Question 1

The break-even point is when enough units are sold that total contribution margin equals total variable costs.

Accepted Answer

The break-even point is when enough units are sold that the total contribution margin equals total fixed costs, not variable costs.

Question 2

Brunswick Manufacturing has prepared the following income statement:
  According to company records,$50,000 of Cost of Goods Sold and $166,000 of Operating Expenses are fixed.
Required: 
A)Compute the contribution margin.
B)Compute the contribution margin ratio.
C)Compute the break-even volume in sales dollars.

Accepted Answer

The answer of Brunswick Manufacturing has prepared the following income...

Question 3

Which of the following is NOT an underlying assumption of cost-volume-profit analysis?
A)We can classify expenses into fixed and variable categories.
B)Sales mix will be constant.
C)Revenues and expenses are linear over the relevant range.
D)There will be changes in efficiency or productivity.

Accepted Answer

Cost-volume-profit analysis assumes that there will be no changes in efficiency or productivity. This means that the level of production will remain consistent and there will be no improvements or declines in the rate at which products are produced. The other options (A, B, and C) are all underlying assumptions of cost-volume-profit analysis.

Question 4

If the total amount of fixed costs increases,what is the effect on the break-even point? (Assume no other changes.)
A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point will be zero.

Accepted Answer

Fixed costs are costs which do not change with the level of production, such as rent or salaries. If the total amount of fixed costs increases, this means that the business needs to generate more revenue to cover those costs and reach the break-even point. Therefore, the break-even point increases.

Question 5

The vertical axis on the cost-volume-profit graph is the ________.
A)dollars of cost
B)sales volume in units
C)dollars of revenue
D)dollars of cost and revenue

Accepted Answer

The vertical axis on a cost-volume-profit graph represents both dollars of cost and revenue, as it shows the relationship between costs, sales volume, and revenue.

Question 6

At the break-even point,net income may be positive.

Accepted Answer

At the break-even point, total revenues and total expenses are equal. Therefore, the net income is zero, not positive.

Question 7

Explosion Company produces one type of product.Total fixed costs are $100,000.Unit variable costs are $6.00.The break-even point is 25,000 units.Planned unit sales are 30,000.
Required:
A)Compute the selling price per unit.
B)Compute the contribution-margin ratio.
C)Compute the break-even volume in dollars.

Accepted Answer

The answer of Explosion Company produces one type of product.Total...

Question 8

The following information is available for Donald Corporation:  If total fixed costs increased to $394,850,then the break-even volume in dollars would increase by ________.
A)10.0%
B)12.3%
C)18.4%
D)34.3%

Accepted Answer

To calculate the increase in the break-even volume in dollars, we need to use the formula: Break-even volume = Fixed costs / (1 - Variable cost percentage). Let's assume that the current break-even volume in dollars is BEV1. Then, we can write:

BEV1 = 394,850 / (1 - Variable cost percentage)

We don't know the variable cost percentage, but we don't need it to find the increase in the break-even volume in dollars. Instead, we can use the fact that the only thing that changed is the fixed costs. Let's call the new break-even volume in dollars BEV2. We have:

BEV2 = (394,850 + ΔFC) / (1 - Variable cost percentage)

where ΔFC is the increase in fixed costs. Now, we can divide BEV2 by BEV1 and simplify:

BEV2 / BEV1 = (394,850 + ΔFC) / 394,850
BEV2 / BEV1 = 1 + ΔFC / 394,850
ΔBEV / BEV1 = ΔFC / 394,850

Therefore, the percentage increase in the break-even volume in dollars is equal to the percentage increase in fixed costs divided by 394,850. In this case, ΔFC = 394,850 - original fixed costs, and we don't know the original fixed costs. However, we can still find the percentage increase in fixed costs based on the given information. Let's assume that the original fixed costs were FC1. We have:

FC1 / BEV1 = P/V
where P/V is the contribution margin ratio, which we don't know. However, we also have:

BEV1 = FC1 / (1 - P/V)

Combining these two equations, we can solve for P/V:

P/V = 1 - BEV1 / FC1

We don't know FC1 or P/V, but we can assume that they were constant before the increase in fixed costs. Therefore, we can write:

FC1 / BEV1 = FC2 / BEV2

where FC2 is the new fixed costs ($394,850). We can simplify this equation as follows:

BEV2 / BEV1 = FC1 / FC2
BEV2 = BEV1 * FC1 / FC2

Now, we can use the fact that BEV2 = BEV1 + ΔBEV:

BEV1 + ΔBEV = BEV1 * FC1 / FC2

Dividing both sides by BEV1, we get:

1 + ΔBEV / BEV1 = FC1 / FC2

Therefore, we can find the percentage increase in the break-even volume in dollars based on the ratio of the original and new fixed costs:

ΔBEV / BEV1 = (FC1 - FC2) / FC2

ΔBEV / BEV1 = (FC1 / FC2) - 1

ΔBEV / BEV1 = (BEV1 / FC1) * (FC1 / FC2) - 1

ΔBEV / BEV1 = (1 - P/V) * (FC1 / FC2) - 1

Using the information given in the problem, we can calculate that if the fixed costs were originally $350,000, then the break-even volume in dollars was:

BEV1 = 350,000 / (1 - P/V)

We don't need to know P/V to find the percentage increase in the break-even volume in dollars. We can simply substitute FC1 = $350,000 and FC2 = $394,850 in the above equation:

ΔBEV / BEV1 = (1 - P/V) * (350,000 / 394,850) - 1

ΔBEV / BEV1 = (1 - P/V) * 0.885 - 1

Now, we can use the answer choices to see which one gives us a percentage increase close to this value. Checking choice C, we have:

ΔBEV / BEV1 = 0.184

Plugging in the numbers, we get:

0.184 = (1 - P/V) * 0.885 - 1

Solving for 1 - P/V, we get:

1 - P/V = (0.184 + 1) / 0.885 = 1.208

This means that P/V = -0.208 or -20.8%, which doesn't make sense. Therefore, choice C is incorrect. Checking the other choices, we get:

A) ΔBEV / BEV1 = 0.100
1 - P/V = 1.100 / 0.885 = 1.242
P/V = -0.242 or -24.2%

B) ΔBEV / BEV1 = 0.123
1 - P/V = 1.123 / 0.885 = 1.268
P/V = -0.268 or -26.8%

D) ΔBEV / BEV1 = 0.343
1 - P/V = 1.343 / 0.885 = 1.517
P/V = -0.517 or -51.7%

Therefore, the best choice is B, which implies a 12.3% increase in the break-even volume in dollars.

Question 9

If the selling price per unit increases,what is the effect on the break-even point? (Assume no other changes.)
A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point is zero.

Accepted Answer

If the selling price per unit increases, the contribution margin per unit also increases. As the contribution margin increases, the break-even point decreases. This is because the company needs to sell fewer units to cover its fixed costs and start making a profit. Therefore, option B is the correct answer.

Question 10

The Eastman Family Restaurant is open 24 hours per day.Fixed costs are $24,000 per month.Variable costs are estimated at $9.60 per meal.The average revenue is $12 per meal.
Required:
A)Compute the break-even point in meals.
B)Compute the break-even volume in dollars.

Accepted Answer

The answer of The Eastman Family Restaurant is open 24...

Question 11

If the variable cost per unit increases,what is the effect on the break-even point? (Assume no other changes.)
A)The break-even point increases.
B)The break-even point decreases.
C)The break-even point remains the same.
D)The break-even point is zero.

Accepted Answer

If the variable cost per unit increases, the company will need to sell more units to cover its fixed costs and make a profit. As a result, the break-even point will increase.

Question 12

Assume ZZZ Company has the following information available:  If fixed costs increase $200,000,what is the break-even point in units?
A)11,273
B)12,000
C)13,000
D)none of the above

Accepted Answer

The answer of Assume ZZZ Company has the following information...

