Question 1

Phan Company has not reported a profit in five years.This year the company would like to narrow its loss to $7,500.Assuming its selling price is $36.50 per unit and its variable costs per unit are $24,how many units must be sold to achieve its target given that total fixed costs are $60,000?
A) 2,188
B) 1,439
C) 4,200
D) 1,600

Accepted Answer

Sales volume in units = (Fixed costs + Desired profit)÷ Contribution margin per unit
Sales volume in units = [$60,000 + ($7,500)] ÷ ($36.50 per unit - $24.00 per unit)= $52,500 ÷ $12.50 per unit = 4,200 units

Question 2

The records of Gemini Company show a contribution margin ratio of 40%.The company desires to earn a profit of $35,000 and has fixed costs of $70,000.What sales revenue would have to be generated in order to earn the desired profit?
A) $87,500
B) $262,500
C) $175,000
D) $42,000

Accepted Answer

Sales volume in dollars = (Fixed costs + Desired profit)÷ Contribution margin ratio
Sales volume in dollars = ($70,000 + $35,000)÷ 0.40 = $262,500

Question 3

M and M,Inc.produces a product that has a variable cost of $3.00 per unit.The company's fixed costs are $30,000.The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000.What is the amount of sales that will be necessary to earn the desired profit?
A) $75,000
B) $50,000
C) $83,333
D) $125,000

Accepted Answer

Contribution margin ratio = (Selling price per unit - Variable costs per unit)÷ Selling price per unit
Contribution margin ratio = ($5 per unit - $3 per unit)÷ $5 per unit = 40%
Sales volume in dollars = (Fixed costs + Desired profit)÷ Contribution margin ratio
Sales volume in dollars = ($30,000 + $20,000)÷ 0.40 = $125,000

Question 4

Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $18,000.The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs.The company expects the new technology to increase production and sales to 9,000 units of product.What sales price would have to be charged to earn a $99,000 target profit assuming the investment in technology is made?
A) $22
B) $23
C) $15
D) $13

Accepted Answer

Sales - Variable costs - Fixed costs = Desired profit
(Selling price per unit x 9,000 units)- ($8 per unit x 9,000 units)- ($18,000 + $18,000)= $99,000
(Selling price per unit x 9,000 units)- $72,000 - $36,000 = $99,000
Selling price per unit x 9,000 units= $99,000 + $108,000
Selling price per unit = $207,000 ÷ 9,000 units = $23 per unit

Question 5

Mitchell Company sells its product for $100 per unit.The company's accountant provided the following cost information: $\begin{array}{|l|l|}
\hline \text { Manufacturing costs } & \$ 25,000+45 \% \text { of sales } \
\hline \text { Selling costs } & \$ 15,000+20 \% \text { of sales } \
\hline \text { Administrative costs } & \$ 25,000+10 \% \text { of sales } \
\hline
\end{array}$ What is the company's break-even point in units?
A) 1,000
B) 750
C) 2,600
D) 4,000

Accepted Answer

The answer of Mitchell Company sells its product for $100...

Question 6

Zeus,Inc.produces a product that has a variable cost of $9.50 per unit.The company's fixed costs are $40,000.The product sells for $12.00 a unit and the company desires to earn a $20,000 profit.What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations. )
A) 24,000 units
B) 16,000 units
C) 17,000 units
D) 4,000 units

Accepted Answer

Sales volume in units = (Fixed costs + Desired profit)÷ Contribution margin per unit
Sales volume in units = ($40,000 + $20,000)÷ ($12 per unit - $9.50 per unit)= 24,000 units

Question 7

Harris Company produces a product whose cost is $10.Assuming the company uses a cost-plus pricing system,what selling price would the company set to earn a profit margin of 20% of cost?
A) $2.00
B) $12.50
C) $50.00
D) $12.00

Accepted Answer

Selling price per unit = Cost per unit + Markup
Selling price per unit = $10 per unit + ($10 per unit x 0.20)= $12.00 per unit

Question 8

Cooper Company sells a product at $50 per unit that has unit variable costs of $20.The company's break-even sales point in sales dollars is $150,000.How much profit will the company make if it sells 4,000 units?
A) $210,000
B) $120,000
C) $60,000
D) $30,000

Accepted Answer

First,determine fixed costs as follows:
Contribution margin ratio = (Selling price per unit - Variable costs per unit)÷ Selling price per unit
Contribution margin ratio = ($50 per unit - $20)÷ $50 per unit = 60%
Break-even point in dollars = Fixed costs ÷ Contribution margin ratio
$150,000 = Fixed costs ÷ 0.60
Fixed costs = $150,000 x 0.60 = $90,000
Then,determine profit:
Sales - Variable costs - Fixed costs = Profit
[($50 per unit - $20 per unit)x 4,000 units] - $90,000 = $30,000

Question 9

Select the incorrect break-even equation from the following:
A) Total contribution margin = total variable costs
B) Total contribution margin = total fixed costs
C) Total fixed costs ÷ contribution margin ratio = break-even sales in dollars
D) Total revenue = total costs

Accepted Answer

The correct break-even equation is not "Total contribution margin = total variable costs." Break-even occurs when total revenue equals total costs, which includes both variable and fixed costs. The contribution margin is used to cover fixed costs at the break-even point, not equal to the variable costs.

Question 10

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?
A) $26
B) $28
C) $44
D) $36

Accepted Answer

First,determine the number of units sold:
Number of units sold = Sales ÷ Selling price per unit
Number of units sold = $15,000 ÷ $60 per unit = 250 units
Then,determine the variable cost per unit:
Variable cost per unit = (Variable manufacturing costs of $4,000 + Variable selling and administrative costs of $2,000)÷ 250 units = $24 per unit
Finally,determine the contribution margin per unit:
Contribution margin per unit = Selling price per unit - Variable costs per unit
Contribution margin per unit = $60 per unit - $24 per unit = $36 per unit

Question 11

For 2013During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?
A) $360,000
B) $440,000
C) $1,160,000
D) $400,000

Accepted Answer

Sales - Variable costs - Fixed costs = Profit
($20 per unit x 80,000 units)- ($15 per unit x 80,000 units)- Fixed costs = $40,000
$1,600,000 - $1,200,000 - Fixed costs = $40,000
Fixed costs = $400,000 - $40,000 = $360,000

Question 12

Martin Company currently produces and sells 40,000 units of product at a selling price of $12.The product has variable costs of $6 per unit and fixed costs of $150,000.The company currently earns a total contribution margin of:
A) $280,000
B) $200,000
C) $240,000
D) $90,000

Accepted Answer

Total contribution margin = [(Selling price per unit - Variable costs per unit] x Units sold
Total contribution margin = ($12 per unit - $6 per unit)x 40,000 units = $240,000

Question 13

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?
A) $250,000
B) $180,000
C) $120,000
D) Fixed costs cannot be computed with the information provided.

Accepted Answer

Sales - Variable costs - Fixed costs = Profit
($25 per unit x 12,000 units)- ($10 per unit x 12,000 units)- Fixed costs = $0
Fixed costs = $300,000 - $120,000 = $180,000

Question 14

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit.The company's fixed costs are $50,000.What is the break-even point measured in sales dollars?
A) $150,000
B) $200,000
C) $62,500
D) $100,000

Accepted Answer

Break-even point in dollars = Fixed costs ÷ Contribution margin ratio
Contribution margin ratio = (Selling price per unit - Variable costs per unit)÷ Selling price per unit
Break-even point in dollars = $50,000 ÷ [($20 per unit - $15 per unit)÷ $20 per unit] = $50,000 ÷ 0.25 = $200,000

Question 15

The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost s
A) cost-plus pricing.
B) prestige pricing.
C) developmental pricing.
D) target costing.

Accepted Answer

The pricing strategy described in the question is target costing, which starts with the determination of the price at which a product will sell, and then focuses on developing a cost structure that will allow the product to be sold at that price while still achieving a desired level of profitability. Cost-plus pricing (A) involves adding a markup to the cost of a product to arrive at a selling price, while prestige pricing (B) involves setting a high price to create the perception of exclusivity and quality. Developmental pricing (C) is not a commonly used term in marketing and does not describe a specific pricing strategy.

