Question 1

Splurge Electronics sells homework machines for $80 each.Variable costs per unit are $45 and total fixed costs are $43,750.Splurge Electronics expects it can sell 1,500 units next year.By how many units can Splurge's sales drop before the company incurs a loss?

Accepted Answer

To determine the number of units Splurge Electronics can sell before incurring a loss, we first calculate the break-even point. The break-even point in units is calculated as total fixed costs divided by the contribution margin per unit (selling price per unit - variable cost per unit). Here, the contribution margin per unit is $80 - $45 = $35. The break-even point is $43,750 / $35 = 1,250 units. Since the company expects to sell 1,500 units, it can afford a sales drop of 1,500 - 1,250 = 250 units before it incurs a loss.

Question 2

Which of the following is not involved in determining the break-even point?

Accepted Answer

Anticipated sales for the next period are not involved in determining the break-even point. The break-even point is calculated based on total fixed costs, selling price per unit, and variable cost per unit. Anticipated sales can help a business plan for future profitability, but they are not part of the break-even analysis.

Question 3

Holding all other factors constant, the break-even point will decline if

Accepted Answer

The break-even point can be calculated as fixed costs divided by contribution margin per unit. Therefore, if the contribution margin per unit increases, the break-even point will decrease.

Question 4

SkyBucks Bagels sells boxes of bagels each with a variable cost of 45% of sales.Its fixed costs are $36,000 per year.Each box has a contribution margin of $8.How much sales revenue does SkyBucks need to break-even per year if bagels are its only product?

Accepted Answer

Contribution margin ratio = 55%Break-even sales = Fixed costs / Contribution margin ratio= 36,000 / 0.55= $65,455

Question 5

The president of DynaMark will not receive a bonus next year unless the company's profits are at least $435,000.DynaMark sells a single product at a price of $27 per unit.If variable costs are $12 per unit and fixed costs total $150,000, what amount of unit sales must DynaMark generate in order for the president to receive a bonus?

Accepted Answer

In order to calculate the number of units DynaMark needs to sell, we can use the following formula:

Profit = (Price per unit * Number of units sold) - (Variable cost per unit * Number of units sold) - Fixed costs

We can rearrange this formula to solve for the number of units:

Number of units sold = (Profit + Fixed costs) / (Price per unit - Variable cost per unit)

We know that the president will only receive a bonus if the company's profits are at least $435,000. We can plug this number into the formula and solve for the number of units:

Number of units sold = ($435,000 + $150,000) / ($27 - $12)
Number of units sold = $585,000 / $15
Number of units sold = 39,000 units

Therefore, DynaMark must sell 39,000 units in order for the president to receive a bonus. The correct answer is B).

Question 6

Plant Bottling needs to reduce the selling price of its acrylic water bottles in order to be competitive.Currently, it has fixed costs of $110,000 and variable costs per unit of $4.10.If Plant Bottling can sell 40,000 units, what price should it charge in order to break-even?

Accepted Answer

To break even, total revenue must equal total costs. The total costs can be broken down into fixed costs and variable costs, which are $110,000 and $4.10 per unit, respectively. Let's call the selling price "x".

So, total revenue = x * 40,000

Total costs = fixed costs + variable costs = $110,000 + ($4.10 * 40,000) = $266,000

To break even, x * 40,000 = $266,000

Solving for x, we get x = $6.65

Therefore, Plant Bottling should charge $6.85 to make a profit.

Question 7

WayFair Clothing has total fixed costs of $34,000 per month.It sells a single product with variable costs of $5.60 per unit.If 8,000 units can be sold this month, what price must Wayfair charge in order to break-even?

Accepted Answer

To break-even, the total revenue generated from selling the product must cover both the fixed costs and the variable costs.

Total Cost = Fixed Cost + Variable Cost

Variable Cost = $5.60 per unit 
Fixed Cost = $34,000 per month 
Units Sold = 8,000

Total Cost = $34,000 + ($5.60 x 8,000) 
Total Cost = $34,000 + $44,800 
Total Cost = $78,800

To break-even, WayFair Clothing must generate $78,800 in revenue.

Revenue = Price x Units Sold

Price = Revenue / Units Sold

Price = $78,800 / 8,000 
Price = $9.85

Therefore, WayFair Clothing must charge $9.85 per unit in order to break-even.

Question 8

Oak Hill Furniture has a contribution margin ratio of 20%, and a contribution margin per unit of $12.If fixed costs are $156,000, how much sales revenue must the company generate in order to reach its break-even point?

Accepted Answer

To find the break-even point in terms of sales revenue, you can use the formula: Break-even point in dollars = Fixed Costs / Contribution Margin Ratio. Given that the fixed costs are $156,000 and the contribution margin ratio is 20% (or 0.20 when expressed as a decimal), the calculation is $156,000 / 0.20 = $780,000.

Question 9

Randolph Corporation sells a single product at a price of $275 per unit.Variable cost per unit is $135 and fixed costs total $356,860.If sales are expected to be $825,000, what is the company's margin of safety?

Accepted Answer

The margin of safety is the difference between actual (or expected) sales and the break-even sales. First, calculate the break-even point in dollars: Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) = $356,860 / ($275 - $135) = $356,860 / $140 = 2,549 units (break-even point). Then, convert this to dollars: 2,549 units * $275 = $700,975 (break-even sales in dollars). Finally, subtract the break-even sales from the expected sales: $825,000 - $700,975 = $124,025.

Question 10

One Finger Staples produces a single stapler that it sells for $15 per unit.If variable costs per unit are $6 and fixed costs total $42,300, how many units must the company sell in order to earn a profit of $12,150?

Accepted Answer

To find the number of units needed to earn a profit of $12,150, first calculate the contribution margin per unit, which is the selling price ($15) minus the variable cost ($6), equaling $9. Then, add the desired profit ($12,150) to the fixed costs ($42,300) to get the total amount needed to cover costs and profit, which is $54,450. Finally, divide this total by the contribution margin per unit ($9) to find the number of units: $54,450 / $9 = 6,050 units.

Question 11

Which of the following is not an assumption of CVP analysis?

Accepted Answer

Fixed costs per unit do not remain constant within the relevant range; instead, total fixed costs remain constant. The assumption in B incorrectly describes the behavior of fixed costs on a per-unit basis.

Question 12

Diva Products produces scarves.The estimated fixed costs for the year are $164,500, and the estimated variable costs per unit are $9.The company expects to produce and sell 40,000 scarves at a unit selling price of $16 per unit.How much is the break-even point in units?

Accepted Answer

The answer of Diva Products produces scarves.The estimated fixed costs...

Question 13

Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car.Annual fixed costs are $7,000.How much will profit increase if 600 more units are sold?

Accepted Answer

First, calculate the current profit per unit:

Profit = Price - Variable cost 
Profit = $12 - $5 = $7

Next, calculate the current total profit:

Total profit = (Profit per unit x Number of units) - Fixed costs 
Total profit = ($7 x N) - $7,000

To find out how much profit will increase if 600 more units are sold, we need to calculate the new total profit when N is increased by 600:

New total profit = (Profit per unit x New number of units) - Fixed costs 
New total profit = ($7 x (N + 600)) - $7,000

Now we can calculate the increase in profit:

Increase in profit = New total profit - Current total profit 
Increase in profit = ($7 x (N + 600)) - $7,000 - (($7 x N) - $7,000) 
Increase in profit = $4,200

Therefore, profit will increase by $4,200 if 600 more units are sold. The answer is B.

Question 14

Diva Products produces scarves.The estimated fixed costs for the year are $164,500, and the estimated variable costs per unit are $9.The company expects to produce and sell 40,000 scarves at a unit selling price of $16 per unit.By how much can sales revenue drop before Diva Products incurs a loss?

Accepted Answer

To determine the sales revenue drop before incurring a loss, first calculate the break-even point. The break-even point in units is calculated as Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, it's $164,500 / ($16 - $9) = $164,500 / $7 = 23,500 units. The break-even sales revenue is 23,500 units * $16/unit = $376,000. The initial expected sales revenue is 40,000 units * $16/unit = $640,000. The difference between the expected sales revenue and the break-even sales revenue is $640,000 - $376,000 = $264,000. This is the amount by which sales revenue can drop before the company incurs a loss.

