Deck 3: Fundamentals of Cost-Volume-Profit Analysis

Question 1

An increase in the selling price per unit will decrease an organization's operating leverage, assuming sales unit volume doesn't change and there are no other changes in its cost structure.

Answer 1

True

Question 2

If the average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500, then sales of 15,000 units will result in operating profits of $3,600.

Answer 2

False

Question 3

Both total revenues (TR) and total costs (TC) are likely to be affected by changes in the output.

Answer 3

True

Question 4

The break-even point in sales dollars is fixed costs divided by the contribution margin ratio.

Question 5

Cost-volume-profit (CVP) analysis assumes that the production volume equals sales volume so that any changes in unit prices can be ignored.

Question 6

If the fixed costs are $2,400, targeted before-tax operating profit is $1,200, tax rate is 25%, selling price per unit is $2, and contribution margin ratio is 40%, then the sales volume is 9,000 units.

Question 7

Before-tax operating profits are equal to the after-tax operating profits divided by (1 - tax rate).

Question 8

An increase in an organization's tax rate will cause an increase in its break-even point.

Question 9

Microsoft Excel® cannot be used to find break-even points.

Question 10

Microsoft Excel® is ideally suited for analyzing alternative CVP scenarios using its "What-If Analysis" function.

Question 11

An organization's operating leverage is high when it has a low proportion of variable costs in its total costs.

Question 12

The average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500. If operating profits of $900 are desired, a sales volume of 2,500 units is necessary.

Question 13

The contribution margin ratio is the contribution margin per unit divided by the selling price per unit.

Question 14

If the fixed costs are $2,400, targeted operating profits is $1,200, selling price per unit is $2, and the contribution margin ratio is 40%, then the required sales volume is 9,000 units.

Question 15

The total contribution margin is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).

Question 16

Cost-volume-profit (CVP) analysis is more complicated for organizations with multiple products because typically each product has a different contribution margin ratio.

Question 17

If an organization's fixed costs are $2,400, tax rate is 40%, and contribution margin is $5,200, then its after-tax operating profits are $1,680.

Question 18

An increase in an organization's fixed costs will result in a lower margin of safety, assuming all other costs and sales remain unchanged.

Question 19

The break-even point for an organization with a low operating leverage will be relatively higher than the break-even point for an organization with a high operating leverage.

Question 20

Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).

Question 21

The following information pertains to Tiller Co.:
$$\begin{array} { l r } \text { Sales } & \$ 800,000 \\\text { Variable Costs } & 160,000 \\\text { Fixed Costs } & 40,000\end{array}$$
What is Tiller's break-even point in sales dollars? (CPA adapted)

A) $200,000
B) $160,000
C) $50,000
D) $40,000

Question 22

Cost A is a fixed cost, while B is a variable cost. During the current year, the volume of output has decreased. In terms of cost per unit of output, we would expect that:

A) cost A has remained unchanged.
B) cost B has decreased.
C) cost A has decreased.
D) cost B has remained unchanged.

Question 23

Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management in making operating decisions. Which of the following does not represent a potential use of CVP analysis?

A) Ability to compute the break-even point.
B) Ability to determine optimal sales volumes.
C) Aids in evaluating tax planning alternatives.
D) Aids in determining optimal pricing policies.

Question 24

If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?
$\begin{array}{cc}\text { Contribution Margin Ratio }&\text { Break-even Point }\end{array}$
A. $\begin{array}{cc} &&& \text { Decrease } &&&&&&& \text { Increase } \\\end{array}$
B. $\begin{array}{cc} &&& \text { Increase } &&&&&&& \text { Decrease } \\\end{array}$
C. $\begin{array}{cc}&&& \text { Decrease } &&&&&&& \text { Decrease } \\\end{array}$
D. $\begin{array}{cc}&&& \text { Increase } &&&&&&& \text { Increase } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 25

The difference between total sales in dollars and total variable costs is called:

A) operating profit.
B) net profit.
C) the gross margin.
D) the contribution margin.

