unit Variable CostUnit Fixed Cost

Remains constantRemains constant

DecreasesRemains constant

Remains constantDecreases

IncreasesDecreases

A fixed cost is a cost which

varies inversely in total with changes in the level of activity.

remains constant in total with changes in the level of activity.

varies in total with changes in the level of activity.

remains constant per unit with changes in the level of activity.

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $14 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?

70%

20%

30%

80%

Contribution margin

is calculated by subtracting total manufacturing costs per unit from sales revenue per unit.

is always the same as gross profit margin.

equals sales revenue minus variable costs.

excludes variable selling costs from its calculation.

The equation which reflects a CVP income statement is

Sales – Variable costs – Fixed costs = Net income.

Sales + Fixed costs = Variable costs + Net income.

Sales – Variable costs + Fixed costs = Net income.

Sales = Cost of goods sold + Operating expenses + Net income.

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $150,000. The number of units the company must sell to break even is

300,000 units.

75,000 units.

50,000 units.

30,000 units.

Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using

variable costing.

full costing.

absorption costing.

product costing.

Under absorption costing and variable costing, how are fixed manufacturing costs treated?

AbsorptionVariable

Product CostPeriod Cost

Period CostProduct Cost

Period CostPeriod Cost

Product CostProduct Cost

Management may be tempted to overproduce when using

absorption costing, in order to increase net income.

absorption costing, in order to decrease net income.

variable costing, in order to increase net income.

variable costing, in order to decrease net income.