Question 13

Wildwood Corporation produces one product.Total fixed costs are $500,000.
The unit selling price is $68.50 and the unit variable cost is $50.95.
Required:
A)Compute the contribution margin per unit.
B)Compute the contribution-margin ratio.
C)Compute the break-even point in units.
D)Compute the break-even volume in dollars.

Accepted Answer

The answer of Wildwood Corporation produces one product.Total fixed costs...

Question 14

The horizontal axis on the cost-volume-profit graph is the ________.
A)dollars of cost
B)sales volume in units
C)dollars of revenue
D)net income

Accepted Answer

The horizontal axis on the cost-volume-profit graph is typically labeled as sales volume in units, as it represents the quantity of goods or services sold by a company. The other choices are not typically used as the horizontal axis in the cost-volume-profit graph.

Question 15

Assume ZZZ Company has the following information available:  If fixed costs increase $200,000,what is the expected operating income?
A)$280,000
B)$480,000
C)$680,000
D)$1,380,000

Accepted Answer

The answer of Assume ZZZ Company has the following information...

Question 16

What action will decrease a company's break-even point?
A)reducing total fixed costs
B)decreasing contribution margin per unit
C)increasing variable cost per unit
D)decreasing the selling price per unit

Accepted Answer

The break-even point is the point at which a company's revenue equals its total costs. By reducing total fixed costs, the company's total costs will decrease, and therefore the break-even point will decrease as well. This means the company will need to sell fewer units or generate less revenue to cover its costs and start making a profit.

Question 17

Southwest Hospital has fixed costs of $100 million per year.Variable costs represent approximately 80% of the total revenue.There are 50,000 patient-days estimated for next year.
Required:
A)What is the break-even point expressed in total revenue?
B)What is the average daily revenue per patient necessary to break even?

Accepted Answer

The answer of Southwest Hospital has fixed costs of $100...

Question 18

The break-even point is the level of sales at which revenue equals fixed costs.

Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs, including both fixed and variable costs.

Question 19

Frances Company produces only one product.The selling price is $95 per unit and the variable cost is $65 per unit.Total fixed costs are $130,000.
Required:
A)Compute break-even point in units.
B)Compute break-even volume in dollars.

Accepted Answer

The answer of Frances Company produces only one product.The selling...

Question 20

The equation for the income statement is:
Sales - Variable Expenses- Fixed Expenses = Net Income

Accepted Answer

This is the correct equation for the income statement.

Quiz 2: Introduction to Cost Behavior and Cost-Volume Relationships

The break-even point is when enough units are sold that total contribution margin equals total variable costs.

Which of the following is NOT an underlying assumption of cost-volume-profit analysis?

If the total amount of fixed costs increases,what is the effect on the break-even point? (Assume no other changes.)

The vertical axis on the cost-volume-profit graph is the ________.

At the break-even point,net income may be positive.

The following information is available for Donald Corporation: If total fixed costs increased to $394,850,then the break-even volume in dollars would increase by ________.

If the selling price per unit increases,what is the effect on the break-even point? (Assume no other changes.)

The Eastman Family Restaurant is open 24 hours per day.Fixed costs are $24,000 per month.Variable costs are estimated at $9.60 per meal.The average revenue is $12 per meal. Required: A)Compute the break-even point in meals. B)Compute the break-even volume in dollars.

If the variable cost per unit increases,what is the effect on the break-even point? (Assume no other changes.)

Assume ZZZ Company has the following information available: If fixed costs increase $200,000,what is the break-even point in units?

The horizontal axis on the cost-volume-profit graph is the ________.

Assume ZZZ Company has the following information available: If fixed costs increase $200,000,what is the expected operating income?

What action will decrease a company's break-even point?

The break-even point is the level of sales at which revenue equals fixed costs.

Frances Company produces only one product.The selling price is $95 per unit and the variable cost is $65 per unit.Total fixed costs are $130,000. Required: A)Compute break-even point in units. B)Compute break-even volume in dollars.

The equation for the income statement is: Sales - Variable Expenses- Fixed Expenses = Net Income