Question 16

Kingston Company sells its product for $200 per unit.The company's accountant provided the following cost information: $\begin{array}{|l|l|}
\hline \text { Manufacturing costs } & \$ 25,000+40 \% \text { of sales } \
\hline \text { Selling costs } & \$ 10,000+20 \% \text { of sales } \
\hline \text { Administrative costs } & \$ 15,000+10 \% \text { of sales } \
\hline
\end{array}$ What is Kingston Company's contribution margin ratio?
A) 30%
B) 15%
C) 35%
D) 20%

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Costs) / Sales. The variable costs are 70% of sales (40% manufacturing + 20% selling + 10% administrative). Therefore, the contribution margin ratio is 30% (100% - 70%).

Question 17

Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar.At production and sales of 800,000 units,the company pays $600,000 in production costs,half of which are fixed costs.At that volume,general,selling,and administrative costs amount to $250,000 of which $70,000 are fixed costs.What is the amount of contribution margin per unit?
A) $0.40
B) $0.5375
C) $0.25
D) None of these is correct.

Accepted Answer

Variable cost per unit = [(Production costs of $600,000 x ½)+ (Selling and administrative costs of $250,000 - $70,000)÷ 800,000 = $0.60 per unit
Contribution margin per unit = Selling price per unit - Variable costs per unit = $1 per unit - $0.60 per unit = $0.40 per unit

Question 18

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break-even?
A) 2,917 units
B) 4,375 units
C) 7,000 units
D) 4,000 units

Accepted Answer

Contribution margin per unit = Selling price per unit - Variable costs per unit
Contribution margin per unit = $20 per unit - $12 per unit = $8 per unit
Break-even point in units = Fixed costs ÷ Contribution margin per unit
Break-even point in units = ($20,000 + $15,000)÷ $8 per unit = 4,375 units

Question 19

Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs.This approach to pricing is referred to as:
A) cost-plus pricing
B) target pricing
C) target costing
D) contribution margin-based pricing

Accepted Answer

Cost-plus pricing is a pricing strategy in which a markup is added to the product's variable manufacturing costs to set the selling price. This approach ensures that the company covers its costs and makes a profit on each sale. Target pricing, target costing, and contribution margin-based pricing are different pricing strategies that do not involve adding a markup to variable manufacturing costs.

Question 20

Once sales reach the break-even point,each additional unit sold will:
A) increase fixed cost by a proportionate amount.
B) reduce the margin of safety.
C) increase the company's operating leverage.
D) increase profit by an amount equal to the per unit contribution margin.

Accepted Answer

Recall that each additional unit sold will increase profit by the contribution margin per unit.Once the fixed costs are covered at the break-even point,the sales of each additional unit will increase profit by an amount equal to the contribution margin per unit.

Quiz 3: Analysis of Cost,Volume,and Pricing to Increase Profitability

Phan Company has not reported a profit in five years.This year the company would like to narrow its loss to $7,500.Assuming its selling price is $36.50 per unit and its variable costs per unit are $24,how many units must be sold to achieve its target given that total fixed costs are $60,000?

The records of Gemini Company show a contribution margin ratio of 40%.The company desires to earn a profit of $35,000 and has fixed costs of $70,000.What sales revenue would have to be generated in order to earn the desired profit?

M and M,Inc.produces a product that has a variable cost of $3.00 per unit.The company's fixed costs are $30,000.The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000.What is the amount of sales that will be necessary to earn the desired profit?

Harris Company produces a product whose cost is $10.Assuming the company uses a cost-plus pricing system,what selling price would the company set to earn a profit margin of 20% of cost?

Cooper Company sells a product at $50 per unit that has unit variable costs of $20.The company's break-even sales point in sales dollars is $150,000.How much profit will the company make if it sells 4,000 units?

Select the incorrect break-even equation from the following:

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?

For 2013During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?

Martin Company currently produces and sells 40,000 units of product at a selling price of $12.The product has variable costs of $6 per unit and fixed costs of $150,000.The company currently earns a total contribution margin of:

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit.The company's fixed costs are $50,000.What is the break-even point measured in sales dollars?

The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost s

Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs.This approach to pricing is referred to as:

Once sales reach the break-even point,each additional unit sold will: