Question 1

Wallace Incorporated sells its products for $520 per unit. Variable costs are currently 45% of sales revenue. Fixed expenses are $125,840 per year. What is the breakeven point in units at the current selling price?

Accepted Answer

C)
Sales Price $520
× Variable Costs 45%
VC = $234
Sales Price $520
Less VC 234
Contribution Margin $286
Fixed Cost $125,840 / CM 286 = 440 units

Question 2

Star Corporation management has budgeted the following amounts for its next fiscal year:  If Star Corporation spends an additional $20,000 on advertising, sales volume should increase by 3,000 units. What effect will this have on operating income?

Accepted Answer

If Star Corporation spends an additional $20,000 on advertising, sales volume would increase by 3,000 units. This means that the company's revenue would increase by:
$50 per unit x 3,000 units = $150,000

However, the company would also be incurring an additional expense of $20,000 on advertising. Therefore, the net effect on operating income would be an increase of:
$150,000 - $20,000 - $75,000 = $55,000

Therefore, the correct choice is B, an increase of $55,000.

Question 3

If fixed expenses are $45,000, the breakeven in sales dollars is $60,000 and the selling price per unit is $100, then the variable expense per unit is

Accepted Answer

D)
Sales $60,000
Selling price 100
Units 600
Sales $60,000
Less fixed expense 45,000
Variable expense 15,000
Per unit 25.00 (15,000 / 600 units)

Question 4

Scott Incorporated management has budgeted the following amounts for its next fiscal year:  If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the selling price per unit would have to be

Accepted Answer

To maintain the original breakeven sales in units, the total contribution margin must equal the total fixed expenses. 
If fixed expenses increase by 10%, the new fixed expenses will be: 
$990,000 x 1.1 = $1,089,000

The new contribution margin per unit will be: 
$45 – ($30 + $12) = $3

To find the new breakeven sales in units, we divide the new fixed expenses by the new contribution margin per unit: 
$1,089,000 ÷ $3 = 363,000 units

To maintain the original breakeven sales in units (300,000 units), we need to increase the selling price per unit by:

($990,000 ÷ 300,000) x 100% = 330% of the variable cost per unit

330% x $12 = $39.60

The original selling price per unit was $45, so to increase it to $39.60, we need to increase it by:

($39.60 – $45) ÷ $45 x 100% = -11.33%

Therefore, the selling price per unit would need to be increased by 5.6% (Option C) to maintain the original breakeven sales in units when fixed expenses increase by 10%.

Question 5

Claudia Enterprises has budgeted the following amounts for its next fiscal year:  If Claudia Enterprises can reduce fixed expenses by $12,000, how will breakeven sales in units be affected?

Accepted Answer

The answer of Claudia Enterprises has budgeted the following amounts...

Question 6

Moe's Garage management has budgeted the following amounts for its next fiscal year:  If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Accepted Answer

To solve this problem, we need to use the breakeven formula:

Breakeven Sales = Fixed Costs / (Price per unit - Variable Costs per unit)

Let x be the original variable cost per unit. Then the original breakeven sales in units is:

500,000 = 400,000 / (60 - x) 
60 - x = 0.8 
x = 59.2

This means that Moe's currently spends $59.2 on variable costs for each unit sold.

Now we need to find the new variable cost per unit (let's call it y) that allows Moe's to maintain the original breakeven sales after reducing fixed expenses by $20,000. We have:

500,000 = (400,000 - 20,000) / (60 - y) 
60 - y = (380,000 / 500,000) * 5 
y = 34

So Moe's can increase variable expenses per unit by $34 - $59.2 = $25.80 and still maintain the original breakeven sales.

The correct answer is therefore (C).

Question 7

The selling price of a particular product is $7.00 per unit, fixed costs total $18,000, and the breakeven sales in dollars is $24,000. What would be the variable expense per unit?

Accepted Answer

Let X be the number of units sold.
We know that at the breakeven point, the total revenue equals the total costs.
So, 7X = (variable expense per unit)*X + 18,000
Simplifying, we get variable expense per unit = (7X - 18,000)/X
Also, we know that breakeven sales in dollars is $24,000, which means 24,000 = 7X - total variable expense
Substituting the above value of variable expense per unit, we get 24,000 = 7X - (7X - 18,000)/X * X
Simplifying, we get X = 4,000 units
Substituting X in the above equation for variable expense per unit, we get variable expense per unit = $1.75.

