Question 1

In cost-volume-profit analysis, the unit contribution margin is:

Accepted Answer

The unit contribution margin is the amount by which the sales price per unit exceeds the total variable cost per unit. Therefore, it is calculated as sales price per unit less total variable cost per unit. Option A is incorrect because it only considers the cost of goods sold and excludes other variable costs. Option B is incorrect because it only considers fixed costs and excludes variable costs. Option D is incorrect because it includes both fixed and variable costs in the calculation. Option E is incorrect because the contribution margin ratio is the contribution margin divided by the sales price, and not the unit contribution margin.

Question 2

During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

Accepted Answer

The answer of During its most recent fiscal year, Dover,...

Question 3

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit)?

Accepted Answer

The answer of A company has fixed costs of $320,000...

Question 4

Use the following information to determine the break-even point in sales dollars:

Accepted Answer

The answer of Use the following information to determine the...

Question 5

Use the following information to determine the margin of safety in dollars:

Accepted Answer

The margin of safety is the difference between the actual or expected sales and the break-even point. Unfortunately, the given information does not include the break-even point or expected sales, so we cannot calculate the margin of safety directly.

Question 6

During its most recent fiscal year, Raphael Enterprises sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

Accepted Answer

The answer of During its most recent fiscal year, Raphael...

Question 7

During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

Accepted Answer

Fixed costs = Total sales - Contribution margin = $3,200,000 - $1,500,000 = $1,700,000. 
Pretax income includes fixed costs, so to determine fixed costs we must subtract pretax income from the contribution margin: 
Fixed costs = Contribution margin - Pretax income = $1,500,000 - $400,000 = $1,100,000. Therefore, the correct answer is D.

Question 8

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will pretax income equal if sales are $325,000?

Accepted Answer

Fixed costs = $72,500
Variable costs = 40% x $325,000 = $130,000
Total costs = Fixed costs + Variable costs = $72,500 + $130,000 = $202,500

Revenue = Sales = $325,000
Pretax income = Revenue - Total costs = $325,000 - $202,500 = $122,500

Therefore, the answer is B, $122,500.

Question 9

Use the following information to determine the break-even point in units (rounded to the nearest whole unit):

Accepted Answer

The answer of Use the following information to determine the...

Question 10

Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?

Accepted Answer

The answer of Locus Company has total fixed costs of...

Question 11

Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break even sales are $300,000. What is the margin of safety as a percent of sales, rounded to the nearest whole percent?

Accepted Answer

The answer of Gladstone Co. has expected sales of $326,000...

Question 12

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. Compute the number of units that must be sold in order to achieve a target pretax income of $130,000.

Accepted Answer

The answer of The budgeted income statement presented below is...

Question 13

Use the following information to determine the contribution margin ratio:

Accepted Answer

The answer of Use the following information to determine the...

Question 14

The contribution margin ratio:

Accepted Answer

The contribution margin ratio is the percent of each sales dollar that remains after deducting the total unit variable cost. This ratio helps in determining the contribution margin per unit sold, which can further help in analyzing the profitability of the product and the impact of changes in sales volume on the profits.

Question 15

A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar)?

Accepted Answer

The answer of A company has fixed costs of $270,000,...

Question 16

Raven Company has a target of earning $70,000 pre-tax income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?

Accepted Answer

Contribution margin = Sales - Variable costs
 
Contribution margin ratio = (Sales - Variable costs) / Sales
 
We know that contribution margin ratio is 30%. So,

0.30 = (Sales - Variable costs) / Sales
 
0.30S = Sales - 0.30S (multiplying both sides by S)
 
0.60S = Sales (combining like terms)
 
Now, we can set up the equation to solve for the dollar sales required to reach the pre-tax income goal:

$70,000 = (0.60S) - $36,000 (adding fixed costs to the contribution margin equation)
 
$106,000 = 0.60S (adding $36,000 to both sides)
 
$106,000 / 0.60 = S
 
$176,666.67 = S (dividing both sides by 0.60)
 
Therefore, the amount of dollar sales required to reach the pre-tax income goal of $70,000 with a contribution margin ratio of 30% and fixed costs of $36,000 is $353,333 (rounded to the nearest dollar).

Question 17

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

Accepted Answer

The answer of A product sells for $200 per unit,...

Question 18

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:

Accepted Answer

Margin of safety in dollars is calculated by subtracting expected sales from the break-even point. The break-even point for Burkett Corporation is $750,000 ($300,000 fixed costs divided by 0.4 contribution margin ratio). The expected sales are $1,125,000. Therefore, the margin of safety in dollars would be:
$1,125,000 - $750,000 = $375,000. 
Therefore, the closest option is D, $275,862.

Question 19

Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

Accepted Answer

The answer of Henderson Co. has fixed costs of $36,000...

Question 20

Total contribution margin in dollars divided by pretax income is the:

Accepted Answer

The degree of operating leverage is calculated by dividing the total contribution margin by the net operating income (or pretax income). This measure indicates how a percentage change in sales volume will affect profits due to fixed costs.

Quiz 5: Cost Behavior Cost-Volume-Profit Analysis

In cost-volume-profit analysis, the unit contribution margin is:

During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?

Use the following information to determine the break-even point in sales dollars:

Use the following information to determine the margin of safety in dollars:

During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will pretax income equal if sales are $325,000?

Use the following information to determine the break-even point in units (rounded to the nearest whole unit) :

Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?

Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break even sales are $300,000. What is the margin of safety as a percent of sales, rounded to the nearest whole percent?

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. Compute the number of units that must be sold in order to achieve a target pretax income of $130,000.

Use the following information to determine the contribution margin ratio:

The contribution margin ratio:

A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar) ?

Raven Company has a target of earning $70,000 pre-tax income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:

Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

Total contribution margin in dollars divided by pretax income is the: