Deck 6: Cost-Volume-Profit

Question 1

An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

Answer 1

True

Question 2

Contribution margin is the amount of profit remaining after deducting cost of goods sold.

Answer 2

False

Question 3

At the break-even point, total revenue equals total fixed costs plus total variable costs.

Answer 3

True

Question 4

If fixed costs are $100,000 and weighted-average unit contribution margin is $50, then the break-even point in units is 2,000 units.

Question 5

One assumption of CVP analysis is that costs must be classified as either fixed, mixed, or variable.

Question 6

A CVP income statement separates costs based on behaviour.

Question 7

The contribution margin ratio is calculated by dividing the unit contribution margin by the unit sales price.

Question 8

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:

How much is the contribution margin per unit?

A)$45,000
B)$9,000
C)$90
D)$18

Question 9

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:

How much is the break-even point, rounded to the nearest whole number?

A)$18 units
B)$50 units
C)$122 units
D)400 units

Question 10

The contribution margin per unit is the amount that each unit sold contributes towards covering fixed and variable costs.

Question 11

Contribution margin equals the total variable costs plus total fixed costs at the break-even point.

Question 12

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:

How much is the net profit, (loss), for September?

A)$45,000
B)$9,000
C)$68,000
D)$20,000

Question 13

Max Company's break-even point is 2,000 units, its contribution margin per unit is $2, and its selling price per unit is $12.If the company sell 10 more units, its net income will be $4,000.

Question 14

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:

How much is total contribution margin for September?

A)$45,000
B)$9,000
C)$68,000
D)$20,000

Question 15

In CVP analysis, the term 'cost' includes only manufacturing costs.

Question 16

Target net income is the income objective for a individual product line.

Question 17

A CVP income statement shows contribution margin and gross profit.

Question 18

A CVP income statement classifies costs into two sections based on behaviour.

Question 19

The margin of safety is the difference between sales at break-even and sales at a determined activity level.

Question 20

The break-even point is the point at which total sales equals total contribution margin.

Question 21

CopperZ Company has variable costs which are 40% of its unit selling price and fixed costs of $30,000.How much sales will CopperZ report at its break-even point in dollars?

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

Question 22

Which of the following is an underlying assumption of CVP analysis?

A)Factors other than changes in activity may affect costs.
B)Cost classifications are reasonably accurate.
C)Increases in inventories cause increase in total fixed costs.
D)Unit costs remain the same over the relevant range.

Question 23

Which one of the following describes the break-even point?

A)It is the point where total sales equal total variable plus total fixed costs.
B)It is the point where the contribution margin equals zero.
C)It is the point where total variable costs equal total fixed costs.
D)It is the point where total sales equal total fixed costs.

Question 24

Hartley, Inc.has one product with a selling price per unit of $250, the unit variable cost is $150, and the total monthly fixed costs are $750,000.How much is Hartley's contribution margin ratio?

A)40%
B)60%
C)66.7%
D)75%

Question 25

Hardage Company has a contribution margin per unit of $15 and a contribution margin ratio of 60%.How much is the selling price of each unit?

A)$25
B)$37.50
C)$9
D)Cannot be determined without more information

Question 26

Which of the following is the correct formula for the contribution margin per unit?

A)Sales - Total variable cost
B)Unit selling price ÷ Unit variable cost
C)(Unit selling price - Unit variable cost) ÷ Unit selling price
D)Unit selling price - Unit variable cost

Question 27

In CVP analysis, what does the term "cost" mean?

A)It includes all fixed and variable costs of products.
B)It includes all costs which are part of cost of goods sold.
C)It includes manufacturing costs plus selling and administrative expenses.
D)It includes all manufacturing costs.

Question 28

Which one of the following is an assumption of CVP analysis?

A)Sales in units remain constant.
B)All costs are variable.
C)The change in beginning and ending inventories is reflected in the analysis.
D)The behaviour of costs and revenues are linear within the relevant range.

Question 29

A company sells a product which has a unit sales price of $9, unit variable cost of $6 and total fixed costs of $60,000.How many units must the company sell to break-even?

A)180,000
B)20,000
C)6,667
D)10,000

Question 30

Which one of the following is a consideration of CVP analysis?