Question 8

Boss Enterprises currently sells its products for $40 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $120,000 per year. What is the breakeven point in units at the current selling price?

Accepted Answer

A)
Sales price per unit $40.00
Variable costs 16.00 ($40.00 × 40 % of sales)
Contribution Margin 24.00
Fixed costs $120,000
Breakeven units 5,000 (120,000 / $24.00 CM)

Question 9

Franklin Producers sells its core product for $8 per unit and has variable costs of $6 per unit. Total fixed costs are $28,000. Suppose variable costs increase by 20% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Accepted Answer

C)
Sales $8.00
Less Variable expenses 6.00
Contribution Margin $2.00
Fixed expense $28,000/ $2.00 CM = 14,000 BE units
Sales $8.00
Less Variable expenses 7.20
Contribution Margin $ 0.80
Fixed expense $28,000/ $0.80 CM = 35,000 BE units

Question 10

Elk Manufacturing has budgeted the following amounts for its next fiscal year:  To maintain the original breakeven sales in units if fixed expenses were to increase by 20%, the selling price per unit would have to be

Accepted Answer

The answer of Elk Manufacturing has budgeted the following amounts...

Question 11

The selling price of a particular product is $85.00 per unit, the variable expense is $49.00 per unit, and the breakeven sales in dollars is $340,000, what are total fixed expenses?

Accepted Answer

We can use the breakeven formula to find the total fixed expenses:

Breakeven sales = (fixed expenses)/(contribution margin ratio)

Contribution margin = selling price - variable expense = $85.00 - $49.00 = $36.00 per unit
Contribution margin ratio = contribution margin / selling price = $36.00 / $85.00 = 0.424

Substituting the given values into the breakeven formula:

$340,000 = fixed expenses / 0.424

Fixed expenses = $340,000 x 0.424 = $144,160

Therefore, the total fixed expenses are $144,160.

The correct answer is B, and it is the best choice.

Question 12

Fixed expenses total $31,000, the breakeven sales in dollars is $93,000 and the selling price per unit is $99. The variable expense per unit is

Accepted Answer

B)
Sales $93,000
Selling price 99
Units 939.40 approx.
Sales $93,000
Less fixed expense 31,000
Variable expense 62,000
Per unit 66.00 (62,000 / 939.40 units)

Question 13

Prince Paper has budgeted the following amounts for its next fiscal year:  If Price Paper spends an additional $12,500 on advertising, sales volume should increase by 2,300 units. What effect will this have on operating income?

Accepted Answer

The answer of Prince Paper has budgeted the following amounts...

Question 14

Mae Company sells its product for $12 per unit and has variable costs of $8 per unit. Total fixed costs are $60,000. Suppose variable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Accepted Answer

A)
Sales $12.00
Less Variable expenses 8.00
Contribution Margin $4.00
Fixed expense $60,000/ $4.00 CM = 15,000 BE units
Sales $12.00
Less Variable expenses 8.80
Contribution Margin $3.20
Fixed expense $60,000/ $3.20 CM = 18,750 BE units

Question 15

Management at the Forrest Company currently sells its products for $225 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 25% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $120,750 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven?

Accepted Answer

A)
Current year Sales price per unit $225
Variable expense 56.25 (25% of sales price)
Contribution Margin 168.75
CM % 75% (168.75 / 225)
New year Sales Price $315 (225 × 1.4)
Variable expense 56.25
Contribution margin 258.75
CM % 82.1% (258.75 / 315)
Fixed cost 108,675 (120,750 less 10%)
Units 420 (108,675 divided by 258.75CM)

Question 16

Beasley Company currently sells its products for $35 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 50% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). Fixed expenses are $79,625 per year. What is the breakeven point in units at the anticipated selling price per unit next year?

