Question 1

The profit-volume graph

Accepted Answer

The profit-volume graph only depicts the relationship between sales volume and operating income, but it does not reveal how costs change as sales volume changes. Therefore, it fails to provide a complete picture of the company's financial performance.

Question 2

Figure 4-5.
Standlar Company makes wireless speakers. The standard model price is $360 and variable expenses are $210. The deluxe model price is $500 and variable expenses are $300. The superior model price is $1,600 and variable expense per unit is $600. Total fixed expenses are $300,000. Generally, Standlar sells 8 standard models and 4 deluxe models for every superior model sold.
-Refer to Figure 4-5. What is the number of deluxe models sold at break-even?

Accepted Answer

To find the break-even point, we need to calculate the contribution margin per unit for each model:
Standard model: $360 - $210 = $150
Deluxe model: $500 - $300 = $200
Superior model: $1,600 - $600 = $1,000

Next, we need to calculate the weighted average contribution margin per unit for the three models, based on the sales mix:
Weighted average contribution margin =
(8/13 x $150) + (4/13 x $200) + (1/13 x $1,000) = $306.15

Finally, we can use the contribution margin per unit to calculate the break-even point:
Break-even point = Fixed expenses / Weighted average contribution margin per unit
Break-even point = $300,000 / $306.15 = 979.6

Since we can't sell fractional units, the number of deluxe models sold at break-even is:
Number of deluxe models = (4/13) x 979.6 = 299.2, rounded up to the nearest whole unit: 400. Therefore, the best choice is C.

Question 3

Which of the following is not an assumption used to prepare a cost-volume-profit graph?

Accepted Answer

The assumption of constant cost fluctuation is not used in preparing a cost-volume-profit graph. Rather, the assumption is that costs are linear within the relevant range, meaning that they change in a constant and predictable manner based on changes in production or sales volume. The other assumptions listed are commonly used when preparing cost-volume-profit graphs.

Question 4

Rachel Company sells office chairs at $350 each, incurs variable cost per unit of $100, and has a total fixed expense of $30,000. How many units must be sold to achieve a target operating income of $55,000?

Accepted Answer

The answer of Rachel Company sells office chairs at $350...

Question 5

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

Accepted Answer

The answer of Assume the following information:  How many...

Question 6

A graph that depicts the relationships among cost, volume and profits (operating income) is the

Accepted Answer

The Cost-Volume-Profit (CVP) graph is used in managerial accounting to show the relationship between the costs it takes to produce a product, the volume of the product that is produced, and the resulting operating profit. It is a widely used tool to help managers make decisions about pricing, volume, and cost strategies.

Question 7

A profit-volume graph visually portrays the relationship between

Accepted Answer

A profit-volume graph shows the relationship between profits (vertical axis) and units sold (horizontal axis). It helps in determining the breakeven point and the level of sales required to achieve a desired profit level.

Question 8

A profit-volume graph differs from a cost-volume-profits graph in that a profit-volume graph displays only

Accepted Answer

A profit-volume graph specifically shows the relationship between operating income (profit) and sales volume, without detailing the individual costs or revenues.

Question 9

Figure 4-5.
Standlar Company makes wireless speakers. The standard model price is $360 and variable expenses are $210. The deluxe model price is $500 and variable expenses are $300. The superior model price is $1,600 and variable expense per unit is $600. Total fixed expenses are $300,000. Generally, Standlar sells 8 standard models and 4 deluxe models for every superior model sold.
-Refer to Figure 4-5. What is the overall sales revenue at break-even?

Accepted Answer

First, we need to calculate the weighted average contribution margin per unit:

Standard model: ($360 - $210) = $150 
Deluxe model: ($500 - $300) = $200 
Superior model: ($1,600 - $600) = $1,000

Weighted average contribution margin per unit: 
(8/13) x $150 + (4/13) x $200 + (1/13) x $1,000 = $307.69

Next, we can calculate the break-even point:

Break-even point = Fixed expenses / Weighted average contribution margin per unit

Break-even point = $300,000 / $307.69 = 974.36

Since Standlar sells 8 standard models and 4 deluxe models for every superior model sold, we can calculate the sales mix as:

Standard model: 8/13 = 0.6154 
Deluxe model: 4/13 = 0.3077 
Superior model: 1/13 = 0.0769

Using the sales mix and the price of each model, we can calculate the overall sales revenue at break-even:

Overall sales revenue at break-even = (0.6154 x $360 x 974.36) + (0.3077 x $500 x 974.36) + (0.0769 x $1,600 x 974.36) = $648,000

Therefore, the answer is C.

Question 10

Which of the following is not an assumption of a cost-volume-profit analysis?

Accepted Answer

The assumption of cost-volume-profit analysis is that inventory levels remain constant and do not increase or decrease. This is because cost-volume-profit analysis focuses on short-term planning and assumes that inventory levels will not significantly fluctuate within the relevant range.

