Deck 3: Cost-Volume-Profit Analysis and Pricing Decisions

Question 1

The degree of operating leverage is calculated as the contribution margin divided by the sales revenue.

Answer 1

False

Question 2

A company with a high operating leverage will experience a large percentage change in operating income as a result of a small percentage change in sales.

Answer 2

True

Question 3

When volume changes,total sales revenue,total variable costs,total contribution margin,and total fixed cost all change.

Answer 3

False

Question 4

One assumption made when using CVP as a decision tool is that all costs can be easily and accurately separated into fixed and variable categories.

Question 5

One of the activities managers like to engage in is called "what-if" analysis,or sensitivity analysis.

Question 6

Operating leverage is the change in total variable costs relative to sales revenue.

Question 7

Companies that carry a high level of fixed costs relative to variable costs are considered to have greater risk than companies with a high level of variable costs relative to fixed costs.

Question 8

Knowing the breakeven point helps managers evaluate the profitability,but not the desirability of various business opportunities.

Question 9

Cost-volume-profit analysis,or CVP,helps managers assess the impact of various business decisions on company profits.

Question 10

Net income divided by 1 - tax rate = Operating income

Question 11

The margin of safety represents the volume of sales that it takes to break even.

Question 12

The breakeven graph illustrates the relationship between product and period costs,allowing managers to view a range of results at a single glance.

Question 13

On the breakeven graph,any level of sales to the left of the breakeven point represents a profit.

Question 14

At the breakeven point,sales revenue is exactly equal to total costs,and there is no profit or loss.

Question 15

Firms can manage their degree of operating leverage by converting variable costs into fixed costs,or vice versa.

Question 16

A company's margin of safety is the difference between current sales and breakeven sales.

Question 17

At the breakeven point,the total contribution margin equals total fixed costs.

Question 18

To find the breakeven point,set the standard profit equation equal to zero,let x equal the total costs,and then solve for x.

Question 19

On the breakeven graph,the point at which the total sales revenue line and the total cost line intersect is the breakeven point.

Question 20

Variable and fixed selling expenses are incurred regardless of the level of sales.

Question 21

Which of the following is $\textbf{ not }$ a step in calculating the breakeven point?

A)Put everything into "constant" form - sales price per unit, variable cost per unit, total fixed cost.
B)Subtract fixed cost from sales revenue.
C)Calculate the contribution margin per unit.
D)Solve by dividing total fixed cost by contribution margin per unit.

Question 22

A drawback of cost-plus pricing is that it is a relatively difficult approach to pricing.

Question 23

At the breakeven point

A)Sales revenue equals zero.
B)Sales revenue equals total costs.
C)Operating income equals total sales.
D)Operating income equals total costs.

Question 24

Which of the following formulas is $\textbf{ not }$ used to calculate the breakeven point?

A)Total fixed costs divided by contribution margin per unit.
B)Total fixed costs divided by sales price per unit less variable cost per unit.
C)Total fixed costs divided by contribution margin ratio.
D)Total fixed cost divided by total contribution margin.

Question 25

Cost-plus pricing adds an amount to the cost of the product or service to cover the company's operating costs and contribute to its profit.

Question 26

Whereas cost-plus pricing starts with the cost,target costing starts with the price customers are willing to pay.

Question 27

Assume a sales price per unit of $25, variable cost per unit $15, and total fixed costs of $18,000. What is the breakeven point in units?

A)720
B)1,200
C)1,800
D)None of these ans choices is correct.

Question 28

At the breakeven point,which of the following is $\textbf{ not }$ true?

A)Sales revenue is equal to total costs.
B)Contribution margin is equal to total variable costs.
C)Contribution margin is equal to total fixed costs.
D)Operating income equals zero.

Question 29

Assume a sales price per unit of $20, variable cost per unit $16, and total fixed costs of $168,000. What is the breakeven point?

A)42,000
B)10,500
C)$42,000
D)$10,500

Question 30

To adhere to the sales mix ratio,a company should split fixed costs between the multiple products and come up with individual product breakeven points or target income points.

Question 31

If a company sells a single product and the selling price per unit and the variable cost per unit both increase by 5% while fixed costs remain the same, then

A) Contribution margin per unit increases and breakeven in units increases.
B) Contribution margin per unit increases and breakeven in units decreases.
C) Contribution margin remains the same and breakeven in units increases.
D) Contribution margin decreases and breakeven in units decreases.

Question 32

Sales mix is,when a company sells more than one type of product,the sales of each product relative to operating income.

Question 33

Cost-plus pricing implies that the cost of the seller's operational $\textbf{ inefficiencies }$ should be borne by the customer.

Question 34

Changing a company's cost structure affects its operating leverage and may have behavioral implications for the employees.

Question 35

If a product's variable cost per unit increases while the selling price and fixed costs remain constant, what will happen to the breakeven point?

A)It will increase.
B)It will decrease.
C)It will remain the same.
D)It may increase or decrease,depending on how much the variable cost per unit changes.

Question 36

If the sales mix changes,so do the breakeven point and the other targets.

Question 37

Which of the following formulas is used to calculate the breakeven point in units?

A)Total fixed costs divided by contribution margin per unit
B)Total fixed costs divided by total contribution margin.
C)Total fixed costs divided by contribution margin ratio.
D)None of these formulas calculates the breakeven point in units

Question 38

At the breakeven point

A)Sales revenue equals zero.
B)Contribution margin equals total variable costs.
C)Sales revenue equals total costs.
D)Operating income equals total costs.

Question 39

Knowing the breakeven point helps managers evaluate

A)The profitability of various business opport
B)The desirability of various business opport
C)The profitability and desirability of various business opport
D)Neither the profitability nor the desirability of various business opport

Question 40

Companies must engage in target costing after introducing a new product.

Question 41

The formula for margin of safety in sales dollars is

A)Current unit sales minus breakeven unit sales.
B)Actual sales minus budgeted sales.
C)Current sales revenue minus breakeven sales revenue.
D)Breakeven sales revenue minus budgeted sales revenue.

Question 42

Which of the following formulas is used to calculate the breakeven point in sales dollars?

A)Total fixed costs divided by contribution margin per unit.
B)Total fixed costs divided by total contribution margin.
C)Total fixed costs divided by contribution margin ratio.
D)None of these formulas calculates the breakeven point in sales dollars.

Question 43

On the breakeven graph,if sales price and variable cost remain constant and fixed costs decrease,the total cost line will

A)Shift upward.
B)Shift downward.
C)Shift to the right.
D)Shift to the left.

Question 44

A breakeven graph illustrates the relationship between

A)Volume and sales price.
B)Volume and total costs.
C)Breakeven and operating income.
D)Sales and costs.

Question 45

Assume a sales volume of 6,000 units, unit selling price of $20, unit variable cost of $12, and total fixed costs of $20,000. What is the margin of safety in units?

A)2,500
B)3,500
C)6,000
D)8,000

Question 46

The formula for margin of safety in units is

A)Current
B)Actual net income minus budgeted net income.
C)Actual sales minus budgeted sales.
D)Breakeven sales minus budgeted sales.

Question 47

On the breakeven graph,any level of sales to the left of the breakeven point represents

A)Fixed cost.
B)Variable cost.
C)Operating income.
D)Operating loss.

Question 48

If sales price and variable cost remain constant and fixed costs decrease,contribution margin will

A)Increase.
B)Decrease.
C)Remain the same.
D)Vary,depending on the circumstances.

Question 49

On the breakeven graph,if sales price and variable cost remain constant and fixed costs decrease,the breakeven point will

A)Shift upward.
B)Not shift.
C)Shift to the right.
D)Shift to the left.

Question 50

On the breakeven graph,the fixed cost line

A)Increases with sales volume.
B)Decreases with sales volume.
C)Remains the same regardless of sales volume.
D)Moves to the right as fixed cost increase.

Question 51

When costs go down

A)Operating profit goes down.
B)Operating profit goes up.
C)Contribution margin goes down.
D)Contribution margin goes up.

Question 52

Benny Books sells first edition books.Benny purchases the books from his supplier for $100 a book and sells them through his website for $225 a book.Benny's fixed costs are $87,000.What is Benny's breakeven point in books?

A) 268
B) 387
C) 696
D) 870

Question 53

Martin Company has a current breakeven point of 47,000 units. To reduce the breakeven point, Martin should

A)Reduce the contribution margin per
B)Increase the contribution margin per
C)Reduce the sales price per
D)Increase variable costs.

Question 54

Assume a sales price per unit of $20, variable cost per unit $16, and total fixed costs of $168,000. What is the breakeven point?

A) 420,000
B) $420,000
C) 840,000
D) $840,000

Question 55

On the breakeven graph,if sales price and variable cost remain constant and fixed costs decrease,the fixed cost line will

A)Shift to the right.
B)Shift to the left.
C)Shift upward.
D)Shift downward.

Question 56

Assume a sales price per unit of $25, variable cost per unit $15, and total fixed costs of $18,000. If no units are sold, how much cost would the company incur?

A)Zero.
B)The amount of variable costs at the breakeven point.
C)$18,000.
D)$27,000.

Question 57

Assume a sales price per unit of $25, variable cost per unit $15, and total fixed costs of $18,000. What is the breakeven point?

A) 45,000
B) $45,000
C) 37,500
D) $37,500

Question 58

Assume a sales volume of 6,000 units, unit selling price of $20, unit variable cost of $12, and total fixed costs of $20,000. What is the margin of safety in sales dollars?

A)$25,000
B)$50,000
C)$70,000
D)$120,000

Question 59

On the breakeven graph,any level of sales to the right of the breakeven point represents

A)Fixed cost.
B) Variable cost.
C)Operating income.
D)Operating loss.

Question 60

Benny Books sells first edition books.Benny purchases the books from his supplier for $100 a book and sells them through his website for $225 a book.Benny's fixed costs are $87,000.Benny's breakeven point in sales dollars is nearest to

A) $195,750.
B) $156,600.
C) $87,075.
D) $60,300.

Question 61

The formula for operating income is

A)Sales revenue - variable costs - fixed costs
B)Sales revenue - variable costs - fixed costs - profit
C)Sales revenue - contribution margin - variable costs
D)Sales revenue - gross margin - fixed costs

Question 62

Nomad Company sells camera bags.The company purchases the bags from its supplier for $12 a bag and sells them to electronics stores for $25 a bag.Nomad's fixed costs are $39,000.What is Nomad's breakeven point in sales dollars?

A) $30,000
B) $75,000
C) $81,250
D) $97,500

Question 63

Assume total fixed costs of $160,000,variable costs per unit of $6, and contribution margin per unit of $4. How many units must be sold to meet a target net income of $50,000, assuming a tax rate of 20%?

A)55,625
B)52,500
C)50,000
D)35,000

Question 64

Saira,Inc.is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Saira will break even at this level of sales, what are the fixed costs?

A) $240,000
B) $560,000
C) $800,000
D) $960,000

Question 65

At the breakeven point the total contribution margin equals

A)Gross margin.
B)Variable costs.
C)Fixed costs.
D)Total costs.

Question 66

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20,variable cost is $8 and fixed costs total $40,000,what must her sales revenue be in order to reach her goal?

A)$33,340
B)$50,000
C)$100,000
D)$150,000

Question 67

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20,variable cost is $8 and fixed costs total $40,000,how many units must she sell to reach her goal?

A) 1,667
B) 2,500
C) 5,000
D) 7,500

Question 68

Bonita Corporation produces only one product.Monthly data include: selling price per unit, $42; unit variable expenses, $14; total fixed expenses, $84,000; actual sales for the month of June, 4,000 units. What is the margin of safety?

A)$84,000
B)$42,000
C)$126,000
D)$1,000

Question 69

Assume total fixed costs of $160,000,variable costs per unit of $6, and contribution margin per unit of $4. How many units must be sold to meet a target operating income of $50,000?

A) 5,000
B) 25,000
C) 40,000
D) 52,500

Question 70

A company requires $1,360,000 in sales to meet its net income target.Its contribution margin is 30%,and fixed costs are $240,000.What is the target operating income?

A)$408,000
B)$312,000
C)$560,000
D)$168,000

Question 71

Cross Creek Company sells concrete culverts.Currently,the company's sales revenue is $900,000,variable costs total $450,000,and fixed costs total $300,000.If Cross Creek's controller has calculated the company's breakeven point to be $597,000,what is the company's margin of safety?

A)$15,000
B)$153,000
C)$303,000
D)$447,000

Question 72

Miguel Manufacturing has fixed costs of $2,500,000 and variable costs are 40% of sales.What are the required sales if Montoya desires an operating income of $250,000?

A)$4,583,333
B)$4,166,667
C)$6,875,000
D)$6,250,000

Question 73

Breakeven point can be expressed in terms of

A) Units.
B) Unit sales price.
C) Unit contribution margin.
D) Unit fixed costs.

Question 74

The formula for calculating units required to meet target operating income is

A)Total fixed costs plus target operating income divided by contribution margin per unit.
B)Total fixed costs divided by contribution margin plus target operating income.
C)Contribution margin per unit divided by total fixed costs plus target operating income.
D)Contribution margin plus target operating income divided by total fixed costs.

Question 75

Fixed costs are $600,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?

A)$1,400,000
B)$1,800,000
C)$2,400,000
D)$800,000

Question 76

Contribution margin is the amount

A)That is available to cover fixed costs and provide a profit.
B)Of total variable costs and total fixed costs.
C)Sales less cost of goods sold.
D)Of fixed costs.

Question 77

A company has total fixed costs of $200,000 and a contribution margin ratio of 20%.The total sales necessary to break even are

A) $800,000.
B) $1,000,000.
C) $250,000.
D) $240,000.

Question 78

On the breakeven graph,the point at which the total sales revenue line and the total cost line intersect is called

A)Contribution margin.
B)Breakeven point.
C)Net income.
D)Operating income.

Question 79

The formula for calculating the sales dollars required to meet target operating income is

A)Total fixed costs plus target operating income divided by contribution margin per unit.
B)Total fixed costs plus target operating income divided by contribution margin ratio.
C)Total fixed costs plus target operating income divided by total variable costs.
D)Contribution margin plus target operating income divided by total fixed costs.

Question 80

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) $16.00
D) $27.50