Accepted Answer

B)
Selling Price $35
× Variable costs % × 50%
= Variable costs $17.50
Selling Price $35
Increase × 1.20
Adj.Selling Price $42
Less Variable costs 17.50
= Contribution Margin $24.50
Fixed Expense $79,625 / $24.50 = 3,250 Break Even

Question 17

Grosheim Incorporated has fixed expenses of $212,500 per year. Right now, Grosheim Incorporated is selling its products for $125 per unit. Management is contemplating a 25% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to breakeven?

Accepted Answer

D)
This year Sales price per unit $125
Variable costs 50 (40% of sales)
Contribution Margin 75
Next year Sales Price $156.25 (125 plus 25%)
Variable costs 50
Contribution Margin 106.25
New fixed costs $233,750 (212,500 plus 10%)
Units 2,200 (233,750 / 106.25 CM)

Question 18

Catamount Studios has budgeted the following amounts for its next fiscal year:  If Catamount Studios can reduce fixed expenses by $46,500, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Accepted Answer

The answer of Catamount Studios has budgeted the following amounts...

Question 19

Cartman Enterprises management has budgeted the following amounts for its next fiscal year:  If Cartman Enterprises can reduce fixed expenses by $16,000, how will breakeven sales in units be affected?

Accepted Answer

The answer of Cartman Enterprises management has budgeted the following...

Question 20

The selling price of a particular product is $38.00 per unit, fixed costs total $175,000, and the breakeven sales in dollars is $875,000, what will the variable expense per unit be?

Accepted Answer

D)
Contribution Margin = Fixed Expense/ Breakeven
= $175,000 / 875,000
= .20
Sales $38
× Contribution Margin % = .20
Contribution Margin $ $7.60
Sales $38
Less Contribution Margin 7.60
Variable Expense $30.40

Quiz 7: Cost-Volume-Profit Analysis

Wallace Incorporated sells its products for $520 per unit. Variable costs are currently 45% of sales revenue. Fixed expenses are $125,840 per year. What is the breakeven point in units at the current selling price?

Star Corporation management has budgeted the following amounts for its next fiscal year: If Star Corporation spends an additional $20,000 on advertising, sales volume should increase by 3,000 units. What effect will this have on operating income?

If fixed expenses are $45,000, the breakeven in sales dollars is $60,000 and the selling price per unit is $100, then the variable expense per unit is

Scott Incorporated management has budgeted the following amounts for its next fiscal year: If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the selling price per unit would have to be

Claudia Enterprises has budgeted the following amounts for its next fiscal year: If Claudia Enterprises can reduce fixed expenses by $12,000, how will breakeven sales in units be affected?

Moe's Garage management has budgeted the following amounts for its next fiscal year: If Moe's can reduce fixed expenses by $20,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

The selling price of a particular product is $7.00 per unit, fixed costs total $18,000, and the breakeven sales in dollars is $24,000. What would be the variable expense per unit?

Franklin Producers sells its core product for $8 per unit and has variable costs of $6 per unit. Total fixed costs are $28,000. Suppose variable costs increase by 20% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Elk Manufacturing has budgeted the following amounts for its next fiscal year: To maintain the original breakeven sales in units if fixed expenses were to increase by 20%, the selling price per unit would have to be

The selling price of a particular product is $85.00 per unit, the variable expense is $49.00 per unit, and the breakeven sales in dollars is $340,000, what are total fixed expenses?

Fixed expenses total $31,000, the breakeven sales in dollars is $93,000 and the selling price per unit is $99. The variable expense per unit is

Prince Paper has budgeted the following amounts for its next fiscal year: If Price Paper spends an additional $12,500 on advertising, sales volume should increase by 2,300 units. What effect will this have on operating income?

Mae Company sells its product for $12 per unit and has variable costs of $8 per unit. Total fixed costs are $60,000. Suppose variable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Catamount Studios has budgeted the following amounts for its next fiscal year: If Catamount Studios can reduce fixed expenses by $46,500, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Cartman Enterprises management has budgeted the following amounts for its next fiscal year: If Cartman Enterprises can reduce fixed expenses by $16,000, how will breakeven sales in units be affected?

The selling price of a particular product is $38.00 per unit, fixed costs total $175,000, and the breakeven sales in dollars is $875,000, what will the variable expense per unit be?