Deck 4: Cost-Volume-Profit Analysis: a Managerial Planning Tool

Question 1

If a multi-product company simply wants to know the overall break-even point,it is easiest to use the break-even in sales revenue approach.

Answer 1

TR UE

Question 2

The linear equation for revenue is price multiplied by fixed cost.

Answer 2

False

Question 3

If fixed costs increase,the break-even point decreases.

Answer 3

False

Question 4

If one increases variable costs per unit,the break-even point will decrease.

Question 5

To determine the number of units that must be sold to earn a target operating income,one can use the equation for operating income and replace the operating income term with the target operating income.

Question 6

If variable expenses decrease and the price increases,the break-even point decreases.

Question 7

The break-even point in sales dollars is equal to the break-even units multiplied by cost.

Question 8

The profit-volume graph shows the relationship between profits and units sold.

Question 9

The contribution margin income statement provides a good check to determine if the sale of a certain number of units really results in operating income of the given amount.

Question 10

In the equation to determine the number of units that must be sold to earn a target income,targeted income is subtracted from fixed expense in the numerator.

Question 11

Most firms would like to earn operating income equal to the break-even point.

Question 12

The contribution margin ratio can be calculated by subtracting the variable cost ratio from one.

Question 13

It is possible to calculate the break-even point for individual products in a multiple product firm by separating the common and direct fixed expenses.

Question 14

Variable expense per unit consists only of direct materials,direct labor,and variable overhead.

Question 15

The cost-volume profit graph depicts the relationships among cost,volume,and profits,by plotting the total revenue line and the total cost line on the graph.

Question 16

The impact on a firm's income resulting from a change in the number of units sold can be assessed by multiplying the unit contribution margin by the change in units sold assuming that fixed costs remain the same.

Question 17

The break-even point is where total sales revenue equals total cost.

Question 18

The linear equation for total cost is (Unit variable cost ´ Units)+ Fixed cost.

Question 19

The profit-volume graph shows the relationship between operating income and the number of units sold.

Question 20

To find the number of units to sell to earn a targeted income,it is acceptable to simply adjust the break-even units equation by adding target income to the variable cost.

Question 21

The amount of income an organization is trying to achieve during a particular period is known as the _____________.

Question 22

The margin of safety measures the units sold or the revenue earned above the break-even volume.

Question 23

Direct fixed expenses are the fixed costs that are not traceable to the segments and would remain even if one of the segments was eliminated.

Question 24

Given the following numbers from Webster Company,match the correct value with its appropriate term.
Webster Company sells a product for $20.Unit cost information is as follows:

Question 25

A ________________________ visually portrays the relationship between profits and units sold.

Question 26

In a multi-product firm,if the sales mix changes,the break-even points for each product will not change.

Question 27

The _________________________ is the proportion of each sales dollar available to cover fixed costs and provide for profit.

Question 28

______________________ are those fixed costs that can be traced to each segment and would be avoided if the segment did not exist.

Question 29

The ________________________ is the point where total revenue equals total cost.

Question 30

Fixed costs that are not traceable to the segments and would remain even if one of the segments was eliminated are known as _____________________________.

Question 31

Operating leverage is the use of fixed cost to extract higher percentage changes in profits as sales activity changes.

Question 32

The _________________________ depicts the relationships among cost,volume,and profits by plotting the total revenue line and the total cost line on a graph.

Question 33

If the break-even point increases,the margin of safety increases.

Question 34

Managers can use CVP analysis to handle risk and uncertainty.

Question 35

Common fixed expenses are the fixed costs that are traceable to the segments and would be avoided if the segment did not exist.

Question 36

The ______________________ is the proportion of each sales dollar that must be used to cover variable costs.

Question 37

Assuming that fixed costs remain unchanged,the _____________________ can be used to find the profit impact of a change in sales revenue.

Question 38

___________________________________ is the income statement format that is based on the separation of costs into fixed and variable components.

Question 39

______________ gives us a way to determine how many units must be sold,or how much sales revenue must be generated to earn a particular target income.

Question 40

The difference between sales and variable expenses is called the ______________________.

Question 41

If the selling price per unit increases,the break-even point in units will

A)decrease.
B)increase.
C)remain the same.
D)remain the same; however,contribution per unit will decrease.

Question 42

The break-even point is when

A)the company is operating at a loss.
B)total revenue equals total cost.
C)the company is earning a small profit.
D)total sales equal variable costs.
E)total sales equals operating income.

Question 43

A company's mix of fixed costs relative to variable costs is referred to as its _______________.

Question 44

Contribution margin ratio can be calculated in all of the following ways except

A)Fixed costs/Contribution margin per unit
B)1 - Variable cost ratio
C)Contribution margin per unit/price
D)Total contribution margin/Total sales
E)all of these are correct

Question 45

If variable costs per unit decrease,sales volume at the break-even point will

A)decrease.
B)stay constant.
C)double.
D)increase.

Question 46

Assume the following information: What volume of sales dollars is needed to break even?

A)$75,000
B)$300,000
C)$48,000
D)$12,000

Question 47

Clean Company sells its product for $80.In addition,it has a variable cost ratio of 60 percent and total fixed costs of $8,000.What is the break-even point in sales dollars for Baker Company?

A)$4,800
B)$32,000
C)$20,000
D)$8,000

Question 48

Sarah Smith,a sole proprietor,has the following projected figures for next year: What is the contribution margin ratio?

A)0.300
B)1.429
C)0.429
D)3.333

Question 49

The _________________________________ can be measured for a given level of sales by taking the ratio of contribution margin to operating income.
or
or

Question 50

Patricia Company produces two products,X and Y,which account for 60 percent and 40 percent,respectively,of total sales dollars.Contribution margin ratios are 50 percent for X and 25 percent for Y.Total fixed costs are $120,000.What is Patricia's break-even point in sales dollars?

A)$300,000
B)$328,767
C)$342,856
D)$375,000

Question 51

The ratio of fixed expenses to the contribution margin ratio is the

A)indifference point.
B)break-even point in units.
C)fixed cost ratio.
D)break-even point in sales.
E)sensitivity analysis.

Question 52

The "what-if" process of altering certain key variables to assess the effect on the original outcome is also called a __________________.

Question 53

__________ is the relative combination of products being sold by a firm.

Question 54

The _________________ is the units sold or the revenue earned above the break-even volume.

Question 55

_____________________ is the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

Question 56

Which of the following equations is true?

A)Contribution margin = Sales revenue ´ Variable cost ratio
B)Contribution margin ratio = Contribution margin/Variable costs
C)Contribution margin = Fixed costs
D)Contribution margin ratio = 1 - Variable cost ratio

Question 57

At the break-even point,

A)total revenue equals variable cost.
B)total fixed cost equals variable cost.
C)total contribution margin equals total fixed cost.
D)total sales equals total fixed cost.
E)total margin of safety equals variable cost.

Question 58

The quantity at which two systems produce the same operating income is referred to as the ___________________.

Question 59

Total contribution margin divided by total sales is the

A)indifference point.
B)margin of safety.
C)sales ratio.
D)target income.
E)contribution margin ratio.

Question 60

If the break-even volume for a company is 600 units and the company is currently selling 1,000 units than the 400 units would represent the company's ____________________.

Question 61

If the contribution margin ratio increases,the break-even point in sales dollars will

A)increase.
B)decrease.
C)remain the same.
D)double.

Question 62

Melody Company sells a product for $14,variable costs are $10 per unit,and total fixed costs are $5,040.What is the break-even point in units?

A)640
B)1,260
C)210
D)360
E)504

Question 63

If the contribution margin per unit decreases,the break-even point in units

A)will increase.
B)will decrease.
C)will remain the same.
D)cannot be determined from the information given.

Question 64

Dirth Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales and fixed expenses are $30,000.Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.What is the contribution margin ratio when the selling price is reduced to $6 per unit?

A)25%
B)40%
C)75%
D)60%

Question 65

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500.
Refer to Figure 4-1.What is the budgeted operating income?

A)$273,000
B)$227,500
C)$45,500
D)$374,500
E)$567,000

Question 66

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500.
Refer to Figure 4-1.What is the break-even point in sales dollars?

A)$350,000
B)$420,000
C)$650,000
D)$780,000
E)$567,000

Question 67

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500.
Refer to Figure 4-1.What is the variable cost ratio?

A)54%
B)35%
C)89%
D)19%
E)50%

Question 68

Which statement is not true about cost-volume profit (CVP)analysis?

A)CVP analysis is a powerful tool for planning and decision making.
B)CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or cost levels on profit.
C)CVP analysis shows how revenues,expenses,and profits behave as volume changes.
D)CVP analysis can be used in both single-product and multi-product firms.
E)All of these statements are true.

Question 69

The income statement for Thomas Manufacturing Company for 2011 is as follows: What is the contribution margin per unit?

A)$7.20
B)$1.20
C)$4.80
D)$120,000

Question 70

Total variable cost divided by price is

A)variable cost ratio.
B)revenue ratio.
C)contribution ratio.
D)sales ratio.
E)degree of operating leverage.

Question 71

Stepford Company makes dolls.The price is $10 and the variable expense per unit is $6.What is the contribution margin ratio?

A)62.5%
B)37.5%
C)55%
D)40%
E)60%

Question 72

The contribution margin is

A)the difference between sales and variable costs.
B)the difference between target income and operating income.
C)the difference between operating income and margin of safety.
D)equal to sales.
E)when total sales equals total costs.

Question 73

If the contribution margin ratio increases

A)the variable cost ratio decreases.
B)the break-even point increases.
C)fixed costs must have decreased.
D)price must have decreased.
E)more units must be sold to break even.

Question 74

Melody Company sells a product for $14,variable costs are $10 per unit,and total fixed costs are $5,040.What is the per unit contribution margin?

A)$14
B)$10
C)$24
D)$10
E)$4

Question 75

Dirth Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales and fixed expenses are $30,000.Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.What is the sales dollars level required to break even at the old price of $7.50?

A)$75,000
B)$12,000
C)$18,000
D)$50,000

Question 76

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500.
Refer to Figure 4-1.What is the contribution margin ratio?

A)35%
B)65%
C)54%
D)89%
E)50%

Question 77

If fixed costs increase,the break-even point in units will

A)increase.
B)decrease.
C)remain the same.
D)remain the same; however,contribution per unit will decrease.

Question 78

Figure 4-2. Pauley Company provides home health care.Pauley charges $35/hour for professional care.Variable costs are $21/hour and fixed costs are $78,000.Next year,Pauley expects to charge out 12,000 hours of home health care.
Refer to Figure 4-2.What is the break-even point in hours? (round to the nearest whole hour)

A)2,229
B)1,393
C)3,714
D)5,571
E)12,000

Question 79

Figure 4-2. Pauley Company provides home health care.Pauley charges $35/hour for professional care.Variable costs are $21/hour and fixed costs are $78,000.Next year,Pauley expects to charge out 12,000 hours of home health care.
Refer to Figure 4-2.What is the break-even point in sales dollars?

A)$130,000
B)$195,000
C)$252,000
D)$420,000
E)$342,000

Question 80

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500.
Refer to Figure 4-1.What is the contribution margin?

A)$90,000
B)$183,000
C)$36,000
D)$273,000
E)$374,500