Deck 16: Cost-Volume-Profit Analysis

Question 1

Uncertainty regarding costs, prices, and sales mix affect the break-even point.

Answer 1

True

Question 2

To earn a target profit, total costs plus the amount of target profit must equal total sales revenue.

Answer 2

True

Question 3

The profit-volume graph depicts the relationship among cost, volume, and profit.

Answer 3

False

Question 4

In multiple-product analysis, the break-even units for each product will change as the sales mix changes.

Question 5

The term net income is used to mean operating income before income taxes.

Question 6

Income taxes are generally calculated as a percentage of income.

Question 7

Multiple-product break-even analysis requires a constant sales mix, which is difficult to predict with certainty.

Question 8

The cost-volume-profit graph portrays the relationship between profits and sales volume.

Question 9

Units to earn target profit equal total fixed costs plus target profit divided by the contribution margin ratio.

Question 10

When using either the equation or the contribution margin approach, the after-tax profit must be converted to a before-tax profit target.

Question 11

Increases in sales of low contribution margin products decrease the break-even point.

Question 12

Sensitivity analysis is a what-if technique that examines the impact of changes in assumptions.

Question 13

Under ABC, cost drivers are separated into unit-based and non-unit-based drivers.

Question 14

In a CVP graph, the intersection of the total costs line and the total sales revenue line is the break-even point in units.

Question 15

Sales revenue to earn target profits equals total fixed costs plus target profit divided by the contribution margin.

Question 16

The break-even point is the point where total costs equal sales revenues.

Question 17

Increased sales of high contribution margin products increase the break-even point.

Question 18

Cost-volume-profit analysis focuses on the break-even point and the impact of changes in fixed costs and price.

Question 19

The operating leverage shows how far the company's actual sales or units are from the break-even point.

Question 20

CVP analysis is a short-run decision-making tool since some costs are fixed.

Question 21

In cost-volume-profit analysis income taxes __________ the break even point.

Question 22

The break-even point in units can be calculated using the contribution margin approach in the formula

A) Total Costs / Unit Contribution Margin.
B) Total Costs / Fixed Costs.
C) Fixed Costs / Selling Price per unit.
D) Fixed Costs / Unit Contribution Margin.

Question 23

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent and total fixed costs of $6,875. What is the break-even point in sales dollars for Biscuit Company?

A) $2,750
B) $3,125
C) $6,875
D) $12,500

Question 24

Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis?

A) the ability to conduct sensitivity analysis of cost or price changes
B) the identification of price and efficiency variances
C) how many units must be sold to break even
D) what is the impact on the break-even point of an increase or decrease in fixed costs

Question 25

Target after-tax profit must be converted into __________ profit to calculate units or revenue needed.

Question 26

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent and total fixed costs of $6,875. What is the break-even point in units for Biscuit Company?

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

Question 27

On a profit-volume graph, the __________ line intersects the horizontal axis at the break-even point.

Question 28

The use of fixed costs to increase the percentage changes in profits as sales activities change is called the __________ leverage.

Question 29

The __________ ratio expresses variable costs in terms of sales dollars.

Question 30

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 31

The __________ is where total revenues equal total costs.

Question 32

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 55 percent and total fixed costs of $6,875. How many units must be sold in order to obtain a before-tax profit of $12,000?

A) 480 units
B) 240 units
C) 600 units
D) 839 units

Question 33

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.

Question 34

The variable cost ratio

A) expresses variable costs as a percentage of total costs.
B) expresses the proportion between fixed costs and variable costs.
C) expresses variable cost in terms of sales dollars.
D) expresses the proportion of sales dollars available to cover fixed costs and provide for a profit.

Question 35

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 36

Sales ´ Contribution Margin is a short-cut of what formula?

A) Sales - (Variable cost ratio ´ Sales)
B) Sales - (Fixed Costs + Variable Costs)
C) Sales / Fixed Costs
D) Fixed Costs / Unit Contribution Margin

Question 37

Increased sales of high contribution margin items __________ the break-even point.

Question 38

If all else is the same, if the break-even point increases, then the variable cost per unit must
have __________ .

Question 39

When a company sells more units than the break-even point, the __________ are positive.

Question 40

In multiple-product analysis, direct fixed costs can be __________ to each segment.

Question 41

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the break-even point in units for Cumberland?

