Deck 3: Cost-Volume-Profit Analysis

Question 1

Total contribution margin is calculated by subtracting

A) cost of goods sold from total revenues.
B) fixed costs from total revenues.
C) total manufacturing costs from total revenues.
D) total variable costs from total revenues.

Answer 1

D

Question 2

Which of the following items would NOT be considered in cost-volume-profit analysis?

A) units of production
B) fixed costs
C) product mix
D) gross profit margin

Answer 2

D

Question 3

The Kringel Company provides the following information: What is the break-even point in units for Kringel?

A) 33,334 units
B) 100,000 units
C) 40,000 units
D) 200,000 units

Answer 3

C

Question 4

The break-even point is

A) the volume of activity where all fixed costs are recovered.
B) where fixed costs equal total variable costs.
C) where total revenues equal total costs.
D) where total costs equal total contribution margin.

Question 5

The Kringel Company provides the following information: What is the break-even point in monetary sales for Kringel?

A) £25,000
B) £83,333
C) £100,000
D) £250,000

Question 6

Assume the following information: What volume of monetary sales is needed to break even?

A) £75,000
B) £300,000
C) £48,000
D) £12,000

Question 7

The income statement for Thomas Manufacturing Company for 2004 is as follows: What is the contribution margin per unit?

A) £7.20
B) £1.20
C) £4.80
D) £120,000

Question 8

Baker Company sells its product for £60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of £9,000. How many units must be sold in order to obtain a before-tax profit of £12,000?

A) 350 units
B) 584 units
C) 875 units
D) 333 units

Question 9

Assume the following information: How many units must be sold to generate a before-tax profit of £45,000?

A) 3,000 units
B) 2,500 units
C) 4,500 units
D) 3,750 units

Question 10

Malone Printing Company projected the following information for next year: What is the break-even point in monetary terms?

A) £200,000
B) £300,000
C) £120,000
D) £500,000

Question 11

Malone Printing Company projected the following information for next year: How many units must be sold to obtain an after-tax profit of £67,500?

A) 3,750 units
B) 7,750 units
C) 5,625 units
D) 5,167 units

Question 12

Lewis Production Company had the following projected information for 2004: What is the profit when one unit more than the break-even point is sold?

A) £150
B) £60
C) £1,500,150
D) £600,060

Question 13

In 2004, Angel's Bath and Body Shop had variable costs of £27,000, fixed costs of £18,000, and a net loss of £4,500. Angel's 2004 break-even sales volume was

A) £36,000.
B) £37,500.
C) £49,500.
D) £54,000.

Question 14

Lewis Production Company had the following projected information for 2004: What is the break-even point in units?

A) 2,000 units
B) 5,000 units
C) 3,333 units
D) 60,000 units

Question 15

The Allen Company had the following income statement for the month of July 2004: Allen Company's break-even sales volume is

A) 20,000 units.
B) 7,000 units.
C) 11,211 units.
D) 10,000 units.

Question 16

Sarah Smith, a sole proprietor, has the following projected figures for next year: How many units must be sold to obtain a target before-tax profit of £270,000?

A) 6,000 units
B) 20,000 units
C) 8,572 units
D) 14,000 units

Question 17

Which of the following equations is CORRECT?

A) Sales revenues = Variable expenses - (Fixed expenses + Operating income)
B) Sales revenues - Variable expenses - Fixed expenses = Operating income
C) Sales revenues + Variable expenses + Fixed expenses = Operating income
D) Sales revenues - Fixed expenses = Variable expenses - Operating income

Question 18

The contribution margin at the break-even point

A) equals total fixed costs.
B) is zero.
C) plus total fixed costs equals total revenues.
D) is greater than variable costs.

Question 19

The Allen Company had the following income statement for the month of July 2004: What is the sales volume required to earn a profit of £9,000?

A) 3,300 units
B) 10,000 units
C) 7,300 units
D) 4,300 units

Question 20

Baker Company sells its product for £60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of £9,000. What is the break-even point in units for Baker Company?

A) 375 units
B) 3,600 units
C) 250 units
D) 2,400 units

Question 21

Lewis Production Company had the following projected information for 2004: What is the contribution margin ratio?

A) 0.400
B) 1.667
C) 2.500
D) 0.600

Question 22

Sales mix refers to

A) the different volume of sales achieved during the year.
B) the contribution margins achieved on the different products during the year.
C) the relative proportions of different products that constitute total sales.
D) the mix of variable and fixed costs.

