Deck 4: Costvolumeprofit Cvp Analysis

Question 1

The breakeven point can be expressed in number of units or revenue dollars.

Answer 1

A

Question 2

CVP analysis is a management tool that examines changes in profits in response to changes in sales, costs and prices.

Answer 2

A

Question 3

Breakeven point is the point at which revenue covers all fixed costs.

Answer 3

B

Question 4

A company can produce and sell 500 units at $10 each; its variable costs are $6 per unit; fixed costs total $1000. Its expected profit using the profit equation will be $1, 000.

Question 5

CVP analysis begins with the basic formula Profit = Total Revenue minus Total Costs

Question 6

If fixed costs are $75,000 and the CM per unit is $20 then breakeven point is 3,750 units.

Question 7

Accountants typically perform CVP analysis every day to keep track of what is happening in the market place.

Question 8

Contribution Margin Ratio divided by Fixed Costs equals Breakeven Revenue.

Question 9

CVP analysis can be used to help managers assess the risk associated with a business venture by comparing breakeven point to sales forecasted.

Question 10

It is not possible to use post tax profits in CVP analysis.

Question 11

The formula for determining the required number of units to achieve a targeted pre-tax profit is (Fixed Costs + Target Profit) / Contribution Margin per unit.

Question 12

CVP analysis can assist in helping managers understand the required of levels of sales to avoid making a loss.

Question 13

If fixed costs are $75,000 and the CM ratio is 50% then breakeven point is $37,500.

Question 14

Contribution margin provides an indication of how much revenue from each unit sold can be applied towards fixed costs.

Question 15

If fixed costs are $20,000, contribution margin per unit is $3 and target pre-tax profit is $40,000 then sales is required to be 20,000 units.

Question 16

It is not necessary to separate fixed costs and variable costs for CVP analysis.

Question 17

To calculate the breakeven point in units the formula is expressed as Fixed Costs divided by Contribution Margin per unit.

Question 18

Contribution margin ratio can be described as the percentage by which the selling price exceeds the variable cost per unit.

Question 19

The contribution margin per unit is calculated as Selling Price per unit minus Fixed Cost per unit.

Question 20

Breakeven point is the point at which the entity achieves zero profit.

Question 21

A small margin of safety gives managers greater confidence in making plans such as incurring additional fixed costs.

Question 22

Managers should always minimize the fixed costs in their organisation as fixed costs are incurred regardless of sales volume.

Question 23

A product's weighted average contribution margin per unit is calculated by multiplying the contribution margin per unit by the % sales mix for that product.

Question 24

The margin of safety indicates the amount by which sales volume could fall before the entity starts making a loss.

Question 25

When an organisation produces and sells a number of different products or services, the contribution margin per unit for each product is added together to get total contribution margin per unit and this is used to determine the breakeven point or target profit in units.

Question 26

A CVP analysis indicates that the breakeven point for Park Lane Ltd is 2,000 units. If the company sells 1,900 units, then it will make a loss.

Question 27

Learning curves are one explanation for why costs fluctuate over time.

Question 28

The margin of safety percentage is calculated by the margin of safety divided by the actual or estimated sales.

Question 29

CVP analysis for organisations with multiple products should always been performed using per unit information.

Question 30

The margin of safety can be calculated using actual or estimated sales.

Question 31

Operating leverage is the degree to which an organisation's cost function is made up of Fixed Costs.

Question 32

Sales mix is the proportion of different products or services that an entity sells.

Question 33

Due to the number of assumptions and limitations that CVP analysis is subject to, care should be taken when interpreting the results.

Question 34

If the relevant range changes due to expanding operations the CVP analysis should be restated.

Question 35

If a company sell multiple products or services an assumption needed for CVP analysis is that the sales mix remains constant.

Question 36

C) Their respective weighted average contribution margins per unit are; Product A $6.00 per unit, Product B $8.00 per unit, Product C $3 per unit. Fixed costs are $2,500 and target profit is $6,000. The number of units required to be sold is 500.
G) Jones has three products; Product A, Product B, Product

A) True
B) False

Question 37

On a cost-volume-profit graph, the breakeven point is located where the total cost line intersects the x-axis.

Question 38

CVP analysis cannot be used in companies that sell multiple products.

Question 39

Reliable Solutions provides three services to its customers. It currently offers Basic, Deluxe and Complete Solutions. The company estimates customers will purchase the following solutions; Basic - 20, Deluxe - 5 and Complete - 15. The estimated sales mix is therefore Basic 50%, Deluxe 12.5% and Complete 37.5%.

Question 40

The margin of safety is the excess of a firm's profits above current sales.