A) 41,668 units
B) 50,000 units
C) 125,000 units
D) 250,000 units

Question 42

The DesMaris Company had the following income statement for the month of November 2014: DesMaris Company's break-even sales volume is

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

Question 43

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the total contribution margin for Cumberland?

A) $312,500
B) $250,000
C) $625,000
D) $50,000

Question 44

Summersville Production Company had the following projected information for 2014: What is the profit when one unit more than the break-even point is sold?

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

Question 45

Assume the following information: How many units must be sold to generate a before-tax profit of $54,000?

A) 4,000 units
B) 2,750 units
C) 3,570 units
D) 3,750 units

Question 46

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the contribution margin ratio for Cumberland?

A) 0.16
B) 0.76
C) 0.50
D) 0.34

Question 47

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the variable product cost per unit for Cumberland?

A) $2.50
B) $1.25
C) $0.40
D) $0.85

Question 48

Summersville Production Company had the following projected information for 2014: What level of sales dollars 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 49

Jamie Quinn, 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 50

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the contribution margin per unit for Cumberland?

A) $1.25
B) $0.85
C) $2.50
D) $1.65

Question 51

The income statement for Symbiosis Manufacturing Company for 2014 is as follows: What is the contribution margin per unit?

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

Question 52

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the break-even point in sales dollars for Cumberland?

A) $125,000
B) $100,000
C) $37,500
D) $300,000

Question 53

Jamie Quinn, 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 54

The DesMaris Company had the following income statement for the month of November 2014: What is the sales volume required to earn an operating profit of $9,000?

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

Question 55

Summersville Production Company had the following projected information for 2014: What is the contribution margin ratio?

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

Question 56

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 57

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the operating income for Cumberland?

A) $625,000
B) $312,500
C) $250,000
D) $62,500

Question 58

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

Question 59

Summersville Production Company had the following projected information for 2014: 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 60

Figure 16 - 1 The Cumberland Company provides the following information:
Refer to Figure 16-1. What is the variable cost per unit for Cumberland?

A) $1.25
B) $0.85
C) $0.40
D) $0.75

Question 61

Hologram Printing Company projected the following information for next year: What is the break-even point in dollars?

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

Question 62

Nonesuch 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 sales dollars level required to break even at the old price of $7.50?

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

Question 63

Jamie Quinn, a sole proprietor, has the following projected figures for next year: What is the break-even point in dollars?

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

Question 64

Assume the following cost behavior data for Graphic Arts Company: What volume of sales dollars is required to earn a before-tax income of $27,000?

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

Question 65

In 2014, Samantha'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 Samantha's to have a before-tax income of $18,000 is

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

Question 66

Information about the Harmonious 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) 4,333 units
B) 26,563 units
C) 8,667 units
D) 28,667 units

Question 67

Assume the following cost behavior data for Graphic Arts Company: What volume of sales dollars is required to earn an after-tax income of $40,500?

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

Question 68

Hologram 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) 5,167 units
C) 5,625 units
D) 7,750 units

Question 69

In 2014, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500. Samantha's 2014 break-even sales volume was

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

Question 70

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 71

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

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

Question 72

The income statement for Symbiosis Manufacturing Company for 2014 is as follows: What is the contribution margin ratio?

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

Question 73

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 74

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

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

Question 75

Information about the Harmonious 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 sales dollars is

A) $75,000.
B) $318,746.
C) $275,000.
D) $315,000.

Question 76

Tiramisu Company projected the following information for next year: How many units must be sold to obtain an after-tax profit of $40,000?

A) 3,750 units
B) 5,625 units
C) 5,000 units
D) 5,167 units

Question 77

In the cost-volume-profit analysis, income taxes

A) are treated as a fixed cost.
B) increase the sales volume required to break even.
C) increase the sales volume required to earn a desired profit.
D) are treated as a fixed cost.

Question 78

Victoria Company produces two products, X and Y, which account for 60 percent and 40 percent, respectively, of total sales dollars. 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 sales dollars?

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

Question 79

In multiple-product analysis, direct fixed costs are

A) fixed costs that are not traceable to the segments and would remain even if one of the segments were eliminated.
B) fixed costs which can be traced to each segment and would remain even if one of the segments were eliminated.
C) fixed costs that are not traceable to the segments and would be avoided if the segment did not exist.
D) the fixed costs which can be traced to each segment and would be avoided if the segment did not exist.

Question 80

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