Question 15

MDI Enterprises prepared the following income statement for June: $\begin{array}{l}\text { Sales revenue }(6,000 \text { units })&&\$150,000\
\text { Cost of goods sold: }\
\text { Fixed costs } & \$ 18,000 \
\text { Variable costs } & 30,000&48,000\
\text { Gross profit }&&102,000\
\text { Operating expenses: }\
\text { Fixed costs } & 27,000 \
\text { Variable costs } & 12000&39,000\
\text { Operating income }&&\$63,000
\end{array}$ How many units must MDI sell in order to break-even?

Accepted Answer

The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we need to find the total fixed costs and the variable cost per unit. The total fixed costs are $18,000 + $27,000 = $45,000. The variable cost per unit is $30,000 / 6,000 units = $5.00.The break-even point is the point at

Question 16

At Bahama Foods, the break-even point is 1,600 units.If fixed costs total $44,000 and variable costs are $12 per unit, what is the selling price per unit?

Accepted Answer

To find the selling price per unit, use the break-even formula: Fixed Costs / (Selling Price - Variable Cost) = Break-even Units. Plug in the values: $44,000 / (Selling Price - $12) = 1,600. Solving for the Selling Price gives $39.50.

Question 17

Revert Creations sells a single product at a price of $50 per unit.Fixed costs total $312,000 and variable costs per unit are $24.Revert is considering the purchase of new equipment that would reduce variable costs per unit to $21, but fixed costs would increase to $334,370.Above what volume would Revert be profitable with the new machine, assuming the selling price remains constant?

Accepted Answer

To find the breakeven point, we need to use the following formula:

Total revenue = Total cost

Let X be the number of units sold.

Old total cost = Fixed cost + Variable cost
= $312,000 + ($24/unit)X

Old total revenue = $50X

New total cost = New fixed cost + New variable cost
= $334,370 + ($21/unit)X

New total revenue = $50X

Setting the old and new total revenue equal to the old and new total cost, we get:

$50X = $312,000 + ($24/unit)X
$50X = $334,370 + ($21/unit)X

Solving for X, we get:

X = 11,530

Therefore, Revert will be profitable with the new machine above a volume of 11,530 units.

Question 18

Splurge Electronics sells homework machines for $80 each.Variable costs per unit are $45 and total fixed costs are $43,750.Splurge is considering the purchase of new equipment that would increase fixed costs to $48,700, but decrease the variable costs per unit by $5.At that level, Splurge Electronics expects it can sell 1,500 units next year.What is the company's break-even point in units if it purchases the new equipment, assuming the selling price remains constant? (Round your answer to the nearest whole number.)

Accepted Answer

Before considering the new equipment:
- Selling Price (P) = $80
- Variable Costs (V) = $45
- Fixed Costs (F) = $43,750
- Contribution Margin (P - V) = $35

To calculate the break-even point in units:
Breakeven Point in Units = Fixed Costs / Contribution Margin
Breakeven Point in Units = $43,750 / $35
Breakeven Point in Units = 1,250 units

After considering the new equipment:
- Selling Price (P) = $80
- Variable Costs (V) = $40
- Fixed Costs (F) = $48,700
- Contribution Margin (P - V) = $40

To calculate the new break-even point in units:
Breakeven Point in Units = Fixed Costs / Contribution Margin
Breakeven Point in Units = $48,700 / $40
Breakeven Point in Units = 1,217.5 units

Rounding to the nearest whole number results in a new break-even point in units of 1,218. Therefore, the best choice is B.

Question 19

MDI Enterprises prepared the following income statement for June: $\begin{array}{l}\text { Sales revenue }(6,000 \text { units })&&\$150,000\
\text { Cost of goods sold: }\
\text { Fixed costs } & \$ 18,000 \
\text { Variable costs } & 30,000&48,000\
\text { Gross profit }&&102,000\
\text { Operating expenses: }\
\text { Fixed costs } & 27,000 \
\text { Variable costs } & 12000&39,000\
\text { Operating income }&&\$63,000
\end{array}$ How much is MDI's total contribution margin?

Accepted Answer

The answer of MDI Enterprises prepared the following income statement...

Question 20

Widgely Sales Company's break-even point is 12,200 units.Each unit incurs variable costs of $2.20 and is sold for $4.90.How much are total fixed costs?

Accepted Answer

The answer of Widgely Sales Company's break-even point is 12,200...

Quiz 4: Cost-Volume-Profit Analysis