Deck 5: Profit Planning and Decision-Making

Question 1

Which of the following is a fixed cost?

A) packing materials
B) insurance
C) direct labour
D) sales commission

Answer 1

insurance

Question 2

Which of the following is a variable cost?

A) finance costs
B) professional fees
C) depreciation
D) overtime

Answer 2

overtime

Question 3

How is the contribution margin calculated?

A) by subtracting fixed costs from revenue
B) by subtracting cost of sales from revenue
C) by subtracting variable costs from revenue
D) by subtracting operating income from revenue

Answer 3

by subtracting variable costs from revenue

Question 4

How is the PV ratio calculated?

A) by dividing the contribution margin by revenue
B) by dividing revenue by the contribution margin
C) by multiplying the contribution margin by the unit revenue
D) by multiplying revenue by the unit contribution margin

Question 5

When is the break-even point reached?

A) when revenue covers all fixed costs
B) when revenue covers all costs
C) when revenue covers fixed costs in excess of variable costs
D) when revenue covers all variable costs

Question 6

What is the PV ratio divided into to calculate the revenue break-even point?

A) fixed costs
B) all operating costs
C) revenue
D) variable costs

Question 7

Which of the following is a non-cash expense?

A) prepaid expenses
B) electricity
C) fixed costs
D) depreciation

Question 8

What is the unit contribution margin divided into to calculate the profit break-even point?

A) fixed costs
B) profit plus fixed costs
C) profit
D) profit plus variable costs

Question 9

A company wants to invest more money in its advertising budget. What is added to the additional advertising expense to calculate the new break-even point?

A) the existing fixed costs
B) the existing total costs
C) the existing variable costs
D) the existing profit objective

Question 10

What are committed fixed costs?

A) costs that should be increased to generate more volume
B) costs that should be eliminated if a company experiences a loss
C) costs that can be changed with the volume of production
D) costs that CANNOT be controlled

Question 11

What is the break-even calculation based on?

A) the profit before tax
B) the operating margin
C) the profit for the year before depreciation
D) the gross profit

Question 12

What tool is used to analyze the relationships among volume, price, product mix, and product costs?

A) vertical analysis
B) horizontal analysis
C) cost of sales analysis
D) cost-volume-profit analysis

Question 13

Which of the following is a semi-variable cost?

A) purchases
B) freight in
C) rent
D) electricity

Question 14

What variables are used to calculate the break-even point?

A) contribution margin, revenue, and fixed costs
B) revenue, fixed costs, and variable costs
C) revenue, variable costs, and gross profit
D) contribution margin, revenue, and variable costs

Question 15

What does PV ratio stand for?

A) profit-value ratio
B) performance-value ratio
C) profit-volume ratio
D) price-volume ratio

Question 16

What does the relevant range refer to?

A) all costs that apply to a certain level of production
B) fixed costs that apply to a certain level of production
C) revenue that applies to a certain level of production
D) variable costs that apply to a certain level of production

Question 17

What are relevant costs?

A) variable cost alternatives that managers can choose from to operate a business
B) revenue alternatives that managers can choose from to operate a business
C) all cost alternatives that managers can choose from to operate a business
D) fixed cost alternatives that managers can choose from to operate a business

Question 18

What is the break-even point formula?

A) SP×N=FC+VC×N
B) FC+VC=SP-N
C) N×FC=R
D) SP×FC=N×VC

Question 19

When is the profit break-even point achieved?

A) when the revenue covers variable costs and the profit objective
B) when the revenue covers fixed costs and the profit objective
C) when the contribution margin covers fixed costs and the profit objective
D) when the contribution margin covers all costs and the profit objective

Question 20

What does the break-even wedge help managers to determine?

A) the most appropriate way of structuring revenue and variable costs
B) the most appropriate way of structuring revenue and fixed costs
C) the most appropriate way of structuring the contribution margin to achieve higher profit
D) the most appropriate way of structuring all fixed and variable costs

Question 21

What decisions are supported by break-even point analysis?

A) advertising effectiveness decisions
B) bookkeeping decisions
C) cost accounting decisions
D) pricing decisions

Question 22

Within the framework of the break-even point analysis, what do profit decisions help a company to achieve?