Question 26

Which of the following would not cause the break-even point to change?

A) Sales price increases.
B) Fixed cost decreases.
C) Sales volume decreases.
D) Variable costs per unit increases.

Question 27

The Frances Manufacturing Company sells two products, FRN and CES. FRN has a higher contribution margin ratio than CES. If the product mix shifts towards CES, the company's break-even point in total units (i.e., FRN plus CES) will increase.

Question 28

Goodson Inc. produces and sells a single product. The company has provided its contribution format income statement for March.
$$\begin{array} { l r } \text { Sales } ( 4,500 \text { units } ) & \$ 427,500 \\\text { Variable costs } & 265,500 \\\text { Contribution margin } & 162,000 \\\text { Fixed costs } & 135,300 \\\text { Operating profit } & \$ 26,700\end{array}$$
If the company sells 4,300 units, its operating profit should be closest to:

A) $7,700.
B) $25,513.
C) $26,700.
D) $19,500.

Question 29

A company's break-even point will not be increased by:

A) an increase in total fixed costs.
B) a decrease in the selling price per unit.
C) an increase in the variable cost per unit.
D) an increase in the number of units produced and sold.

Question 30

If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be:

A) Lower.
B) Higher.
C) Unchanged.
D) Cannot determine with the information given.

Question 31

Opal Company manufactures a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,800. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded):

A) 1,486 units.
B) 3,467 units.
C) 1,040 units.
D) 2,600 units.

Question 32

The Skyways Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Skyways increases its selling price by 10%, its variable cost ratio will:

A) not change.
B) decrease.
C) increase.
D) Cannot determine with the information given.

Question 33

The best course of action in sensitive decisions is that the manager should depend upon the cost analyst's CVP analysis without considering alternative assumptions.

Question 34

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)?

A) Sales price increases by 10%.
B) Sales price decreases by 5%.
C) Variable costs increase by 10% and fixed costs decrease by 5%.
D) Variable costs decrease by 5% and fixed costs increase by 10%.

Question 35

At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?

A) $0.50
B) $1.00
C) $1.50
D) $2.00

Question 36

In multi-product cost-volume-profit (CVP) analysis, the fixed product mix method and the weighted-average contribution margin method yield different break-even points.

Question 37

The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $200,000. If Crowne Company's target operating profit is $60,000, sales would have to be:

A) $260,000.
B) $440,000.
C) $280,000.
D) $240,000.

Question 38

Dartmount Corporation has provided its contribution format income statement for June. The company produces and sells a single product.
$$\begin{array} { l r } \text { Sales (2,900 units) } & \$ 269,700 \\\text { Variable costs } & 107,300 \\\text { Contribution margin } & 162,400 \\\text { Fixed costs } & 137,100 \\\text { Operating profit } & \$ 25,300\end{array}$$
If the company sells 3,100 units, its total contribution margin should be closest to:

A) $27,045.
B) $181,000.
C) $162,400.
D) $173,600.

Question 39

The more important the decision, the more the manager will want to ensure that the assumptions made for CVP analysis are applicable.

Question 40

Razor Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is Fluoro2211. The selling price and cost per unit data for 9,000 units of Fluoro2211 are as follows.
$$\begin{array} { l r } & \text { Per Unit Data }\\\text { Selling Price } & \$ 150 \\\text { Direct Materials } &20 \\\text { Direct Labor } &15 \\\text { Variable Manufacturing Overhead } & 12\\\text { Fixed Manufacturing Overhead } &30 \\\text { Variable Selling } & 3 \\\text { Fixed Selling and Admnistrative } &10\\\text { Total Costs } & 90\\\text { Operating Margin } & \$60\\\end{array}$$
During the next year, sales of Fluoro2211 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase by 20%, and direct materials, which will increase by 10%. The selling price per unit for next year will be $160. Based on these data, Razor Inc.'s total contribution margin for next year will be: (CMA adapted)

A) $882,000.
B) $980,000.
C) $972,000.
D) $1,080,000.

Question 41

You have been provided with the following information:
$\begin{array}{llr}& \text {Per }\\ & \text { Unit } & \text { Total }\\ \text {Sales } &\$15&\$45,000\\ \text { Less variable expenses } &9&27,000\\ \text { Contribution margin} &6&18,000\\ \text { Less fixed expenses } &&12,000\\ \text {Operating profit } &&\$6,000\\\end{array}$

If sales decrease by 500 units, how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000?

A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.

Question 42

On January 1, 2020, Randolph Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Randolph's budgeted break-even point and budgeted margin of safety? (CPA adapted)
$\begin{array} {cc} & \text { Budgeted Break-even Point } & \text { Budgeted Margin of Safety } \\\end{array}$
A. $\begin{array} {cc} &&&& \text { Increase } &&&&&&&&& \text { Increase } \\\end{array}$
B. $\begin{array} {cc} &&&& \text { Increase } &&&&&&&&& \text { Decrease } \\\end{array}$
C. $\begin{array} {cc} &&&& \text { Decrease } &&&&&&&&& \text { Decrease } \\\end{array}$
D. $\begin{array} {cc}&&&& \text { Decrease } &&&&&&&&& \text { Increase } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 43

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:

A) Lower.
B) Higher.
C) Unchanged.
D) Cannot determine with the information given.

Question 44

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)
∙ The sales price of the T-shirts will be $10.
∙ Variable cost to manufacture will increase by one-third.
∙ Fixed costs will increase by 10%.
∙ The income tax rate of 40% will be unchanged.
Based on a $10 selling price per unit and if Dorcan Corporation wishes to earn $37,800 in after tax net income for the coming year, the company's sales volume in dollars must be:

A) $213,750.
B) $257,625.
C) $207,000.
D) $255,000.

Question 45

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)
∙ The sales price of the T-shirts will be $9.
∙ Variable cost to manufacture will increase by one-third.
∙ Fixed costs will increase by 10%.
∙ The income tax rate of 40% will be unchanged.
Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Dorcan's sales volume in the coming year will be:

A) 22,600 units.
B) 21,960 units.
C) 23,400 units.
D) 21,000 units.

Question 46

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)

The sales price of the T-shirts will be $9.
? Variable cost to manufacture will increase by one-third.
? Fixed costs will increase by 10%.
? The income tax rate of 40% will be unchanged.
The selling price that would maintain the same contribution margin ratio as last year is:

A) $9.00.
B) $8.25.
C) $10.00.
D) $9.50.

Question 47

Raines Company's sales are $750,000 with operating profits of $130,000. If the contribution margin ratio is 40%, what did the fixed costs amount to?

A) $370,000.
B) $300,000.
C) $270,000.
D) $170,000.

Question 48

Lamar has the following data:
$$\begin{array} { l l } \text { Selling Price } & \$ \quad40 \\\text { Variable manufacturing cost } & \$\quad 22 \\\text { Fixed manufacturing cost } & \$ 150,000 \text { per month } \\\text { Variable selling \& administrative costs } & \$ \quad 6 \\\text { Fixed selling \& administrative costs } & \$ 120,000 \text { per month }\end{array}$$


-
If Lamar produces and sells 30,000 units, what is the margin of safety in units?

A) 5,000 units.
B) 7,500 units.
C) 22,500 units.
D) 30,000 units.

Question 49

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$ 1,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 250,000 \\\text { Direct labor } & 150,000 \\\text { Variable Overhead } & 75,000 \\\text { Fixed Overhead } & 100,000&575,000\\\text { Gross Profit } & & \$ 925,000 \\\text { Selling and G\&A } & & \\\text { Variable } & 200,000 & \\\text { Fixed } & 250,000 & 450,000 \\\text { Operating Income } & & \$ 475,000\end{array}$

-
The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is:

A) $146,341.
B) $636,364.
C) $729,730.
D) $181,818.

Question 50

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)
∙ The sales price of the T-shirts will be $10.
∙ Variable cost to manufacture will increase by one-third.
∙ Fixed costs will increase by 10%.
∙ The income tax rate of 40% will be unchanged.
Based on a $10 selling price per unit, the number of T-shirts Dorcan Corporation must sell to break-even in the coming year is:

A) 17,000 units.
B) 16,500 units.
C) 20,000 units.
D) 22,000 units.

Question 51

Lamar has the following data:
$$\begin{array} { l l } \text { Selling Price } & \$ \quad40 \\\text { Variable manufacturing cost } & \$\quad 22 \\\text { Fixed manufacturing cost } & \$ 150,000 \text { per month } \\\text { Variable selling \& administrative costs } & \$ \quad 6 \\\text { Fixed selling \& administrative costs } & \$ 120,000 \text { per month }\end{array}$$

-
How many units must Lamar produce and sell in order to achieve a profit of $30,000 per month?

A) 10,000 units.
B) 8,824 units.
C) 25,000 units.
D) 15,000 units.

Question 52

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$

-
The contribution margin ratio for the current year is:

A) 53.6%.
B) 49.3%.
C) 46.4%.
D) 25%.

Question 53

A company's break-even point will not be changed by:

A) a change in total fixed costs.
B) a change in the number of units produced and sold.
C) a change in the variable cost ratio.
D) a change in the contribution margin ratio.

Question 54

The following costs have been estimated based on sales of 30,000 units:
$\begin{array}{lcc}& \text {Total Annual }& \text { Percent That Is}\\& \text {Costs}& \text {Variable}\\ \text { Direct materials } & \$ 300,000 &100\%\\ \text { Direct labor } & 250,000&100\% \\\text { Manufacturing overhead } &250,000&100\%\\ \text { Selling and administrative}&150,000&25 \%\end{array}$
What selling price (rounded to two decimal places) will yield a contribution margin of 40%?

A) $59.38
B) $43.75
C) $39.58
D) $33.25

Question 55

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$ 1,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 250,000 \\\text { Direct labor } & 150,000 \\\text { Variable Overhead } & 75,000 \\\text { Fixed Overhead } & 100,000&575,000\\\text { Gross Profit } & & \$ 925,000 \\\text { Selling and G\&A } & & \\\text { Variable } & 200,000 & \\\text { Fixed } & 250,000 & 450,000 \\\text { Operating Income } & & \$ 475,000\end{array}$


-
For the coming year, the management of Gardner Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed costs.
The break-even point for next year (rounded to the nearest dollar) would be:

A) $729,027.
B) $862,103.
C) $214,018.
D) $474,000.

Question 56

At the break-even point, the total contribution margin equals total: (CPA adapted)

A) Variable costs.
B) Sales.
C) Selling and administrative costs.
D) Fixed costs.

Question 57

Gena Manufacturing Company has a fixed cost of $225,000 for the production of tubes. Estimated sales are 150,000 units. A before tax profit of $125,000 is desired by the controller. If the tubes sell for $5 each, what unit contribution margin is required to attain the profit target?

A) $3.00.
B) $2.33.
C) $1.47.
D) $0.90.

Question 58

Lamar has the following data:
$$\begin{array} { l l } \text { Selling Price } & \$ \quad40 \\\text { Variable manufacturing cost } & \$\quad 22 \\\text { Fixed manufacturing cost } & \$ 150,000 \text { per month } \\\text { Variable selling \& administrative costs } & \$ \quad 6 \\\text { Fixed selling \& administrative costs } & \$ 120,000 \text { per month }\end{array}$$

-
How many units must Lamar produce and sell in order to break-even?

