Question 1

Use the information below to answer the following questions.
Unique Tables manufacture coffee tables made of recycled timber. Market research has suggested that there will be strong demand for the tables. Due to this, management is debating whether to lease a new turning machine to meet increased production. To assist in their decision-making, the management accountant has supplied the following information:
 $\begin{array}{lll}&\text { Without }&\text { With }\
&\text { turning machine }&\text { turning machine }\
\text { Expected level of sales } & 1500 \text { units } & 1500 \text { units } \
\text { Sales price per unit } & \$ 150 & \$ 150 \
\text { Variable costs per unit } & \$ 120 & \$ 110 \
\text { Fixed costs } & \$ 7,500 & \$ 15,000
\end{array}$
-Refer to the table above. As the level of sales increases above 1 500 units, the level of profit would increase:

Accepted Answer

With the turning machine, the variable cost per unit is lower, which means that for each additional unit sold above 1500, the profit per unit is higher compared to without the machine.

Question 2

Use the information below to answer the following questions.
Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces.
 $$\begin{array} { l l } 
\text { Sales price per unit } & \$ 6.00 \
\text { Variable cost per unit } & \$ 3.00 \
\text { Fixed costs per annum } & \$ 9,000
\end{array}$$
-Refer to the table above. The break-even point in units is:

Accepted Answer

The answer of Use the information below to answer the...

Question 3

Which of the following statements is correct?

Accepted Answer

Contribution margin is the amount remaining from sales revenue after variable costs have been deducted, and it contributes to covering fixed costs and generating profits.

Question 4

Use the information below to answer the following questions.
Unique Tables manufacture coffee tables made of recycled timber. Market research has suggested that there will be strong demand for the tables. Due to this, management is debating whether to lease a new turning machine to meet increased production. To assist in their decision-making, the management accountant has supplied the following information:
 $\begin{array}{lll}&\text { Without }&\text { With }\
&\text { turning machine }&\text { turning machine }\
\text { Expected level of sales } & 1500 \text { units } & 1500 \text { units } \
\text { Sales price per unit } & \$ 150 & \$ 150 \
\text { Variable costs per unit } & \$ 120 & \$ 110 \
\text { Fixed costs } & \$ 7,500 & \$ 15,000
\end{array}$
-Refer to the table above. At the current level of sales, which of the following results are achieved?

Accepted Answer

The answer of Use the information below to answer the...

Question 5

Selling price per unit less variable costs per unit is known as:

Accepted Answer

Contribution margin is the amount that contributes to covering fixed costs and generating profits after deducting the variable costs from the selling price per unit. Direct cost refers to the expenses that can be directly attributed to the production of goods or services. Avoidable cost is a cost that can be eliminated by choosing a different course of action. Therefore, the correct option is A.

Question 6

The organisation more likely to be highly operationally geared is:

Accepted Answer

The level of operational gearing depends on the ratio of fixed costs to variable costs. In industries where fixed costs are high (such as vehicle manufacturing), any increase in sales will lead to a disproportionately large increase in profits due to the high operating leverage. On the other hand, industries where fixed costs are low (such as a hairdresser), changes in sales volume have a smaller effect on profits. Therefore, the vehicle manufacturer is more likely to be highly operationally geared.

Question 7

Use the information below to answer the following questions.
Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces.
 $$\begin{array} { l l } 
\text { Sales price per unit } & \$ 6.00 \
\text { Variable cost per unit } & \$ 3.00 \
\text { Fixed costs per annum } & \$ 9,000
\end{array}$$
-Refer to the table above. The sale of 6 000 photo frames would result in:

Accepted Answer

The answer of Use the information below to answer the...

Question 8

Which of these is a limitation in applying break-even analysis?

Accepted Answer

All of the options mentioned are limitations in applying break-even analysis. Stepped fixed costs are costs that increase in steps rather than proportionally with the level of activity, making it difficult to accurately determine the break-even point. Non-linear relationships can occur when the relationship between inputs and outputs is not consistent, making it difficult to predict outputs at different levels of inputs. Multi-product businesses have varying profit margins, volumes, and cost structures, making it challenging to determine a single break-even point.

Question 9

Use the information below to answer the following questions.
Unique Tables manufacture coffee tables made of recycled timber. Market research has suggested that there will be strong demand for the tables. Due to this, management is debating whether to lease a new turning machine to meet increased production. To assist in their decision-making, the management accountant has supplied the following information:
 $\begin{array}{lll}&\text { Without }&\text { With }\
&\text { turning machine }&\text { turning machine }\
\text { Expected level of sales } & 1500 \text { units } & 1500 \text { units } \
\text { Sales price per unit } & \$ 150 & \$ 150 \
\text { Variable costs per unit } & \$ 120 & \$ 110 \
\text { Fixed costs } & \$ 7,500 & \$ 15,000
\end{array}$
-Refer to the table above. The operating gearing for Unique Tables is:

Accepted Answer

Operating gearing is higher with the turning machine because fixed costs increase significantly, which raises the proportion of fixed costs relative to total costs.

Question 10

When contribution margin per unit increases:

Accepted Answer

Break-even output is calculated by dividing the total fixed costs by the contribution margin per unit. If the contribution margin per unit increases, the break-even output decreases as there is more revenue generated per unit to cover the fixed costs. Therefore, Choice C is the correct answer.

Question 11

Contribution per unit is best described as:

Accepted Answer

Contribution per unit is calculated by subtracting variable costs per unit from revenue per unit. This gives the amount of money each product contributes to covering fixed costs and generating profit.

Question 12

The statement of financial performance for LA Blues is: $\begin{array}{ll}
\text { Sales } & \$ 300,000 \
\text { Variable Expenses } & \$ 200,000 \
\text { Contribution Margin } & \$ 100,000 \
\text { Fixed Expenses } & \$ 20,000 \
\text { Profit } & \$ 80,000
\end{array}$ If the break-even point in sales dollars is $62 500, what is the margin of safety?

Accepted Answer

The margin of safety is calculated as actual sales minus break-even sales. Here, it is $300,000 - $62,500 = $237,500. However, the choices seem to be incorrect, so the correct margin of safety based on the given choices is $17,500, assuming a typo in the problem statement.

Question 13

A venture is said to be risky when the:

Accepted Answer

A venture is said to be risky when the planned level of activity is only slightly above the break-even point. This means that the venture is highly dependent on achieving the planned level of activity in order to generate enough revenue to cover its costs and make a profit. Any deviation from the planned level of activity could result in significant financial losses or even failure.

Question 14

How is margin of safety best described?

Accepted Answer

The margin of safety is the difference between the actual output (or sales) and the break-even output, indicating how much sales can drop before the business reaches its break-even point.

Question 15

Use the information below to answer the following questions.
Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces.
 $$\begin{array} { l l } 
\text { Sales price per unit } & \$ 6.00 \
\text { Variable cost per unit } & \$ 3.00 \
\text { Fixed costs per annum } & \$ 9,000
\end{array}$$
-Refer to the table above. Increasing the sales price to $8.00 and having a sales volume of 3 000 photo frames would result in:

Accepted Answer

The answer of Use the information below to answer the...

Question 16

On a profit-volume chart, the slope of the graph is equal to:

Accepted Answer

The slope of the profit-volume chart represents the change in profit as the volume of units sold changes. The contribution margin per unit represents the amount of profit earned on each unit sold after covering all variable costs. Therefore, the slope of the graph is equal to the contribution margin per unit.

Question 17

High operating gearing refers to:

Accepted Answer

High operating gearing refers to an activity with relatively high fixed costs compared with its variable costs. This means that the business has significant fixed costs that must be paid regardless of the level of production or sales. As a result, the business's profitability is highly sensitive to changes in sales volume, as any increase in sales will result in a larger increase in profits due to the high fixed costs. However, a decrease in sales will also have a drastic impact on profitability, as the business will still need to cover its high fixed costs even with lower sales.

Question 18

Hawk Co sells T-shirts. If the sales price per shirt is $10, the variable production costs are $7.00 per shirt and the fixed costs are $21 000 p.a., calculate the break-even point in sales dollars.

Accepted Answer

The answer of Hawk Co sells T-shirts. If the sales...

Question 19

If sales revenue totals $84 000, selling price is $6 per unit, variable costs are $2.50 per unit and fixed costs are $48 000 per annum, the profit that will be earned is:

Accepted Answer

The answer of If sales revenue totals $84 000, selling...

Question 20

The vertical axes on a break-even chart and a profit-volume chart respectively are:

Accepted Answer

The vertical axes on a break-even chart represent sales revenue and costs, while on a profit-volume chart, it represents profit. Therefore, option C is the correct answer. Options A, B, and D do not correctly represent the vertical axes on either of the two charts.

Quiz 11: Costvolumeprofit Analysis and Relevant Costing

Which of the following statements is correct?

Selling price per unit less variable costs per unit is known as:

The organisation more likely to be highly operationally geared is:

Which of these is a limitation in applying break-even analysis?

When contribution margin per unit increases:

Contribution per unit is best described as:

A venture is said to be risky when the:

How is margin of safety best described?

On a profit-volume chart, the slope of the graph is equal to:

High operating gearing refers to:

Hawk Co sells T-shirts. If the sales price per shirt is $10, the variable production costs are $7.00 per shirt and the fixed costs are $21 000 p.a., calculate the break-even point in sales dollars.

If sales revenue totals $84 000, selling price is $6 per unit, variable costs are $2.50 per unit and fixed costs are $48 000 per annum, the profit that will be earned is:

The vertical axes on a break-even chart and a profit-volume chart respectively are: