Question 1

The breakeven point can either be calculated in terms of number of units or in terms of sales revenue.

Accepted Answer

The statement is true.

Question 2

Which of the following is NOT an approach used to calculate the breakeven point?

Accepted Answer

The balance sheet approach is not used to calculate the breakeven point. The income statement approach, the shortcut approach using the unit contribution margin, and the shortcut approach using the contribution margin ratio are all commonly used approaches to calculate the breakeven point.

Question 3

Sales below the breakeven point indicate a _____________,whereas sales above the breakeven point indicate a ___________.

Accepted Answer

Sales below the breakeven point indicate a loss, while sales above the breakeven point indicate a profit. Therefore, option B is the only logical choice.

Question 4

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

Accepted Answer

The formula for calculating the breakeven point in units is (fixed expenses + operating income) ÷ contribution margin per unit. This formula represents the number of units that need to be sold to cover all fixed and variable costs and generate zero profit. If a target profit is given, the formula can be adjusted by adding the target profit to the fixed expenses and then dividing by the contribution margin per unit to determine the number of units that need to be sold to achieve the target profit.

Question 5

The Sweet Factory produces and sells specialty fudge.The selling price per pound is $20,variable costs are $12 per pound,and total fixed costs are $6,000.How many pounds of fudge must The Sweet Factory sell to breakeven?

Accepted Answer

To find the breakeven point in pounds, use the formula: Breakeven point (in units) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, it is $6,000 / ($20 - $12) = 750 pounds.

Question 6

Which of the following is an underlying assumption of the cost-volume-profit graph?

Accepted Answer

The cost-volume-profit graph assumes that volume is the only cost driver, meaning that changes in volume (i.e. the number of units sold) are the primary factor that impacts the company's revenue and expenses. The graph is based on the assumption that all other variables, such as fixed expenses and sales mix, remain constant.

Question 7

The Sweet Factory produces and sells specialty fudge.The selling price per pound is $20,variable costs are $12 per pound,and total fixed costs are $6,000.What are breakeven sales in dollars?

Accepted Answer

The breakeven point in sales dollars is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin per pound is $20 - $12 = $8. The contribution margin ratio is $8 / $20 = 0.4. Therefore, breakeven sales in dollars = $6,000 / 0.4 = $15,000.

Question 8

If the sale price per unit is $12,the unit contribution margin is $5,and total fixed expenses are $21,000,what are the breakeven sales in units?

Accepted Answer

Breakeven point (in units) = Fixed Expenses / Unit Contribution Margin
= $21,000 / $5
= 4,200 units

Question 9

The area to the right of the break-even point and between the total revenue line and total expense line represents:

Accepted Answer

The area to the right of the break-even point and between the total revenue line and total expense line represents expected profits. This is because once the company crosses its break-even point, it will start earning profits, and this area indicates those profits.

Question 10

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

Accepted Answer

The breakeven point is where total revenues equal total costs, resulting in zero profit.

Question 11

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

Accepted Answer

The breakeven point is the point where the total revenue equals the total cost, meaning there are no profits or losses. Therefore, the total cost line intersects the total revenue line at the breakeven point. Option A, the level of fixed costs, does not make sense as it is just a point on the graph, not a point of intersection. Option B is also incorrect as variable costs are just a component of total costs and do not determine the point of intersection. Hence option C is the correct choice.

Question 12

On a CVP graph,the horizontal line intersecting the vertical y-axis at the level of total cost represents:

Accepted Answer

The horizontal line intersecting the vertical y-axis at the level of total cost represents total fixed costs on a CVP graph. This is because fixed costs remain constant regardless of the level of production or sales. The total cost line slopes upward from this point indicating the increase in total cost as production increases due to variable costs. The breakeven point is the point at which total revenue equals total cost, which is located where the total revenue line crosses the total cost line on the graph.

Question 13

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

Accepted Answer

The breakeven point in units is calculated by dividing fixed costs by the contribution margin per unit, not the contribution margin ratio.

Question 14

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

Accepted Answer

The breakeven sales equation is: 
Breakeven sales = Fixed costs ÷ Contribution Margin Ratio 
Substituting the given values: 
Breakeven sales = $10,000 ÷ 0.40 
Breakeven sales = $25,000 
Therefore, the statement is true.

Question 15

On a CVP graph,the line that begins at the origin represents:

Accepted Answer

The line that begins at the origin on a CVP graph represents total sales revenues, as it shows the relationship between the quantity of products sold and the corresponding revenue generated, assuming no variable or fixed costs are taken into account. The other choices (A, B, and D) would start at a non-zero point on the graph, as they represent costs or expenses, which would still be incurred even if no sales were made.

Question 16

On a CVP graph,the intersection of the sales revenue line and the variable expense line is known as:

Accepted Answer

The answer of  On a CVP graph,the intersection of...

Question 17

Which of the following is TRUE when using the income statement approach to finding breakeven?

Accepted Answer

The income statement approach to finding breakeven involves setting operating income to zero, so the equation is sales revenue minus variable expenses minus fixed expenses equals operating income.

Question 18

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

Accepted Answer

The formula to find the sales revenue needed to breakeven or achieve a target profit is (fixed expenses + operating income) divided by the contribution margin ratio.

Question 19

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

Accepted Answer

This is correct. The breakeven point represents the point at which the company's revenue is equal to its total costs. The contribution margin ratio is a measure of how much each sale contributes to covering the company's fixed costs and generating profit. To calculate the breakeven point in terms of sales revenue, therefore, we need to divide the fixed costs by the contribution margin ratio.

Question 20

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

Accepted Answer

A company with thousands of products would likely calculate breakeven in terms of sales revenue because it is more practical and provides a comprehensive view of overall financial performance.

Quiz 7: Cost-Volume-Profit Analysis