Question 1

Which of the following statements about a cost-volume-profit graph is correct?
A)A cost-volume-profit graph is prepared with activity (number of units) on the vertical axis.
B)The intersection of the total sales line and the total cost line represents the break-even point.
C)The area above the break-even point represents the area of loss.
D)The total cost line intersects the vertical axis at the dollar amount of total variable costs.

Accepted Answer

The break-even point is the point at which total sales revenue is equal to total costs, so the intersection of the total sales line and the total cost line on a cost-volume-profit graph represents the break-even point.

Question 2

Ng Company sells one product that has a sales price of $20 per unit, variable costs of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?
A)$250,000
B)$750,000
C)$1,000,000
D)$666,667

Accepted Answer

The answer of Ng Company sells one product that has...

Question 3

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

Accepted Answer

Contribution margin ratio is a calculation of the contribution margin as a percentage of net sales. It is not affected by changes in fixed costs. Therefore, the contribution margin ratio will remain the same at various levels of sales, even if total fixed costs are altered.

Question 4

Jensen Company has a contribution margin ratio of 45%. This means that its variable costs are 55% of sales.

Accepted Answer

The contribution margin ratio is calculated as (sales - variable costs) / sales. If the contribution margin ratio is 45%, it means that the variable costs are 55% of sales (100% - 45% = 55%).

Question 5

Which of the following statements regarding cost-volume-profit analysis is incorrect?
A)Cost-volume-profit analysis assumes that fixed cost per unit is constant.
B)Cost-volume-profit analysis assumes that the selling price cost per unit is constant.
C)An increase in inventory during a period will affect cost-volume-profit relationships.
D)Although cost-volume-profit analysis is based on assumptions that seldom will be perfectly achieved, the technique is still useful to managers.

Accepted Answer

Cost-volume-profit analysis assumes that the fixed cost in total is constant, not per unit. Fixed cost per unit changes with the level of activity or volume of production.

Question 6

Joseph Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the variable cost per unit decreases by $8, how many units must Joseph Company sell to break-even?
A)2,778 units
B)2,500 units
C)6,250 units
D)4,167 units

Accepted Answer

The original contribution margin per unit is the selling price minus the variable cost per unit. At the break-even point, total sales equal total costs. With 5,000 units to break even, the total sales revenue at break-even is $200,000 (fixed costs) + $400,000 (variable costs, which is 5,000 units * $80 per unit) = $600,000. The selling price per unit can be calculated as $600,000 / 5,000 units = $120. If the variable cost decreases by $8, the new variable cost per unit is $72. The new contribution margin per unit is $120 - $72 = $48. To find the new break-even point in units, divide the total fixed costs by the new contribution margin per unit: $200,000 / $48 = 4,166.67, which rounds to 4,167 units.

Question 7

Bloom Company has variable cost per unit of $20 and a sales price of $35 per unit. Its total fixed costs are $240,000. Which of the following is a correct statement?
A)Company D's break-even point is 12,000 units.
B)If budgeted sales are 25,000 units, D's margin of safety is 10,000 units.
C)If Company D's variable cost per unit increases and nothing else changes, the margin of safety will decrease.
D)If Company D's variable cost per unit decreases and nothing else changes, the break-even point will stay the same.

Accepted Answer

C) When variable costs per unit increase, the contribution margin per unit decreases, which means the company must sell more units to cover its fixed costs and reach the break-even point. This reduces the margin of safety, which is the difference between actual or budgeted sales and the break-even sales volume.

Question 8

For a company using target costing, market price minus profit equals target price.

Accepted Answer

The answer of For a company using target costing, market...

Question 9

At the break-even point:
A)Sales would be equal to total costs.
B)Contribution margin would be equal to total fixed costs.
C)Sales would be equal to fixed costs.
D)Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

Accepted Answer

At the break-even point, the company's total revenue would be equal to its total costs (including fixed costs and variable costs), so Choice A is correct. Additionally, the contribution margin (sales revenue minus variable costs) would be equal to the total fixed costs, because there is no profit or loss at the break-even point. Therefore, Choice B is also correct.

Question 10

Sharon Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the sales price per unit is increased by $10, how many units must Sharon Company sell to break-even?
A)4,000 units
B)5,000 units
C)6,000 units
D)3,000 units

Accepted Answer

The original sales price per unit can be calculated using the break-even formula: Break-even point in units = Total fixed costs / (Sales price per unit - Variable cost per unit). With a break-even point of 5,000 units, we can set up the equation 5,000 = $200,000 / (P - $80), where P is the original sales price per unit. Solving for P gives us P = $120. Increasing the sales price by $10 results in a new price of $130 per unit. The new break-even point is then calculated as $200,000 / ($130 - $80) = $200,000 / $50 = 4,000 units.

Question 11

Adams Company sells a product whose contribution margin is $10 and selling price is $25. If the company's break-even point is 100 units, its total fixed costs must be $500.

Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit. If the break-even point is 100 units and the contribution margin per unit is $10, then the total fixed costs are $1,000 (100 units * $10 per unit).