A)The level of activity must remain constant over the relevant range.
B)Total fixed costs remain constant over the relevant range.
C)Total variable costs remain constant over the relevant range.
D)Cost behaviour can change as long as total costs remain the same at all activity levels.

Question 31

Sarks Company has a contribution margin of $150,000 and a contribution margin ratio of 30%.How much are total variable costs?

A)$45,000
B)$350,000
C)$105,000
D)$500,000

Question 32

Fixed costs are $400,000 and the contribution margin per unit is $80.What is the break-even point?

A)$500,000
B)$2,000,000
C)320,000 units
D)5,000 units

Question 33

Which of the following is the correct formula for the contribution margin ratio?

A)Sales - Total variable cost
B)(Unit selling price - Unit variable cost) ÷ Unit selling price
C)Unit selling price - Unit variable cost
D)(Unit selling price - Unit variable cost) ÷ Unit variable cost

Question 34

In which one of the following calculations would CVP analysis be most important?

A)Calculating depreciation expense
B)Setting selling prices
C)Determining how many employees to hire
D)Estimating units to be produced at capacity

Question 35

If a firm is currently at the break-even point, and it sells one more unit, what will happen to its operating profit?

A)It will increase by the unit selling price.
B)It will decrease by the unit variable cost.
C)It will increase by the unit contribution margin.
D)It will increase by the fixed cost divided by the unit contribution margin.

Question 36

A company has total fixed costs of $180,000 and a contribution margin ratio of 30%.How much sales are necessary to break-even?

A)$540,000
B)$600,000
C)$54,000
D)$126,000

Question 37

Sales are $60,000 and variable costs are $45,000.How much is the contribution margin ratio?

A)75%
B)50%
C)25%
D)Cannot be determined without more information

Question 38

To which function of management is CVP analysis most applicable?

A)Directing
B)Controlling
C)Planning
D)Organizing

Question 39

NEKP Inc.sells two versions of its product, standard and deluxe.The standard model has a 15 percent profit margin and the deluxe model has a 17 percent profit margin.The standard model has a 30 percent contribution margin and the deluxe has a 23 percent contribution margin.If other factors are equal, which product should NEKP emphasize to its customers?

A)The standard model
B)The deluxe model
C)Selling either results in the same additional income for the company
D)Not enough information is given

Question 40

Gift Gallery sold 2,000 Zooglars during 2012.Information is provided concerning the Zooglar product: If Gift Gallery sells 30 more units, by how much will its profit increase?
A )$18
B)$540
C)$390
D)$900

Question 41

How much sales are required to earn a target net income of $80,000 if total fixed costs are $100,000, the contribution margin ratio is 40% and the tax rate is 25%?

A)$6,000,000
B)$250,000
C)$516,667
D)$1,050,000

Question 42

Tykee Company has the following data: Variable costs are 75% of the unit selling price.
The contribution margin per unit is $400.
The fixed costs are $600,000.
Which of the following expresses the break-even point?

A).25 x 600,000 = X
B)600,000 ÷.75 = X
C)($600,000 ÷ $400) x .75 = X
D)$600,000 ÷ .25 = X

Question 43

A company requires $600,000 in sales to meet its target net income after-tax.Its contribution margin is 40%, and fixed costs are $80,000.How much is the target net income, given that its after-tax rate is 70%?

A)$400,000
B)$160,000
C)$48,000
D)$112,000

Question 44

Sample, Inc.determined its unit variable cost increased by 15%.Which one of the following will not increase as a direct result?

A)Total costs
B)Total variable costs
C)Contribution margin
D)The break-even point

Question 45

Sulingo, Inc.calculated how many units it needed in order to earn net income totalling $67,750 for the month.What calculation did Sulingo perform?

A)[Variable costs +($67,750/1-tax rate)] ÷ contribution margin ratio
B)[Fixed costs + ($67,750/1+tax rate)] ÷ contribution margin ratio
C)[Fixed costs + ($67,750/1-tax rate)] ÷ contribution margin per unit
D)[Variable costs + ($67,750/tax rate)] ÷ contribution margin per unit

Question 46

Which one of the following lines is not drawn separately on a CVP graph?

A)Total cost line
B)Fixed cost line
C)Sales line
D)Variable cost line

Question 47

Which one of the following is the format of a CVP income statement?

