Deck 16: Cost-Volume-Profit Analysis

Question 1

The income statement for Thomas Manufacturing Company for 2006 is as follows: What is the contribution margin per unit?

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

Answer 1

C

Question 2

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.What is the total contribution margin for Kringel?

A) $500,000
B) $200,000
C) $250,000
D) $50,000

Answer 2

$250,000

Question 3

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.

Answer 3

A

Question 4

Lewis Production Company had the following projected information for 2006:

-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 5

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 6

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.What is the variable cost per unit for Kringel?

A) $0.85
B) $1.25
C) $0.40
D) 200,000 units

Question 7

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.What is the net income for Kringel?

A) $500,000
B) $200,000
C) $250,000
D) $50,000

Question 8

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.What is the contribution margin ratio for Kringel?

A) 0.50
B) .76
C) .16
D) .34

Question 9

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 10

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 11

Figure 16 - 1 The Kringel Company provides the following information:


- Refer to Figure 16-1.What is the variable product cost per unit for Kringel?

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

Question 12

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 13

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 14

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.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

Question 15

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 16

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 17

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 18

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 19

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 20

Figure 16 - 1 The Kringel Company provides the following information:


-Refer to Figure 16-1.What is the contribution margin per unit for Kringel?

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

Question 21

In 2011, 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 22

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 sales dollars 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 23

The income statement for Thomas Manufacturing Company for 2006 is as follows: What is the contribution margin ratio?

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

Question 24

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 sales dollars for Baker Company?

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

Question 25

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 26

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 27

Halbert 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) 5,000 units
C) 5,625 units
D) 5,167 units

Question 28

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 29

Lewis Production Company had the following projected information for 2011: 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 30

The Allen Company had the following income statement for the month of July 2011:

-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 31

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

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

Question 32

Lewis Production Company had the following projected information for 2006:

- 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 33

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 34

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 35

Lewis Production Company had the following projected information for 2011: What is the contribution margin ratio?

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

Question 36

In 2011, 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 2011 break-even sales volume was

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

Question 37

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 38

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 39

The Allen Company had the following income statement for the month of July 2011:

- 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 40

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

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

Question 41

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 42

Assume the following cost behavior data for Portrait 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 43

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

A) Fixed costs + (Variable costs per unit ´ Number of units).
B) SXY - bSX.
C) Fixed costs/Unit contribution margin.
D) Fixed costs/Contribution margin ratio.

Question 44

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 45

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 46

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 47

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 sales dollars is

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

Question 48

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 49

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 50

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 51

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 52

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 53

Assume the following cost behavior data for Portrait Company:

- What volume of sales dollars is required to earn a before-tax income of $27,000?

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

Question 54

The following data pertain to the three products produced by Alberts Corporation: 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

A) 45,000 units
B) 36,000 units
C)
What is the monthly break-even point for total units?
C) 60,000 units
D) 180,000 units

Question 55

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 56

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 57

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

Question 58

The total revenue line rises with a slope equal to

A) the selling price.
B) the contribution margin.
C) the variable cost per unit.
D) none of these.

Question 59

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 60

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

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

Question 61

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 62

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 63

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 64

The Allen Company had the following income statement for the month of July 2011: 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 65

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 66

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 67

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 68

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 69

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 70

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 71

The income statement for Thomas Manufacturing Company for 2011 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 72

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 dollar 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 73

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 74

The income statement for Thomas Manufacturing Company for 2011 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 75

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 76

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 77

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 78

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 79

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 80

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.