Question 12

Select the correct statement regarding the contribution margin ratio.
A)The contribution margin ratio can be calculated using either total amounts or per unit amounts.
B)The contribution margin ratio equals contribution margin per unit divided by variable cost per unit.
C)Total fixed costs divided by the contribution margin ratio equals the break-even point in units.
D)An increase in variable cost per unit will cause the contribution margin ratio to increase.

Accepted Answer

The contribution margin ratio can be calculated using either total contribution margin divided by total sales or per unit contribution margin divided by per unit sales price, making statement A correct.

Question 13

Select the incorrect statement regarding cost-volume-profit relationships for multiple products.
A)For a company that sells many different products, the level of the break-even point is affected by the company's sales mix.
B)An increase in sales volume accompanied by a change in sales mix could cause a company's profits to decrease.
C)For a multi-product company, cost-volume-profit analysis can be done using the contribution margin ratio of the most profitable product.
D)None of these answers is correct.

Accepted Answer

Using only the contribution margin ratio of the most profitable product for cost-volume-profit analysis is not accurate as it does not take into account the varying contribution margins of the other products. Therefore, statement C is incorrect. Statements A, B, and D are all correct.

Question 14

When computing the break-even point in units, a company should round to the next whole unit because partial units ordinarily are not sold.

Accepted Answer

The break-even point in units represents the number of units that a company needs to sell in order to cover its total costs and start making a profit. Since companies usually sell products in whole units, it makes sense to round up to the next whole unit when calculating the break-even point. This ensures that the company covers all of its costs and does not fall short by selling only partial units. Therefore, the statement is true.

Question 15

Rose Corporation sells backpacks. Variable costs for this product are $30 per unit, and the sales price per unit is $50 per unit. Total fixed costs amount to $100,000. How many backpacks does Rose need to sell to achieve a desired profit of $60,000?
A)2,000 units
B)5,000 units
C)5,333 units
D)8,000 units

Accepted Answer

The answer of Rose Corporation sells backpacks. Variable costs for...

Question 16

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?
A)3,125 units
B)18,750 units
C)15,625 units
D)12,500 units

Accepted Answer

The answer of Falls Company has a contribution margin of...

Question 17

Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales.

Accepted Answer

A contribution margin ratio of 60% means that 60% of sales revenue is available to cover fixed costs and contribute to profit, after variable costs have been deducted. Therefore, variable costs would be 40% of sales.

Question 18

Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000, what is the contribution margin ratio?
A)40%
B)60%
C)50%
D)66%

Accepted Answer

Contribution margin per unit = Sales price per unit - Variable cost per unit 
Contribution margin per unit = $20 - $8 = $12
Contribution margin ratio = (Contribution margin per unit / Sales price per unit) x 100% 
Contribution margin ratio = ($12 / $20) x 100% = 60% 
Therefore, the contribution margin ratio is 60%. Choice B is the correct answer.

Question 19

Select the correct statement regarding break-even point analysis.
A)The break-even point in sales dollars equals total fixed costs divided by contribution margin per unit.
B)An increase in fixed costs causes the break-even point to increase.
C)An increase in contribution margin per unit causes the break-even point in units to increase.
D)A decrease in the variable cost per unit causes the break-even point in units to increase.

Accepted Answer

An increase in fixed costs, without a corresponding increase in sales price or a decrease in variable costs, will increase the number of units that need to be sold to cover those fixed costs, thereby increasing the break-even point.

Question 20

Which of the following statements regarding Company A is incorrect?
A)If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units.
B)If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit.
C)If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, once it has covered its fixed costs, net income will increase by $30 for each additional unit sold.
D)Both if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units and if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit are incorrect.

Accepted Answer

The break-even point in units is calculated as fixed costs divided by the contribution margin per unit. Here, it would be $720,000 / $30 = 24,000 units, not 36,000 units.

Quiz 3: Analysis of Cost, Volume, and Pricing to Increase Profitability

Which of the following statements about a cost-volume-profit graph is correct?

Ng Company sells one product that has a sales price of $20 per unit, variable costs of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

Jensen Company has a contribution margin ratio of 45%. This means that its variable costs are 55% of sales.

Which of the following statements regarding cost-volume-profit analysis is incorrect?

Joseph Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the variable cost per unit decreases by $8, how many units must Joseph Company sell to break-even?

Bloom Company has variable cost per unit of $20 and a sales price of $35 per unit. Its total fixed costs are $240,000. Which of the following is a correct statement?

For a company using target costing, market price minus profit equals target price.

At the break-even point:

Sharon Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the sales price per unit is increased by $10, how many units must Sharon Company sell to break-even?

Adams Company sells a product whose contribution margin is $10 and selling price is $25. If the company's break-even point is 100 units, its total fixed costs must be $500.

Select the correct statement regarding the contribution margin ratio.

Select the incorrect statement regarding cost-volume-profit relationships for multiple products.

When computing the break-even point in units, a company should round to the next whole unit because partial units ordinarily are not sold.

Rose Corporation sells backpacks. Variable costs for this product are $30 per unit, and the sales price per unit is $50 per unit. Total fixed costs amount to $100,000. How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?

Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales.

Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000, what is the contribution margin ratio?

Select the correct statement regarding break-even point analysis.

Which of the following statements regarding Company A is incorrect?