Question 41

If sales are $160,000, variable costs are $100,000, and fixed costs are $40,000, the contribution margin ratio is:

A) 62.5%
B) 12.5%
C) 37.5%
D) 25.0%

Question 42

Use the following information for following questions

Bijoux Ltd manufactures and sells a single product. This product has the following operational data:

$\begin{array}{lr}\text { Unit sales price } & 50 \\\text { Variable manufacturing cost per unit } & 25 \\\text { Fixed manufacturing costs } & 72,000 \\\text { Variable selling cost per unit } & 2 \\\text { Fixed selling costs } & 57,000 \\\text { Marginal tax rate } & 20 \%\end{array}$

-Calculate the number of units required to achieve a pre-tax profit of $125 000.

A) 7 479
B)10 160
C) 5 435
D) 11 044

Question 43

The degree of operating leverage and margin of safety are reciprocals.

Question 44

The point of indifference is the level of activity at which equal cost or profit occurs across multiple alternatives.

Question 45

To express breakeven point in revenue the formula is:

A) Fixed Costs per unit / Profit per unit.
B) Fixed Costs / Contribution Margin per unit.
C) Fixed Costs / Contribution Margin ratio.
D) Fixed Costs per unit / Contribution Margin ratio.

Question 46

The breakeven point can be defined as:

A) the point at which revenue equal variable costs.
B) the point at which revenue equal fixed costs.
C) the level of operations at which the firm earns a profit.
D) the point at which revenue equals total fixed and variable costs.

Question 47

The formula for calculating operating leverage is Contribution Margin divided by Profit.

Question 48

Kingsbrae Company produces a single product. Following is cost information: $\begin{array}{lcc}&& \text { Variable Cost } \\&\underline{\text { Fixed Costs }} &\underline{ \text { Per Unit }}\\\text { Manufacturing costs } & \$ 35,000 & \$ 15 \\\text { Non-manufacturing costs } & 60,000 & 10\end{array}$ If the product sells for $100, how many units must be sold to break even?

A) 412
B) 1118
C) 1,267
D) 3,800

Question 49

If managers perceive that the organisation's operating leverage is too high they should choose to use fixed costs to meet their operating costs.

Question 50

Managers can use the degree of operating leverage to explicitly calculate the sensitivity of profits to changes in sales.

Question 51

Use the following information for following questions

Bijoux Ltd manufactures and sells a single product. This product has the following operational data:

$\begin{array}{lr}\text { Unit sales price } & 50 \\\text { Variable manufacturing cost per unit } & 25 \\\text { Fixed manufacturing costs } & 72,000 \\\text { Variable selling cost per unit } & 2 \\\text { Fixed selling costs } & 57,000 \\\text { Marginal tax rate } & 20 \%\end{array}$

-Calculate the sales revenue required to break even.

A) $129 000
B) $280 450
C) $258 000
D) $259 400

Question 52

Managers can use cost-volume-profit analysis to: I Select which products to offer.
II Reward managers for high performance.
III Make decisions about how to finance expanding operations.

A) I only
B) II and III only
C) I and III only
D) I, II, and III

Question 53

The % change in profits can be calculated by % change in margin of safety multiplied by degree of operating leverage.

Question 54

Use the following information for following questions

Bijoux Ltd manufactures and sells a single product. This product has the following operational data:

$\begin{array}{lr}\text { Unit sales price } & 50 \\\text { Variable manufacturing cost per unit } & 25 \\\text { Fixed manufacturing costs } & 72,000 \\\text { Variable selling cost per unit } & 2 \\\text { Fixed selling costs } & 57,000 \\\text { Marginal tax rate } & 20 \%\end{array}$

-Calculate the number of units required to break even.

A) 5609 units
B) 5160 units
C) 2880
D) 2280

Question 55

Oasia Ltd sells ceramic gifts sets. Each gift set has a selling price of $54. Variable costs per set are $28. The contribution margin per set is:

A) $54
B) $26
C) $28
D) Unable to be determined from the information provided.

Question 56

The breakeven equation can be expressed as:

A) Fixed Costs / Contribution Margin per unit.
B)
B) Fixed Costs / (Sales Price per unit - Variable costs per unit).
C) Fixed Costs / Profit.
D) a and

Question 57

The profit equation can be expressed as:

A) Profit = [Selling Price - Fixed Costs) * Q] - Variable Costs * Q
B) Profit = [Selling Price + Fixed Costs) * Q] - Variable Costs
C) Profit = [Selling Price - Variable Costs) * Q] - Fixed Costs
D) Profit = [Selling Price - Variable Costs *Q] - Fixed Costs

Question 58

Penco Industries has a small margin of safety % and a high degree of operating leverage; this means it is likely that Penco has a high reliance on fixed costs.

