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

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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.

Question 11

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

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Net income divided by 1 - tax rate = Operating income

Question 21

Knowing the breakeven point helps managers evaluate

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

Question 22

Assume a sales price per

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

Question 23

Assume a sales price per

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

Question 24

Which of the following formulas is 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

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

Question 26

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 27

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 28

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 29

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

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

Question 30

-If a product's variable cost per

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

Question 31

If a company sells a single product and the selling price per

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

Question 32

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

Question 33

Which of the following is 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

Question 34

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

Question 35

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

Question 36

When a company sells more than one product,its sales mix is the sales of each product relative to operating income.

Question 37

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

Question 38

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

Question 39

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 40

At the breakeven point,which of the following is 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 41

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 42

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 43

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 44

Assume a sales volume of 6,000

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

Question 45

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 46

Assume a sales price per

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

Question 47

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 48

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 49

Assume a sales volume of 6,000

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

Question 50

Assume a sales price per

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

Question 51

Assume a sales price per

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

Question 52

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 53

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 54

Martin Company has a current breakeven point of 47,000

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

Question 55

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 56

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 57

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 58

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 59

The formula for margin of safety in

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

Question 60

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 61

At the break-even point of 2,000

A)$43.50
B)$11.50
C)$16.00
D)$27.50

Question 62

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 63

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 64

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 65

At the breakeven point the total contribution margin equals

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

Question 66

Assume total fixed costs of $160,000,variable costs per

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

Question 67

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 68

Breakeven point can be expressed in terms of

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

Question 69

Bonita Corporation produces only one product.Monthly data include: selling price per

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

Question 70

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 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

The formula for calculating

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 73

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 74

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

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

Question 75

A company requires $1,360,000 in sales to meet its operating 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 76

Assume total fixed costs of $160,000,variable costs per

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

Question 77

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 78

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 79

Fixed costs are $600,000 and the variable costs are 75% of the

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

Question 80

Saira,Inc.is planning to sell 800,000

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