Question 1

Palmer's Custom Saddlery reported sales of $700,000 for the current year, fixed costs of $130,000 and a contribution margin ratio of 30%. Profit before taxes equals: a. $80,000
B) $210,000
C) $360,000
D) $570,000
E) $171,000

Accepted Answer

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Question 2

If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven revenues total: a. $27,000
B) $22,000
C) $30,000
D) $20,000
E) $7,500

Accepted Answer

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Question 3

If selling price per unit and sales volume remain the same while variable costs per unit decrease and total fixed costs decrease, which of the following is false:

Accepted Answer

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Question 4

If Company A is heavily labor-intensive and Company B is heavily capital-intensive which of the following is most likely to be true relative to the other company?

Accepted Answer

Since Company B is heavily capital-intensive, it is likely to have higher fixed costs than Company A. This means that Company B's contribution margin per unit will be higher because its variable costs will be lower relative to its fixed costs. Additionally, Company B's break-even point may be lower because its fixed costs are spread over more units. However, there is not enough information to determine the contribution margin ratio for either company.

Question 5

If unit variable cost is reduced and selling price and fixed cost remain the same, then: a. Contribution margin will decrease.
B) Contribution margin will remain the same.
C) Sales volume will increase
D) Sales volume will decrease.
E) Overall profit will increase.

Accepted Answer

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Question 6

A company can achieve an increase in contribution margin (given no other changes) if:

Accepted Answer

Contribution margin is calculated as the difference between revenue and variable costs. Therefore, if variable costs decrease, contribution margin will increase.

Question 7

If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven volume is:

Accepted Answer

Breakeven Volume = Fixed Costs / Unit Contribution Margin
Breakeven Volume = $12,000 / $15 = 800 units. Therefore, the correct answer is (C).

Question 8

Assume University T-Shirt Shop has a selling price of $25 and unit variable cost of $10 for its long-sleeve cotton shirts. Fixed costs total $1,000. University believes increasing its price to $27 will not cause a reduction in the number of shirts it will sell. If University's sales volume for the month is 300 shirts, how will net profit be affected by the change in selling price? a. $1,600 increase.
B) $250 increase.
C) $600 increase.
D) $270 increase.
E) $1,600 decrease.

Accepted Answer

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Question 9

Barry's Breakfast Treats has been selling only plain and cream-filled donuts. Barry believes he can increase his sales by adding a healthy-choice muffin to his menu. He will incur some additional costs such as ingredients, muffin pans and advertisement on the local TV station. Which of the following statements is false? a. Barry's fixed costs will probably increase.
B) Barry's total variable costs will probably increase
C) Barry should add the muffin only if the increased contribution margin exceeds the increase in revenues.
D) Barry should add the muffin only if the increased contribution margin exceeds the increase in fixed costs.
E) All of the above statements are false.

Accepted Answer

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Question 10

The Hamilton Company has provided the following income statement for 2008:  The company's contribution margin ratio (rounded) is:

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Question 11

Glaus Company's break-even point in sales is $690,000 and its variable expenses are 60% of sales. If the company had a profit of $10,000 in 2008, its sales must have been:

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Question 12

The Worxs Company wants to achieve a profit of $126,000. They currently sell 5,000 units at a price of $72 per unit with variable costs of $32 per unit. Fixed costs total $84,000. In order to achieve their target profit without increasing the selling price, the company will need to:

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Question 13

Assume University T-Shirt Shop has a selling price of $25 and unit variable cost of $10 for its long-sleeve cotton shirts. Fixed costs total $1,000. University believes increasing its price to $27 its sales volume will drop by 5 percent. If University's sales volume for the month was estimated to be 300 shirts before the price increase, how will net profit be affected by the change in selling price? a. $395 increase.
B) $345 increase.
C) $345 decrease.
D) $150 increase.
E) $150 decrease.

Accepted Answer

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Question 14

Debbie's Donut Shop has been the only donut shop in town. However, after Barry's Breakfast Treats opened up last month, Debbie's sales have dropped. Debbie decides to cut the selling price of her delicious donuts. The decrease in selling price will result in: a. A reduction in the unit contribution margin.
B) An increase in the unit contribution margin.
C) A reduction in the unit variable costs.
D) An increase in the unit variable costs.
E) A reduction in fixed costs.

Accepted Answer

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Question 15

Greenbrier Company had sales of $400,000, variable costs of $240,000, and fixed costs of $90,000. In order to break-even necessary sales would be:

Accepted Answer

To break-even, the company needs to cover all of its costs, including fixed costs. This means that the contribution margin (sales minus variable costs) must equal the fixed costs. 
Therefore, we can calculate the necessary sales to break-even as: 
Sales - Variable costs = Fixed costs 
$400,000 - $240,000 = $90,000 + Necessary sales 
Solving for the necessary sales, we get: 
Necessary sales = $225,000

Question 16

The following information is being provided for the two products produced by the Stay-Dri Deodorant Company. For every 5 units sold, 3 of those units are from the men's line of product while 2 units are from the women's line of product.  How many units of each product need to be sold in order to break-even in total? Men Women

Accepted Answer

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Question 17

How is the break-even point in units calculated?

Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit. This formula takes into account the costs that must be covered before any profits can be made and the contribution margin per unit, which is the amount by which a unit's sales price exceeds its variable costs. Therefore, the correct answer is (C) fixed costs divided by contribution margin per unit.

Question 18

Which one of the following correctly indicates how to calculate breakeven volume? a. Variable costs divided by unit contribution margin.
B) Profit divided by sales volume.
C) Fixed costs divided by unit contribution margin.
D) Variable costs divided by fixed costs.

Accepted Answer

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Question 19

The Wingo Company sells a single product for $21 per unit. If variable expenses are 70% of sales and fixed costs are $4,200, the break-even point in dollars will be:

Accepted Answer

The formula for break-even point in dollars is:

Break-even point (dollars) = Fixed costs ÷ Contribution margin ratio

To find the contribution margin ratio, we need to first calculate the contribution margin per unit:

Contribution margin per unit = Selling price per unit - Variable expenses per unit
Contribution margin per unit = $21 - ($21 x 0.70)
Contribution margin per unit = $21 - $14.70
Contribution margin per unit = $6.30

The contribution margin ratio is the contribution margin per unit divided by the selling price per unit:

Contribution margin ratio = Contribution margin per unit ÷ Selling price per unit
Contribution margin ratio = $6.30 ÷ $21
Contribution margin ratio = 0.30 or 30%

Now we can calculate the break-even point in dollars:

Break-even point (dollars) = $4,200 ÷ 0.30
Break-even point (dollars) = $14,000

Therefore, the break-even point in dollars is $14,000. Option B is the correct choice.

Question 20

The CEO of RV USA is trying to estimate sales based on a budgeted target profit before taxes of $150,000. If unit contribution margin is $5,000, total sales in June are estimated at $900,000 and fixed costs are $500,000, how many RVs must be sold to attain the target profit before taxes? a. 130
B) 80
C) 210
D) 30

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Quiz 5: Cost-Volume-Profit Analysis

Palmer's Custom Saddlery reported sales of $700,000 for the current year, fixed costs of $130,000 and a contribution margin ratio of 30%. Profit before taxes equals: a. $80,000 B) $210,000 C) $360,000 D) $570,000 E) $171,000

If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven revenues total: a. $27,000 B) $22,000 C) $30,000 D) $20,000 E) $7,500