Question 59

CVP analysis is least likely to be used for which of the following decisions?

A) The amount of discretionary expenditures for the next period.
B) The organisational vision.
C) The exact level of operations at which the organisation will operate.
D) Whether to buy a business segment operating in Germany.

Question 60

Use the following information for following questions

Bijoux Ltd manufactures and sells a single product. This product has the following operational data:

$\begin{array}{lr}\text { Unit sales price } & 50 \\\text { Variable manufacturing cost per unit } & 25 \\\text { Fixed manufacturing costs } & 72,000 \\\text { Variable selling cost per unit } & 2 \\\text { Fixed selling costs } & 57,000 \\\text { Marginal tax rate } & 20 \%\end{array}$

-Calculate the sales revenue required to achieve a post-tax profit of $125 000.

A) 11 410
B)9 924
C) 5 705
D) 12 403

Question 61

Managers should consider which of the following in CVP analysis: I Relevant Range
II Cost Behaviour
III Sales Mix

A) I and III only.
B) I and III only.
C) I and II only.
D) I, II, and III.

Question 62

IMA Shop Ltd produces three products. Cost, price, and volume data is shown below:
* Total Fixed Costs: $2,400
* Tax Rate: 30%
$$\begin{array} { | l | l | l | l | } \hline & \text { Chacolate Ice Creamn } & \text { Milkthale } & \text { Furger } \\\hline \text { Narmal Valume } & 300 & 150 & 200 \\\hline \text { Price per unit } & \$ 5 & \$ 7 & \$ 10 \\\hline \text { Var iable cast per unit } & \$ 2 & \$ 3 & \$ 4 \\\hline\end{array}$$ The weighted average contribution margin, rounded to the nearest whole dollar, is

A) $13
B) $4.16
C) $1.85
D) $4.33

Question 63

In CVP analysis, managers usually assume that the cost function is linear. Which of the following equations best represents a linear function for total cost if the cost is a mixed cost?

A) y = $500 + $80x
B) y = $80x²
C) y = $80x
D) y = $500x + $80x

Question 64

How many units of Micro must be sold at the breakeven point? Diamantine has the following unit and mix data:
$$\begin{array} { | l | c | c | c | } \hline & \text { Micro } & \text { Nano } & \text { Total } \\\hline \text { Urit Sales Price } & \$ 5 & \$ 4 & \\\hline \text { Unit Contribution Margin } & 0.75 & 1.20 & \\\hline \text { Sales Mix } \$ & \mathbf { 8 0 \% } & \mathbf { 2 0 \% } & \\\hline \text { Fixed Costs } & & & \$ 84,000 \\\hline \text { Target Profit } & & & \$ 42,000 \\\hline\end{array}$$

A) 100,000
B) 80,000
C) 20,000
D) 40 615

Question 65

Kaitlyn's Cakes had the following activity for December:
Total cakes sold 23,000
Total revenues $500,000
Total fixed costs 99,000
Total variable costs 350,000
What was Kaitlyn's margin of safety, in dollars?

A) $330,000
B) $247,500
C) $347,500
D) $170,000

Question 66

IMA Shop Ltd produces three products. Cost, price, and volume data is shown below:
* Total Fixed Costs: $2,400
* ax Rate: 30%
$$\begin{array} { | l | l | l | l | } \hline & \text { Chacolate Ice Creamn } & \text { Milkthale } & \text { Furger } \\\hline \text { Narmal Valume } & 300 & 150 & 200 \\\hline \text { Price per unit } & \$ 5 & \$ 7 & \$ 10 \\\hline \text { Var iable cast per unit } & \$ 2 & \$ 3 & \$ 4 \\\hline\end{array}$$ Using revenue as the measure for sales mix, calculate IMA Shop's breakeven point in units for each product.

A) Chocolate ice creams 190; Milkshakes 133; Burgers 254.
B) Chocolate ice creams 300; Milkshakes 150; Burgers 200.
C) Chocolate ice creams 150; Milkshakes 133; Burgers 254.
D) Cannot be determined

Question 67

The margin of safety is:

A) the difference between sales and contribution margin.
B) the same as breakeven point.
C) the amount sales can drop before reaching breakeven point.
D) how far sales must increase to earn a profit.

Question 68

When the assumption of linearity is applied to revenue in CVP analyses:

A) fixed cost per unit increases as revenue decreases.
B) variable cost per unit is linear with respect to total revenue.
C) the sales mix remains constant, but prices decrease as volumes increase.
D) the sales mix and all of the prices remain constant.

Question 69

Echo Ltd sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: Point A is best described as:

A) fixed cost.
B) margin of safety.
C) estimated profit at actual volume.
D) breakeven point.

Question 70

Spare Cash Ltd manufactures a single product. The product sells for $20. The variable manufacturing cost per unit is $4 and the variable selling cost is $4 per unit. Spare Cash incurs monthly fixed costs of $200,000 for manufacturing and $140,000 for administration and selling. Spare Cash is considering changes to its production and distribution procedures. If the changes are made, total variable costs (manufacturing and selling) will be $7 and total fixed costs (manufacturing, administration, and selling) will be $350,000 per month. The selling price will remain at $20. If the changes are made, the number of units required to break even will be:

A) unable to be determined.
B) the same as before.
C) less than before.
D) greater than before.

Question 71

Echo Ltd sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: Point B is best described as:

A) fixed cost.
B) margin of safety.
C) estimated profit at actual volume.
D) breakeven point.

Question 72

IMA Shop Ltd produces three products. Cost, price, and volume data is shown below. The weighted average contribution margin per unit for chocolate ice cream, rounded to the nearest cent, is:
* Total Fixed Costs: $2,400
* Tax Rate: 30%
$$\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { Chacalate Ice } \\\text { Cream }\end{array} & \text { Milkshake } & \text { Burger } \\\hline \text { Narmal Valume } & 300 & 150 & 200 \\\hline \text { Price per unit } & \$ 5 & \$ 7 & \$ 10 \\\hline \text { Variable cast per unit } & \$ 2 & \$ 3 & \$ 4 \\\hline\end{array}$$

A) $3.00
B) $0.92
C) $4.15
D) $1.39

Question 73

The cost function for Kat's Cosmetics is: TC = $800 + 0.375 × Revenue. If Kat expects after-tax income of $600 and the tax rate is 40%, what is the firm's margin of safety?

A) $3,200
B) $2,000
C) $2,880
D) $5,760

Question 74

A firm with fixed costs of $161,500 per month sells three products with the following characteristics: $\begin{array}{ccc}&\text { Sales Mix}&\text { Contribution }\\ \underline{\text { Product }} & \underline{\text { Percentage }} & \underline{\text { Margin } }\\\text { P }& 25 \% & \$ 48 \\\text { Q} & 50 \% & 50 \\\text { R }& 25 \% & 52\end{array}$
How many total units must be sold to breakeven?

A) 3,230
B) 1,230
C) 2,153
D) 1,077

Question 75

IMA Shop Ltd produces three products. Cost, price, and volume data is shown below:
* Total Fixed Costs: $2,400
* Tax Rate: 30%
$$\begin{array} { | l | l | l | l | } \hline & \text { Chacolate Ice Creamn } & \text { Milkthale } & \text { Furger } \\\hline \text { Narmal Valume } & 300 & 150 & 200 \\\hline \text { Price per unit } & \$ 5 & \$ 7 & \$ 10 \\\hline \text { Var iable cast per unit } & \$ 2 & \$ 3 & \$ 4 \\\hline\end{array}$$ When using revenues as the measure, what proportion of the sales mix do chocolate ice creams represent? Round to the nearest whole percent.

A) 33%
B) 44%
C) 67%
D) 23%

Question 76

Which of the measures the extent to which the entity's cost function is made up of fixed costs?

A) Operating leverage.
B) Total contribution margin.
C) Margin of safety.
D) Fixed cost leverage.

Question 77

How many units in total must be sold to earn the target profit?

A) 687,500
B) 165,000
C) 112,500
D) 150,000

Question 78

IMA Shop Ltd produces three products. Cost, price, and volume data is shown below:
* Total Fixed Costs: $2,400
* Tax Rate: 30%
$$\begin{array} { | l | l | l | l | } \hline & \text { Chacolate Ice Creamn } & \text { Milkthale } & \text { Furger } \\\hline \text { Narmal Valume } & 300 & 150 & 200 \\\hline \text { Price per unit } & \$ 5 & \$ 7 & \$ 10 \\\hline \text { Var iable cast per unit } & \$ 2 & \$ 3 & \$ 4 \\\hline\end{array}$$ When using units as the measure, what proportion of the sales mix do milkshakes represent? Round to the nearest whole percent.

A) 23%
B) 46%
C) 31%
D) Cannot be determined.

Question 79

The assumption of cost function linearity means: I Fixed costs remain fixed.
II Sales mix remains constant.
III The fixed cost per unit remains constant.

A) I only
B) I and II only
C) I, II, and III
D) III only

Question 80

Echo Ltd sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: Area C is best described as:

A) fixed cost.
B) margin of safety.
C) estimated profit at actual volume.
D) breakeven point.