Question 23

Information about the Harmon Company's two products includes: If the sales mix in units is 50 percent Product X and 50 percent Product Y, the monthly break-even total monetary sales is

A) £150,000.
B) £450,000.
C) £510,000.
D) £630,000.

Question 24

In a cost-volume-profit graph,

A) the total revenue line crosses the horizontal axis at the break-even point.
B) beyond the break-even sales volume, profits are maximized at the sales volume where total revenues equal total costs.
C) an increase in unit variable costs would decrease the slope of the total cost line.
D) an increase in the unit selling price would shift the break-even point in units to the left.

Question 25

Patricia Company produces two products, X and Y, which account for 60 percent and 40 percent, respectively, of total monetary sales. Contribution margin ratios are 50 percent for X and 25 percent for Y. Total fixed costs are £120,000. What is Patricia's break-even point in monetary sales?

A) £300,000
B) £328,767
C) £342,856
D) £375,000

Question 26

Which of the following is a TRUE statement about sales mix?

A) Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the high contribution margin product.
B) Profits may decline with an increase in total monetary sales if the sales mix shifts to sell more of the lower contribution margin product.
C) Profits will remain constant with an increase in total monetary sales if the total sales in units remains constant.
D) Profits will remain constant with a decrease in total monetary sales if the sales mix also remains constant.

Question 27

Baker Company sells its product for £60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of £9,000. What is the break-even point in monetary sales for Baker Company?

A) £3,600
B) £5,400
C) £15,000
D) £9,000

Question 28

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to £6 per unit?

A) 25%
B) 40%
C) 75%
D) 60%

Question 29

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the monetary sales level required to break even at the old price of £7.50?

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

Question 30

Sarah Smith, a sole proprietor, has the following projected figures for next year: What is the contribution margin ratio?

A) 0.300
B) 1.429
C) 0.429
D) 3.333

Question 31

The income statement for Thomas Manufacturing Company for 2004 is as 4follows: What is the contribution margin ratio?

A) 40%
B) 60%
C) 100%
D) 30%

Question 32

Sarah Smith, a sole proprietor, has the following projected figures for next year: What is the break-even point in monetary terms?

A) £426,000
B) £2,100,000
C) £189,000
D) £900,000

Question 33

The following data pertain to the three products produced by Alberts Ltd.: Fixed costs are £90,000 per month.
Sixty percent of all units sold are Product A, 30 percent are Product B, and 10 percent are Product C.
What is the monthly break-even point for total units?

A) 45,000 units
B) 36,000 units
C) 60,000 units
D) 180,000 units

Question 34

Information about the Harmon Company's two products includes: What is the total monthly sales volume in units required to break even when the sales mix in units is 70 percent Product X and 30 percent Product Y?

A) 8,333 units
B) 50,000 units
C) 16,667 units
D) 56,667 units

Question 35

Assume the following cost behaviour data for Portrait Company: What volume of monetary sales is required to earn an after-tax income of £40,500?

A) £360,000
B) £90,000
C) £252,000
D) £495,000

Question 36

Which of the following equations is TRUE?

A) Contribution margin = Sales revenue × Variable cost ratio
B) Contribution margin ratio = Contribution margin/Variable costs
C) Contribution margin = Fixed costs
D) Contribution margin ratio = 1 - Variable cost ratio

Question 37

Assume the following cost behaviour data for Portrait Company: What volume of monetary sales is required to earn a before-tax income of £27,000?

A) £198,000
B) £180,000
C) £90,000
D) £270,000

Question 38

Product 1 has a contribution margin of £6.00 per unit, and Product 2 has a contribution margin of £7.50 per unit. Total fixed costs are £300,000. Sales mix and total volume varies from one period to another. Which of the following is TRUE?

A) At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.
B) The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.
C) The contribution margin per unit of direct materials is lower for 1 than for 2.
D) The ratio of contribution to total sales always will be larger for 1 than for 2.

Question 39

In 2004, Angel's Bath and Body Shop had variable costs of £27,000, fixed costs of £18,000, and a net loss of £4,500. The annual sales volume required for Angel's to have a before-tax income of £18,000 is

A) £126,000.
B) £84,000.
C) £73,500.
D) £42,000.

Question 40

Lewis Production Company had the following projected information for 2004: What level of monetary sales is needed to obtain a target before-tax profit of £75,000?

A) £375,000
B) £625,000
C) £750,000
D) £937,500

Question 41

Assuming all other things are the same, contribution margin per unit must have _____ if there was an increase in the break-even point.

A) remained the same
B) increased first, then decreased
C) increased
D) decreased

Question 42

The following diagram is a cost-volume-profit graph for a manufacturing company: Select the answer that best describes the labeled item on the diagram.

A) Area CDE represents the area of net loss.
B) Line AC graphs total fixed costs.
C) Point D represents the point at which the contribution margin per unit increases.
D) Line AC graphs total costs.

Question 43

Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will

A) reduce the break-even sales volume by 20 percent.
B) reduce total costs by 20 percent.
C) reduce the slope of the total cost line by 20 percent.
D) not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs.

Question 44

Which of the following assumptions does NOT pertain to cost-volume-profit analysis?

A) The units produced will equal the units sold.
B) Inventories are constant.
C) All costs are classified as fixed or variable.
D) Sales mix may vary during the related period.

Question 45

Assuming all other things are the same, selling price per unit must have _____ if there was a decrease in the break-even point.

A) remained the same
B) increased first, then decreased
C) increased
D) decreased

Question 46

The following diagram is a cost-volume-profit graph for a manufacturing company: The formula to determine the Y-axis value (£) at point D on the graph is as follows:

A) Fixed costs + (Variable costs per unit × Number of units)
B) ΣXY - bΣX
C) Fixed costs/Unit contribution margin
D) Fixed costs/Contribution margin ratio

Question 47

The income statement for Thomas Manufacturing Company for 2004 is as follows: If sales increase by 1,000 units, what will happen to profit?

A) increase by £4,800
B) increase by £1,200
C) increase by £7,200
D) increase by £12,000

Question 48

A profit-volume graph

A) measures profit or loss on the horizontal axis.
B) illustrates total revenues, total cost, and profits at various sales volumes.
C) is not subject to the same limiting assumptions as cost-volume-profit graphs.
D) illustrates the relationship between volume and profits.

Question 49

The following diagram is a cost-volume-profit graph for a manufacturing company: The difference between line AB and line AC (area BAC) is the

A) contribution ratio.
B) total variable cost.
C) contribution margin per unit.
D) total fixed cost.

Question 50

In a cost-volume-profit graph, the slope of the total cost line represents

A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.

Question 51

Which of the following statements is TRUE?

A) The slope of the total cost line is dependent on the variable cost per unit.
B) The total cost line normally begins at zero.
C) The total revenue line typically begins above zero.
D) The slope of the total revenue line is the contribution margin per unit.

Question 52

In a cost-volume-profit graph, the slope of the total revenue line represents

A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.

Question 53

Which of the following assumptions does NOT pertain to cost-profit-volume analysis?

A) Sales price per unit remains constant.
B) The sales mix is constant.
C) Inventories in a manufacturing entity may go up or down.
D) Fixed expenses are constant at all volumes of activities within the relevant range.

Question 54

When a company sells more units than the break-even point,

A) it moves above the relevant range.
B) profits are positive.
C) there are no new variable costs incurred.
D) profits are negative.

Question 55

The income statement for Thomas Manufacturing Company for 2004 is as follows: If sales increase by £60,000, what will happen to profit?

A) increase by £60,000
B) increase by £24,000
C) increase by £6,000
D) increase by £36,000

Question 56

In a profit-volume graph, the slope of the profit line represents

A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.

Question 57

On a profit-volume graph, the profit line intersects the horizontal axis at

A) the origin.
B) the break-even point.
C) a volume of 1,000 units.
D) a point where profit is greater than zero.

Question 58

Which of the following assumptions is NOT necessary for cost-volume-profit analysis?

A) Total variable costs are linear.
B) Total revenues increase when total costs increase.
C) Inventories are constant.
D) The product sales mix is constant.

Question 59

Cost-volume-profit models assume that

A) the sales mix may vary among multiple products.
B) unit selling prices are constant.
C) inventories are dynamic and subject to change.
D) the total cost function is quadratic.

Question 60

On a profit-volume graph, the intersection of the profit line with the vertical axis provides a

A) profit of £1,000.
B) profit equal to zero.
C) profit equal to fixed costs.
D) loss equal to fixed costs.

Question 61

Assuming all other things are the same, variable cost per unit must have _____ if there was an increase in the break-even point.

A) remained the same
B) increased first, then decreased
C) increased
D) depends on the circumstances

Question 62

Boss Company currently leases a delivery van from Check Enterprises for a fee of £250 per month plus £0.40 per mile. Management is evaluating the desirability of switching to a modern, fuel-efficient van, which can be leased from David, SA., for a fee of £600 per month plus £0.05 per mile. All operating costs and fuel are included in the rental fees. In general,

A) a lease from David, SA., is economically preferable to a lease from Check Enterprises regardless of the monthly use.
B) a lease from Check Enterprises is economically preferable below 1,000 miles per month.
C) a lease from Check Enterprises is economically preferable to a lease from David, SA., regardless of the monthly use.
D) a lease from Check Enterprises is economically preferable above 1,000 miles per month.

Question 63

Which of the following statements is TRUE about relevant range?

A) When costs reach a level above the relevant range, they are considered appropriate for analysis.
B) Linear estimates of an economist's curvilinear cost function is only valid within the relevant range.
C) When costs reach a level below the relevant range, they are considered appropriate for analysis.
D) The nonlinear relevant range is ignored, and only those costs outside of this range may be considered.

Question 64

When the volume of activity increases within the relevant range, the fixed cost per unit

A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.

Question 65

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What sales pound level is needed to obtain a before-tax profit of £60,000 when the selling price is £6.00 per unit?

A) £360,000
B) £120,000
C) £72,000
D) £90,000

Question 66

Urban Company had the following information: What is the break-even point in units using ABC?

A) 5,625 units
B) 16,875 units
C) 7,500 units
D) 11,250 units

Question 67

If at a given volume total costs and fixed costs are known, the variable costs per unit may be computed as follows:

A) (Total costs - Fixed costs)/Unit volume
B) (Total costs/Unit volume) - Fixed costs
C) (Total costs × Unit volume) - (Fixed costs/Unit volume)
D) Total costs - (Fixed costs/Unit volume)

Question 68

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the new break-even point in units for Dirth Company when the selling price is £6.00?

A) 10,000 units
B) 6,667 units
C) 4,000 units
D) 20,000 units

Question 69

The relevant range is

A) a relatively wide range of sales where total variable costs remain the same.
B) a relatively wide range of sales where all costs remain the same.
C) a relatively narrow range of production where total variable costs remain the same.
D) a relatively wide span of production where total fixed costs are expected to remain the same.

Question 70

The Allen Company had the following income statement for the month of July 2004: If the monthly sales volume increases by 450 units, Allen Company's monthly profits will increase by

A) £9,450.00.
B) £1,282.50.
C) £13,500.00.
D) £14,175.00.

Question 71

Thomas Company had the following information: Suppose Thomas could reduce setup costs by £500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours. How many units must be sold to break even in this case?

A) 30,000 units
B) 25,050 units
C) 25,650 units
D) 11,250 units

Question 72

Assuming all other things are equal, fixed costs must have _____ if there was a decrease in the break-even point.

A) remained the same
B) increased first, then decreased
C) increased
D) decreased

Question 73

Camp Gordon has annual fixed operating costs of £150,000 and variable cost of £550 per camper. Total fees charged to campers amount to £500 each. The camp expects 350 campers next summer. Projected government grants are £95,000. How much must Camp Gordon raise from other sources to break even?

A) £45,000
B) £37,500
C) £97,500
D) £72,500

Question 74

Sarah Smith, a sole proprietor, has the following projected figures for next year: What selling price per unit is needed to obtain a before-tax profit of £270,000 at a volume of 4,000 units?

A) £150.00
B) £330.00
C) £225.00
D) £105.00

Question 75

Urban Company had the following information: How many units need to be sold to produce a before-tax profit of £80,000 using ABC?

A) 13,250 units
B) 11,500 units
C) 14,000 units
D) 7,500 units

Question 76

Urban Company had the following information: Suppose Urban could reduce setup costs by £300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

A) 10,670 units
B) 21,340 units
C) 6,350 units
D) 7,500 units

Question 77

A decrease in the sales price in the basic cost-volume-profit model would

A) require a recomputation of the gross profit per unit.
B) be offset by an increase in unit costs.
C) decrease the break-even volume.
D) increase the break-even volume.

Question 78

As the volume of activity increases within the relevant range, the variable cost per unit

A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.

Question 79

Thomas Company had the following information: How many units need to be sold to produce a before-tax profit of £120,000 using ABC?

A) 51,000 units
B) 36,000 units
C) 21,000 units
D) 81,000 units

Question 80

Thomas Company had the following information: What is the break-even point in units using ABC?

A) 30,000 units
B) 45,000 units
C) 15,000 units
D) 75,000 units