Question 1

Arturo Company's model A generator sells for $456, and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo sells more of model B than model A, it will generate lower revenues, but higher net income.

Accepted Answer

Calculations:
$456 - $404 = $52
$390 - $320 = $70

Question 2

Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. How many scarves does she need to sell to break even?

Accepted Answer

B) Calculations: $30/($25 - $15) = 3

Question 3

Both the income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.

Accepted Answer

Both the income statement approach and the contribution margin approach use the same formula to calculate the breakeven point, which is total fixed costs divided by the contribution margin per unit. Therefore, they will yield the same answer.

Question 4

Dalian Company provides the following information:
$$\begin{array} { l l } 
\text { Price per unit: } & \$ 20 \
\text { Variable cost per unit: } & \$ 8 \
\text { Fixed costs per month: } & \$ 15,000
\end{array}$$
-
How much is the contribution margin per unit?

Accepted Answer

The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. Therefore, $20 - $8 = $12.

Question 5

Dalian Company provides the following information:
$$\begin{array} { l l } 
\text { Price per unit: } & \$ 20 \
\text { Variable cost per unit: } & \$ 8 \
\text { Fixed costs per month: } & \$ 15,000
\end{array}$$
-
What is the breakeven point in terms of sales revenues?

Accepted Answer

The answer of Dalian Company provides the following information:
\[\begin{array} {...

Question 6

Breakeven is the point where the sales revenues are exactly equal to the fixed costs.

Accepted Answer

Breakeven is the point where total sales revenues equal total costs (both fixed and variable), not just fixed costs.

Question 7

If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60.

Accepted Answer

Calculation: $11.40 - $3.80 = $7.60

Question 8

Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed costs.

Accepted Answer

This is the definition given in most business contexts. At the breakeven point, the company has neither made a profit nor a loss.

Question 9

Arturo Company's model A generator sells for $456 and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo Company's sales incentives reward sales of the goods with highest contribution margin, the sales force will be motivated to push sales of model A more aggressively than model B.

Accepted Answer

Calculations:
$456 - $404 = $52
$390 - $320 = $70

Question 10

The breakeven point represents the sales volume at which the company's net income is zero.

Accepted Answer

The breakeven point is the point where total sales revenue equals total costs (both fixed and variable costs), resulting in zero net income.

Question 11

CVP analysis assumes that the ONLY factor that affects costs is change in volume.

Accepted Answer

CVP analysis assumes that costs are directly proportional to changes in volume, and that all other factors remain constant.

Question 12

If all other factors are constant, an increase in fixed costs will increase the breakeven point.

Accepted Answer

Fixed costs are those costs that do not vary with the production levels or sales volume. These costs are incurred irrespective of how much product or service is produced or sold. Therefore, an increase in fixed costs will increase the total costs, and as a result, the breakeven point will also increase. This implies that a business will have to produce and sell more units to cover its fixed costs and start generating profits.

Question 13

Dalian Company provides the following information:
$$\begin{array} { l l } 
\text { Price per unit: } & \$ 20 \
\text { Variable cost per unit: } & \$ 8 \
\text { Fixed costs per month: } & \$ 15,000
\end{array}$$
-
How much is the contribution margin ratio?

Accepted Answer

The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit, which is $20 - $8 = $12. The contribution margin ratio is then the contribution margin per unit divided by the selling price per unit: $12 / $20 = 0.60 or 60%.

Question 14

Fixed costs divided by the contribution margin per unit equals the breakeven point in unit sales.

Accepted Answer

This is the correct formula to calculate the breakeven point in unit sales, where fixed costs are divided by the contribution margin per unit. The contribution margin is the difference between the unit selling price and the variable cost per unit.

Question 15

Dalian Company provides the following information:
$$\begin{array} { l l } 
\text { Price per unit: } & \$ 20 \
\text { Variable cost per unit: } & \$ 8 \
\text { Fixed costs per month: } & \$ 15,000
\end{array}$$
-
What is the breakeven point in terms of units sold?

Accepted Answer

The breakeven point in units is calculated by dividing the total fixed costs by the contribution margin per unit (Price per unit - Variable cost per unit). Here, it is $15,000 / ($20 - $8) = 1,250$ units.

Question 16

Some companies use contribution margin rather than sales revenues as the basis of incentives for motivating sales persons because it will lead them to sell more of the higher margin goods.

Accepted Answer

Contribution margin is the amount that remains after deducting variable costs from sales revenues. By using contribution margin as the basis of incentives, salespersons are incentivized to sell products with higher contribution margins, which will increase profitability for the company. Therefore, the given statement is true.

Question 17

Reevis Company has fixed costs of $7,500. Their contribution margin ratio is 20%. What is the break-even point in sales dollars?

Accepted Answer

B) Calculations: $7,500/20% = $37,500

Question 18

Paula sells hand-knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. What total revenue amount does she need to earn to break even?

Accepted Answer

B) Calculations:
$30/($25 - $15) = 3
3 × $25 = $75

Question 19

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Accepted Answer

This formula is used to calculate the breakeven point in sales dollars.

Question 20

Contribution margin is defined as the sales revenue minus the fixed costs.

Accepted Answer

Contribution margin is defined as the sales revenue minus the variable costs, NOT the fixed costs.

Quiz 19: Cost-Volume-Profit Analysis