Question 1

Which is the true statement?

Accepted Answer

The CVP income statement shows contribution margin instead of gross profit. While A, B, and D are also true statements regarding CVP and traditional income statements, they do not specifically pertain to the main difference between the two - that the CVP income statement shows contribution margin instead of gross profit.

Question 2

CVP analysis is not important in

Accepted Answer

CVP analysis is used to help with decisions related to pricing, product mix, and production volume. It is not used to calculate depreciation expense, which is a fixed cost and does not vary with changes in production levels.

Question 3

If a company had a contribution margin of $1000000 and a contribution margin ratio of 40% total variable costs must have been

Accepted Answer

The contribution margin is equal to sales minus total variable costs. The contribution margin ratio is the contribution margin divided by sales. Using these formulas, we can set up the equations as:
Contribution Margin = $1,000,000
Contribution Margin Ratio = 40%
Contribution Margin = Sales - Total Variable Costs
Contribution Margin Ratio = Contribution Margin / Sales

From the Contribution Margin Ratio equation, we can solve for Sales:
Contribution Margin Ratio = Contribution Margin / Sales
0.40 = $1,000,000 / Sales
Sales = $2,500,000

Plugging in Sales and Contribution Margin into the Contribution Margin equation, we can solve for Total Variable Costs:
Contribution Margin = Sales - Total Variable Costs
$1,000,000 = $2,500,000 - Total Variable Costs
Total Variable Costs = $2,500,000 - $1,000,000
Total Variable Costs = $1,500,000

Therefore, the total variable costs must have been $1,500,000, or Choice A.

Question 4

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

Accepted Answer

The assumption that beginning inventory is larger than ending inventory is not an underlying assumption of CVP analysis. The other choices are all important assumptions of CVP analysis.

Question 5

Armstrong Industries has a contribution margin of $240000 and a contribution margin ratio of 30%.How much are total variable costs?

Accepted Answer

The answer of Armstrong Industries has a contribution margin of...

Question 6

CVP analysis does not consider

Accepted Answer

Fixed cost per unit is not considered in CVP (Cost-Volume-Profit) analysis because fixed costs remain constant in total regardless of the level of activity within the relevant range. CVP focuses on how revenues, expenses, and profits change with changes in volume, not on per unit costs of fixed expenses.

Question 7

Hollis Industries produces flash drives for computers which it sells for $20 each.Each flash drive costs $13 of variable costs to make.During April 1000 drives were sold.Fixed costs for March were $2 per unit for a total of $1000 for the month.How much is the contribution margin ratio?

Accepted Answer

Contribution margin = Selling price per unit - Variable cost per unit
Contribution margin per unit = $20 - $13 = $7
Total contribution margin = $7 x 1000 = $7000
Contribution margin ratio = Total contribution margin / Total sales revenue
Total sales revenue = $20 x 1000 = $20,000
Contribution margin ratio = $7000 / $20,000 = 0.35 or 35%

Question 8

Which of the following would not be an acceptable way to express contribution margin?

Accepted Answer

Contribution margin is typically defined as sales revenue minus variable costs. It can be expressed on a per unit basis (unit selling price minus unit variable costs) or for total sales (total sales minus total variable costs). Option B, "Sales minus unit costs," is incorrect because "unit costs" could imply both variable and fixed costs, not just variable costs. The contribution margin specifically excludes fixed costs.

Question 9

To which function of management is CVP analysis most applicable?

Accepted Answer

CVP (Cost-Volume-Profit) analysis is most applicable to the planning function of management as it helps in forecasting the future profitability of a company based on its sales volume, cost patterns, and pricing strategies. It provides insights on the break-even point, target profit, and margin of safety which are crucial for making informed decisions about pricing, production, and marketing strategies.

Question 10

Dunbar Manufacturing's variable costs are 30% of sales.The company is contemplating an advertising campaign that will cost $55000.If sales are expected to increase $100000 by how much will the company's net income increase?

Accepted Answer

The answer of Dunbar Manufacturing's variable costs are 30% of...

Question 11

Weatherspoon Company has a product with a selling price per unit of $200 the unit variable cost is $110 and the total monthly fixed costs are $300000.How much is Weatherspoon's contribution margin ratio?

Accepted Answer

The answer of Weatherspoon Company has a product with a...

Question 12

At the break-even point of 2000 units variable costs are $165000 and fixed costs are $96000.How much is the selling price per unit?

Accepted Answer

The answer of At the break-even point of 2000 units...

Question 13

The equation which reflects a CVP income statement is

Accepted Answer

The correct equation for a Cost-Volume-Profit (CVP) income statement is D) Sales - Variable costs - Fixed costs = Net income. This equation is used to analyze how changes in cost and volume affect a company's operating income and net income.

Question 14

Sales are $500000 and variable costs are $330000.What is the contribution margin ratio?

Accepted Answer

The answer of Sales are $500000 and variable costs are...

Question 15

Zehms Inc.has a unit contribution margin of $30 and a contribution margin ratio of 60%.How much is the selling price of each unit?

Accepted Answer

Using the contribution margin formula, we get:

Contribution margin = Selling price - Variable cost per unit
60% = $30 / Selling price - Variable cost per unit

Solving for Selling price, we get:

Selling price = Variable cost per unit / (1 - Contribution margin ratio)
Selling price = $30 / 0.6 = $50

Therefore, the selling price of each unit is $50.

Question 16

A division sold 200000 calculators during 2022: $$\begin{array} { l r r } 
\text { Sales } & & \$ 2,000,000 \
\text { Variable costs: } && \
\text { Materials } & \$ 380,000   \
\text { Order processing } &150,000   \
\text { Billing labor } &  110,000 \
\text { Selling expenses } &60,000  \
\text { Total variable costs } && 700,000 \
\text { Fixed costs }&& 1,000,000
\end{array}$$ How much is the unit contribution margin?

Accepted Answer

The answer of A division sold 200000 calculators during 2022:...

Question 17

Contribution margin

Accepted Answer

Contribution margin is calculated by subtracting variable costs from sales revenue. It is not the same as gross profit margin, which includes all costs of goods sold, and it also does not exclude variable selling costs. The formula for contribution margin is Sales Revenue - Variable Costs.

Question 18

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

Accepted Answer

One of the assumptions of CVP analysis is that all costs can be distinguished as either variable or fixed. Therefore, it is not assumed that all costs are variable costs, as some may be fixed.

Question 19

The following information is available for Wade Corp.: $$\begin{array} { l r l } 
\text { Sales } & \$ 580,000 & \text { Total fixed expenses } \$ 150,000 \
\text { Cost of goods sold } & 390,000 & \text { Total variable expenses } 360,000
\end{array}$$ A CVP income statement would report

Accepted Answer

The contribution margin is calculated as Sales minus Total Variable Expenses, which is $580,000 - $360,000 = $220,000.

Question 20

A company has a unit contribution margin of $120 and a contribution margin ratio of 40%.What is the unit selling price?

Accepted Answer

The answer of A company has a unit contribution margin...

Quiz 12: Budgetary Planning

Which is the true statement?

CVP analysis is not important in