Question 11

Fixed expenses that cannot be directly traced to individual segments are called

Accepted Answer

Common fixed expenses are those that cannot be directly traced to individual segments or products. They are generally incurred for the benefit of the entire company rather than a particular segment or product. Examples include rent, utilities, and salaries of top management.

Question 12

The cost-volume-profit graph

Accepted Answer

The cost-volume-profit graph plots the total revenue and total cost lines on the vertical and horizontal axes respectively. It does not plot separate lines for fixed and variable costs or units sold and dollars.

Question 13

Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are $5,040. If Melody wants to earn an operating profit of $880, how many units must it sell?

Accepted Answer

The answer of Melody Company sells a product for $14,...

Question 14

Sales mix is the relative combination of

Accepted Answer

Sales mix refers to the proportion of different products or services that a firm sells. It is not related to the inputs, outputs, distribution channels, or resources used by the firm.

Question 15

The formula that can be used to calculate sales dollars necessary in order to earn a target income is

Accepted Answer

The formula for calculating sales dollars necessary to earn a target income is (Fixed costs + Target income)/(Contribution margin ratio). This formula takes into account the fixed costs, contribution margin, and the target income. The other options include different variables or ratios that are not directly related to calculating the sales dollars needed to reach a target income.

Question 16

Which is the equation for operating income?

Accepted Answer

Operating income is calculated by subtracting the total variable costs (unit variable cost multiplied by units sold) and fixed costs from the total revenue (price multiplied by units sold). Option A correctly represents this calculation.

Question 17

The formula used to calculate the number of units needed in order to earn a target income is

Accepted Answer

The formula to calculate the number of units needed to earn a target income is (Fixed costs + Target income)/Contribution margin per unit. This formula takes into account the fixed costs, the target income, and the contribution margin per unit. The contribution margin per unit represents the amount of revenue left after deducting variable costs and is used to cover the fixed costs and generate a profit. Therefore, option C is the most appropriate choice.

Question 18

Figure 4-5.
Standlar Company makes wireless speakers. The standard model price is $360 and variable expenses are $210. The deluxe model price is $500 and variable expenses are $300. The superior model price is $1,600 and variable expense per unit is $600. Total fixed expenses are $300,000. Generally, Standlar sells 8 standard models and 4 deluxe models for every superior model sold.
-Refer to Figure 4-5. What is the number of superior models sold at break-even?

Accepted Answer

To find the break-even point in units for the superior model, we first need to calculate the weighted average contribution margin per unit. Given the sales mix (8 standard, 4 deluxe, 1 superior), prices, and variable expenses for each model, we can calculate the contribution margin for each and then find the weighted average.Standard model contribution margin per unit = $360 - $210 = $150Deluxe model contribution margin per unit = $500 - $300 = $200Superior model contribution margin per unit = $1600 - $600 = $1000Given the sales mix, the weighted average contribution margin per unit can be calculated as follows:$$ \text{Weighted Average CM} = \frac{(8 \times 150) + (4 \times 200) + (1 \times 1000)}{8 + 4 + 1} $$$$ \text{Weighted Average CM} = \frac{1200 + 800 + 1000}{13} = \frac{3000}{13} \approx 230.77 $$To find the break-even point in units for the entire company, we use the formula:$$ \text{Break-even point in units} = \frac{\text{Total Fixed Expenses}}{\text{Weighted Average Contribution Margin per Unit}} $$$$ \text{Break-even point in units} = \frac{300,000}{230.77} \approx 1300 \text{ units (rounded)} $$Given the sales mix, for every 13 units sold (8 standard, 4 deluxe, 1 superior), there is 1 superior model sold. To find the number of superior models sold at break-even, we divide the total break-even units by the total units in the sales mix and multiply by the number of superior models:$$ \text{Number of superior models at break-even} = \frac{1300}{13} \times 1 = 100 $$Therefore, the number of superior models sold at break-even is 100.

Question 19

Figure 4-5.
Standlar Company makes wireless speakers. The standard model price is $360 and variable expenses are $210. The deluxe model price is $500 and variable expenses are $300. The superior model price is $1,600 and variable expense per unit is $600. Total fixed expenses are $300,000. Generally, Standlar sells 8 standard models and 4 deluxe models for every superior model sold.
-Refer to Figure 4-5. What is the number of standard models sold at break-even?

Accepted Answer

The answer of Figure 4-5.
Standlar Company makes wireless speakers. The...

Question 20

On a cost-volume-profit graph, the break-even point is where

Accepted Answer

The break-even point is where the revenue line intersects the total cost line. This is where the company's total revenue equals the total cost, resulting in zero profit or loss.

Quiz 4: Cost-Volume-Profit Analysis: a Managerial Planning Tool