A)Sales - Variable costs = Fixed costs + Net income
B)Sales - Fixed costs - Variable costs - Operating expenses = Net income
C)Sales - Cost of goods sold - Operating expenses = Net income
D)Sales - Variable costs - Fixed costs = Net income

Question 48

The following information is available for Chap Company: Which amount would you find on Chap's CVP income statement?

A)Contribution margin of $250,000
B)Contribution margin of $190,000
C)Gross profit of $230,000
D)Gross profit of $190,000

Question 49

Which one of the following is true concerning a CVP income statement?

A)Costs and expenses are classified only by function.
B)It is prepared for both internal and external use.
C)It shows contribution margin instead of gross profit.
D)Costs and expenses are classified as product or period.

Question 50

Tiny Tots Toys has actual sales of $400,000 and a break-even point of $260,000.How much is its margin of safety ratio?

A)35%
B)65%
C)286%
D)53.8%

Question 51

What does the margin of safety measure?

A)How far prices can be changed before the CVP analysis is no longer valid
B)How much sales can drop before the firm has an operating loss
C)How far fixed costs can drop before the firm has an operating loss
D)How far variable costs can rise before the firm has an operating loss

Question 52

Organizer Company has fixed costs of $200,000 and variable costs are 60% of sales.How much will Organizer Company report as sales when its net income equals $20,000?

A)$550,000
B)$366,667
C)$520,000
D)$132,000

Question 53

Needles, Inc.was evaluating its margin of safety.Which one of the following is true?

A)The break-even point is not relevant.
B)The higher the ratio, the greater the margin of safety.
C)The higher the dollar amount, the lower the margin of safety.
D)The higher the ratio, the lower the fixed costs.

Question 54

Which one of the following is true of the CVP income statement?

A)It is part of accounting information provided to all financial statement users.
B)It is used internally by management.
C)It provides the amount of gross profit of a company.
D)It separates manufacturing from non-manufacturing costs.

Question 55

Stacker requires sales of $500,000 to cover its fixed costs of $100,000 and to earn net income of $80,000.What percent are variable costs of sales?

A)36%
B)2.77%
C)20%
D)64%

Question 56

If M&H Ltd.has a margin of safety of $100,000, which of the following statements is correct?

A)Sales can increase by $100,000 before M&H have an operating loss.
B)Fixed costs can increase by $100,000 before M&H have an operating loss.
C)Sales can decrease by $50,000 and fixed costs can increase by $40,000 before M&H have an operating loss.
D)Sales can increase by $50,000, and fixed costs can decrease by $50,000 before M&H have an operating loss.

Question 57

Goose Bay Sync's management established its target net income for the year.What did the company do?

A)It estimated its break-even income level for the year.
B)It calculated its contribution margin.
C)It determined the behaviour of its costs.
D)It established its desired annual income for its product lines.

Question 58

Which one of the following calculates the break-even point in units?

A)Divide total fixed costs by the contribution margin per unit.
B)Divide fixed cost per unit by the contribution margin per unit.
C)Divide total contribution margin by the number of units sold.
D)Divide total fixed costs by the contribution margin ratio.

Question 59

Where is the break-even point located in a CVP graph?

A)At the intersection of the sales line and the fixed cost line
B)At the intersection of the variable cost line and the fixed cost line
C)At the intersection of the total cost line and the sales line
D)At the intersection of the mixed cost line and the sales line

Question 60

Forms, Inc.wants to sell a sufficient quantity of products to earn an after-tax profit of $40,000.If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $80,000, how many units must be sold to earn income of $40,000? Forms, Inc has a tax rate of 40%.

A)73,334 units
B)18,334 units
C)40,000 units
D)90,000 units

Question 61

Barcelona Bagpipes produces two models: Model 24 has sales of 200 units with a contribution margin of $35 each; Model 26 has sales of 75 units with a contribution margin of $37 each.If sales of Model 26 increase by 50 units, how much will profit change?

A)$1,850 increase
B)$1,750 increase
C)$3,600 increase
D)$7,400 increase

Question 62

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 1,000 drives were sold.Fixed costs for April were $4.20 per unit for a total of $4,200 for the month.If variable costs decrease by 10%, what happens to the break-even level of units per month for Sutton Company?

A)It is 10% higher than the original break-even point.
B)It decreases about 12 units.
C)It decreases about 30 units.
D)It depends on the number of units the company expects to produce and sell.

Question 63

Saver Company produces only one product.Monthly fixed expenses are $20,000, monthly unit sales are 3,500, and the unit contribution margin is $7.How much is monthly net profit?

A)$44,500
B)$24,500
C)$0
D)$4,500

Question 64

Swashbuckler, Inc.produces buckets.The selling price is $20 per unit and the variable costs are $8 per bucket.Fixed costs per month are $4,800.If Swashbuckler sells 10 more units beyond break-even, how much does profit increase as a result?

A)$120
B)$400
C)$600
D)$12,000

Question 65

Fallow-Hawke is a non-profit organization that captures stray deer from residential communities.Fixed costs are $10,000.The variable cost of capturing deer is $10.00 each.Fallow-Hawke is funded by a local philanthropy in the amount of $32,000 for 2012.How many deer can Fallow-Hawke capture during 2012?

A)2,200
B)3,200
C)4,200
D)2,000

Question 66

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 700 drives were sold.Fixed costs for April were $4 per unit for a total of $2,800 for the month.How much do Clark's operating income increase for each $1,000 increase in revenue per month?

A)$700
B)$500
C)$14,000
D)Not enough information to determine the answer.

Question 67

Sutton Company produces flash drives for computers, which it sells for $20 each.The variable cost to make each flash drive is $6.During April, 700 drives were sold.Fixed costs for April were $2 per unit for a total of $1,400 for the month.How much is the monthly break-even level of sales in dollars for Sutton Company?

A)$100
B)$2,000
C)$7,000
D)$4,200

Question 68

Croc Catchers calculates its contribution margin to be less than zero.Which statement is true?

A)Its fixed costs are less than the variable cost per unit.
B)Its profits are greater than its total costs.
C)The company should sell more units.
D)Its selling price is less than its variable costs.

Question 69

The following monthly data are available for Wackadoos, Inc.which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 4,000 units.How much is the margin of safety for the company for June?

A)$70,000
B)$105,000
C)$63,000
D)$2,500

Question 70

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 1,000 drives were sold.Fixed costs for April were $2 per unit for a total of $2,000 for the month.How much is the contribution margin ratio?

A)30%
B)40%
C)60%
D)70%

Question 71

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000.How much is the selling price per unit?

A)$43.50
B)$11.50
C)$16
D)Not enough information

Question 72

Martin Worldwide sells a single product with a contribution margin of $12 per unit and fixed costs of $24,000.How much is Martin's break-even point?

A)2,500 units
B)$12,000
C)$24,000
D)2,000 units

Question 73

ABC Bread sells a box of bagels with a contribution margin of 62.5%.Its fixed costs are $150,000 per year.How much sales dollars does ABC Bread need to break-even per year if bagels are its only product?

A)$93,750
B)$150,000
C)$240,000
D)$90,000

Question 74

Wardley Corporation sells its product for $40.The variable costs are $18 per unit.Fixed costs are $16,000.The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs.Which of the following is true about the break-even point in units?

A)It will remain unchanged.
B)It will decrease.
C)It will increase.
D)It cannot be determined from the information provided.

Question 75

Company A and Company B sell their products for exactly the same sales price.Both have the same annual fixed costs.Company A's variable and fixed costs at break-even total $60,000 and $30,000 respectively.Company B's variable and fixed costs at break-even total $30,000 and $60,000 respectively.Both companies have the same net income.If both companies experience an increase in sales, which company will have the higher net income?

A)Company A
B)Company B
C)Both companies will report the same profits since total costs are the same.
D)More information is needed to determine the answer.

Question 76

A division sold 280,000 calculators during 2012: How much is the contribution margin per unit, rounded to the nearest cent?

A)$17.32
B)$15.00
C)$7.00
D)$5.00

Question 77

Weed, Inc.variable costs are 25% of sales.Its selling price is $95 per unit.If Weed sells one unit more than break-even units, how much will profit increase?

A)$71.25
B)$23.75
C)$32.50
D)$380.00

Question 78

Which concept answers the following question: 'If budgeted revenues are above break-even and decline, how far can they fall before the break-even point is reached?

A)Contribution margin
B)Relevant range of operations
C)Operating leverage
D)Margin of safety