Question 1

On a CVP graph,total fixed costs are shown as a vertical line.

Accepted Answer

On a CVP (Cost-Volume-Profit) graph, total fixed costs are represented as a horizontal line, not a vertical one, because fixed costs do not change with the level of output.

Question 2

To find the break-even point using the shortcut formulas,you use zero for the

Accepted Answer

The break-even point is found by setting the operating income to zero in the shortcut formulas, as this is the point where total revenues equal total expenses, resulting in no profit or loss.

Question 3

Which of the following is TRUE when using the income statement approach to finding break-even?

Accepted Answer

The income statement approach to finding break-even involves subtracting the total variable expenses and fixed expenses from the sales revenue to find the operating income. This is represented by the formula Sales revenue - variable expenses - fixed expenses = operating income, which is option A.

Question 4

Sales below the break-even point indicate a ________,whereas sales above the break-even point indicate a ________.

Accepted Answer

Sales below the break-even point means that the company is not covering its costs and is operating at a loss. Sales above the break-even point indicate that the company is generating profits. Therefore, option B, where sales below the break-even point indicate a loss and sales above the break-even point indicate a profit, is the correct choice.

Question 5

A company that sells thousands of different products would be more likely to calculate break-even in terms of sales units,rather than sales revenue.

Accepted Answer

Calculating break-even in terms of sales revenue is often more practical for a company with thousands of different products, as it simplifies the analysis by not requiring a break-even calculation for each individual product.

Question 6

Fixed costs of $10,000 divided by the contribution margin ratio of 40% would yield the dollar amount of break-even sales as $25,000.

Accepted Answer

Break-even sales = Fixed costs / Contribution margin ratio
Break-even sales = $10,000 / 0.4
Break-even sales = $25,000

Question 7

The formula used to find the sales revenue (sales in dollars)needed in order to break-even or generate a target profit is

Accepted Answer

The correct formula to find the sales revenue needed to break even or generate a target profit is (fixed expenses + operating income) ÷ contribution margin ratio. This formula accounts for the total fixed costs and the desired operating income, divided by the contribution margin ratio (contribution margin per unit divided by sales price per unit), to determine the sales revenue needed.

Question 8

The break-even point can either be calculated in terms of number of units or in terms of sales revenue.

Accepted Answer

This statement is true. The break-even point can be calculated using either number of units or sales revenue.

Question 9

Roller Corp sells wagon wheels for $150.The variable costs for each wheel are $85,while the total fixed costs are $60,000.The contribution margin for 500 wheels is

Accepted Answer

The contribution margin per wheel is calculated as the selling price minus the variable cost, which is $150 - $85 = $65. For 500 wheels, the total contribution margin is 500 * $65 = $32,500.

Question 10

Only the unit contribution margin approach may be used to calculate the break-even point.

Accepted Answer

There are multiple approaches to calculating the break-even point, including the equation method and the contribution margin ratio method.

Question 11

The break-even point may be defined as the number of units a company must sell to do which of the following?

Accepted Answer

The break-even point is the point at which total costs equal total revenue, meaning there is no profit or loss, hence generating a zero profit.

Question 12

The break-even point on a CVP graph is the point where the fixed expenses line intersects the total expense costs line.

Accepted Answer

The break-even point on a CVP (Cost-Volume-Profit) graph is where the total revenue line intersects the total expense line, indicating where a business neither makes a profit nor incurs a loss.

Question 13

Wiser Group sells a single product for $30 per unit.The variable costs for each unit are $7.50,while the total fixed costs are $4,500.If a 10% sales commission is introduced what is the new Contribution Margin Ratio?

Accepted Answer

Contribution Margin= Selling price per unit - Variable cost per unit 
Contribution Margin Ratio= Contribution Margin/ Selling price per unit

Initial Contribution Margin Ratio= (30-7.5)/30 = 0.75 or 75%

With the introduction of a 10% sales commission, the new selling price per unit would be $33 (i.e. $30 + 10% of $30).

New Contribution Margin= 33-7.5 = 25.5 
New Contribution Margin Ratio= 25.5/33 = 0.7727 or 77.27%

Therefore, the new Contribution Margin Ratio is 77.27%, which is higher than the initial ratio of 75%. Thus, the answer is B) 65%.

Question 14

The break-even point represents the minimum number of units a company must sell before it earns a profit.

Accepted Answer

The break-even point is the level of sales at which a company's revenues and expenses are equal - meaning that the company is not making a profit or a loss. Once the company sells more than the break-even point, it will start earning a profit.

Question 15

During the past year,Pettay Enterprises had the following fixed costs:
  
The company also had the following variable costs:
  
During the year,the company produced and sold 60,000 units of the product at a selling price of $7.00 per unit.The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Accepted Answer

The answer of During the past year,Pettay Enterprises had the...

Question 16

The formula used to find the number of units that need to be sold in order to break-even or generate a target profit is

Accepted Answer

The formula for finding the number of units that need to be sold in order to break-even or generate a target profit is (fixed expenses + operating income) ÷ contribution margin per unit. Choice B correctly uses this formula, while the other choices either use the wrong formula or provide incorrect information about the variables involved.

Question 17

When calculating the break-even point in terms of sales revenue,fixed costs should be divided by the contribution margin ratio.

Accepted Answer

This is because the break-even point is where the total contribution margin equals the fixed costs. Therefore, to calculate the break-even point in terms of sales revenue, we divide fixed costs by the contribution margin ratio (which is the contribution margin as a percentage of sales).

Question 18

On a CVP graph,the total cost line intersects the total revenue line at which of the following points?

Accepted Answer

The break-even point is the point where the total revenue line intersects with the total cost line, indicating that the company has neither made any profit nor incurred any loss. Therefore, option C is the correct answer. The level of fixed costs (option A) would only be the point where the total cost line starts, and the level of variable costs (option B) would be a point along the total cost line, but not the point of intersection with the total revenue line. Option D is incorrect because there has to be a point of intersection between the total cost and total revenue lines.

Question 19

When calculating the break-even point in terms of units,fixed costs should be divided by the contribution margin ratio.

Accepted Answer

When calculating the break-even point in terms of units, fixed costs should be divided by the contribution margin per unit, not the contribution margin ratio.

Question 20

On a CVP graph,the vertical distance between the total expense line and the total fixed cost line equals the operating income or operating loss.

Accepted Answer

The vertical distance between the total expense line and the total fixed cost line on a CVP graph represents the total variable cost, not the operating income or operating loss. Operating income or loss is determined by the difference between the total sales revenue line and the total expense line at a given level of activity.

Quiz 7: Cost-Volume-Profit Analysis