A) 8,333 units.
B) 12,500 units.
C) 15,000 units.
D) 22,500 units.

Question 59

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$

-
For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs.
The operating profit for next year would be:

A) $477,500.
B) $492,500.
C) $552,500.
D) $831,250.

Question 60

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$

-
The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is:

A) $2,625,000.
B) $1,865,672.
C) $1,724,138.
D) $2,155,172.

Question 61

Which of the following would not cause the break-even point to change?

A) Sales price increases.
B) Sales volume increases.
C) Fixed cost increases.
D) Variable costs per unit decreases.

Question 62

Obtuse Company's fixed costs total $150,000, its variable cost ratio is 60% and its variable costs are $4.50 per unit. Based on this information, the break-even point in units is:

A) 50,000.
B) 37,500.
C) 33,333.
D) 100,000.

Question 63

Operating leverage refers to the extent to which an organization's cost structure is made up of:

A) differential costs.
B) opportunity costs.
C) fixed costs.
D) relevant costs.

Question 64

Bargain Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, operating profit at the $150,000 sales level must equal:

A) $1,500.
B) $2,700.
C) $2,160.
D) $1,875.

Question 65

A decrease in the margin of safety would be caused by a(n):

A) increase in the total fixed costs.
B) increase in total revenue (sales).
C) decrease in the break-even point.
D) decrease in the variable cost per unit.

Question 66

The margin of safety percentage is computed as:

A) Break-even sales ÷ Total sales.
B) Total sales - Break-even sales.
C) (Total sales - Break-even sales) ÷ Break-even sales.
D) (Total sales - Break-even sales) ÷ Total sales.

Question 67

Tower Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable cost per unit both increase 5% and fixed costs do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?
$\begin{array} { cc} & \text { Contribution margin per unit } & \text { Contribution margin ratio } \\\end{array}$
A. $\begin{array} { cc} &&&&& \text { No change } &&&&&&& \text { No change } \\\end{array}$
B. $\begin{array} { cc} &&&&& \text { Increase } &&&&&&&& \text { Increase } \\\end{array}$
C. $\begin{array} { cc} &&&&& \text { Increase } &&&&&&&& \text { No change } \\\end{array}$
D. $\begin{array} { cc} &&&&&\text { Increase } &&&&&&&& \text { Decrease } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 68

Which of the following formulas is used to calculate the contribution margin ratio?

A) (Sales − Fixed costs) ÷ Sales.
B) (Sales − Cost of goods sold) ÷ Sales.
C) (Sales − Variable costs) ÷ Sales.
D) (Sales − Total costs) ÷ Sales.

Question 69

Which of the following would not cause the break-even point to change?

A) Variable costs per unit increases.
B) Fixed costs increases.
C) Product mix shifts towards the more expensive products.
D) Sales volume decreases.

Question 70

You have been provided with the following information:
$\begin{array}{llr}& \text {Per }\\ & \text { Unit } & \text { Total }\\ \text {Sales } &\$15&\$45,000\\ \text { Less variable expenses } &9&27,000\\ \text { Contribution margin} &6&18,000\\ \text { Less fixed expenses } &&12,000\\ \text {Operating profit } &&\$6,000\\\end{array}$


If unit sales decrease by 10%, how much will fixed costs have to be reduced by to maintain the current operating profit?

A) $12,000.
B) $4,500.
C) $6,000.
D) $1,800.

Question 71

If Q equals the level of output, P is the selling price per unit, V is the variable cost per unit, and F is the fixed cost, then the break-even point in units is:

A) Q ÷ (P − V).
B) F ÷ (P − V).
C) V ÷ (P − V).
D) F ÷ [Q(P − V)].

Question 72

If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars) increase, what will be the effect on the contribution margin ratio and the break-even point, respectively?
$\begin{array} { cc} & \text { Contributim Margin Ratio } & \text { Break-even Point } \\\end{array}$
A. $\begin{array} { cc} &&&& \text { Decrease } & &&&& && \text { Increase } \\\end{array}$
B. $\begin{array} { cc} &&&& \text { Increase } & &&&& && \text { Decrease } \\\end{array}$
C. $\begin{array} { cc} &&&& \text { Decrease } & &&&& && \text { Decrease } \\\end{array}$
D. $\begin{array} { cc} &&&& \text { Increase } & &&&& &&\text { Increase } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 73

Given the following data:
$$\begin{array} { l r r r } &{ \text { Per Unit } } & \text { Total } \\\text { Sales } & \$ 15 & \$ 45,000 \\\text { Less variable expenses } & 9 & 27,000 \\\text { Contribution margin } & 6& 18,000 \\\text { Less fixed expenses } & & 12,000 \\\text { Operating profit } & & \$ 6,000\end{array}$$
If sales decrease by 500 units, by what percent would fixed costs have to be reduced by to maintain current operating profit?

A) 50.0%.
B) 33.3%.
C) 25.0%.
D) 16.7%.

Question 74

Flower Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable costs both decrease by 5% and fixed costs do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?
$\begin{array} {cc } & \text { Contribution margin per unit } & \text { Contribution margin ratio } \\\end{array}$
A. $\begin{array} {cc } &&&&& \text { Decrease } &&&&&&&& \text { Decrease } \\\end{array}$
B. $\begin{array} {cc } &&&&& \text { Decrease } &&&&&&&& \text { No change } \\\end{array}$
C. $\begin{array} {cc } &&&&&\text { No change } &&&&&&&& \text { Decrease } \\\end{array}$
D. $\begin{array} {cc} &&&&& \text { No change } &&&&&&&& \text { No change } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 75

A company's break-even point will not be increased by:

A) an increase in the number of units produced and sold.
B) a decrease in the selling price per unit.
C) an increase in the variable cost per unit.
D) an increase in the variable cost ratio.

Question 76

You have been provided with the following information:
$$\begin{array} { l r } & { \text { Total } }\\\text { Sales } & \$ 90,000 \\\text { Less Variable expenses } & 54,000 \\\text { Contribution margin } & 36,000 \\\text { Less fixed expenses } & 24,000 \\\text { Operating profit } & \$ 12,000 \\\end{array}$$

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If sales decrease by 10%, what level of fixed costs will maintain the current operating profit?

A) $12,000.
B) $20,400.
C) $21,600.
D) $24,000.

Question 77

The following pertains to Upton Co. for the year ending December 31, 2019:
$\begin{array}{llr} \text {Budgeted Sales } &\$1,000,000\\ \text { Break-even Sales } &700,000\\ \text { Budgeted Contribution Margin } &600,000\\ \text { Cash flow Break-even } &200,000\\\end{array}$

Upton's margin of safety is: (CPA adapted)

A) $300,000.
B) $400,000.
C) $500,000.
D) $800,000.

Question 78

With regard to the CVP graph, which of the following statements is not correct?

A) The CVP graph assumes that volume is the only factor affecting total cost.
B) The CVP graph assumes that selling prices do not change.
C) The CVP graph assumes that variable costs go down as volume goes up.
D) The CVP graph assumes that fixed costs are constant in total within the relevant range.

Question 79

You have been provided with the following information:
$$\begin{array} { l r } & { \text { Total } }\\\text { Sales } & \$ 90,000 \\\text { Less Variable expenses } & 54,000 \\\text { Contribution margin } & 36,000 \\\text { Less fixed expenses } & 24,000 \\\text { Operating profit } & \$ 12,000 \\\end{array}$$


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If sales increase by 10%, what level of fixed costs will yield a 20% increase in profits?

A) $14,400.
B) $19,200.
C) $25,200.
D) $26,400.

Question 80

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$

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For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed costs.
The break-even point for next year would be:

A) $3,022,500.
B) $2,947,500.
C) $2,668,750.
D) $2,168,225.