A) a certain level of profit before taxes
B) a certain level of gross profit
C) a certain level of operating profit
D) a certain level of contribution margin

Question 23

What costs remain constant at varying levels of production?

A) mixed costs
B) period costs
C) direct costs
D) variable costs

Question 24

What costs fluctuate directly with changes in volume of production?

A) period costs
B) product costs
C) out-of-pocket costs
D) sunk costs

Question 25

What costs change disproportionately with changes in output levels?

A) fixed costs
B) semi-variable costs
C) variable costs
D) output costs

Question 26

A business can produce 1,000 units at a zero cost per unit with a total cost of $100,000. Production increases to 2,000 units at a zero cost per unit with a total cost of $100,000. What type of cost is the $100,000?

A) a semi-variable cost
B) a committed cost
C) a fixed cost
D) a variable cost

Question 27

Sales are at 2,000 units at a cost of $20,000, then increase to 4,000 units at a cost of $40,000, and finally reach 6,000 units at a cost of $60,000. What are these costs called?

A) committed costs
B) variable costs
C) semi-variable costs
D) fixed costs

Question 28

A company sells 10,000 units at a cost of $10 per unit for a total of $200,000 in costs. The same company sells 20,000 units at the same cost of $10 per unit for a total of $300,000 in costs. What are these costs called?

A) total semi-variable costs
B) total fixed costs
C) total variable costs
D) total costs

Question 29

What costs are associated with fixed costs but are NOT related to inventory, such as distribution costs and administrative expenses?

A) calendar costs
B) non-inventory costs
C) accounting costs
D) period costs

Question 30

Which of the following is a period cost?

A) office salaries
B) direct labour
C) raw materials
D) purchases

Question 31

Which of following is an out-of-pocket cost for a retail store?

A) purchases
B) advertising
C) office salaries
D) depreciation

Question 32

Where does the break-even point occur on a break-even chart?

A) where the revenue line intersects the total fixed cost line
B) where the revenue line intersects the total cost line
C) where the revenue line intersects the total variable cost line
D) where the revenue line intersects the total semi-variable cost line

Question 33

Which of the following is divided by the contribution margin to calculate the revenue break-even point?

A) sales revenue
B) variable costs
C) total costs
D) fixed costs

Question 34

Given the following information, what is the contribution margin? Fixed costs $200 Sales revenue $1,000 Variable costs $750

A) $50
B) $250
C) $800
D) $1,950

Question 35

What formula is used to calculate the PV ratio?

A) revenue ÷ contribution margin
B) revenue × contribution margin
C) contribution margin ÷ revenue
D) revenue - contribution margin

Question 36

Given the following information, what is the PV ratio?

A) 0.05
B) 0.25
C) 0.75
D) 25

Question 37

What is the effect when a company decides to increase the unit selling price of its product, while keeping variable cost per unit, units sold, and fixed costs unchanged?

A) Total variable costs decrease.
B) Fixed costs increase.
C) Profit before tax increases.
D) Total variable costs increase.

Question 38

What is the effect when a company sells more units strictly on the basis of "image" improvement, and its variable costs per unit, selling price per unit, and fixed costs remain unchanged?

A) Profit for the year remains the same.
B) Revenue increases.
C) Variable costs decrease.
D) Fixed costs increase.

Question 39

What is the effect when a company decreases its fixed costs while its variable cost per unit, units sold, and selling price per unit remain unchanged?

A) Fixed costs increase.
B) Variable costs increase.
C) Profit before tax increases.
D) Revenue decreases.

Question 40

A supplier has just informed a company about an increase in the cost per unit, although the number of units sold, the unit selling price, and the fixed costs remain unchanged. What will be the effect of these changes?

A) Profit before tax will decrease.
B) Contribution margin will increase.
C) Revenue will increase.
D) Fixed costs will decrease.

Question 41

What does the following formula calculate?

A) the unit break-even point
B) the profit break-even point
C) the contribution margin ratio
D) the revenue break-even point

Question 42

What does the following formula calculate?

A) the revenue break-even point
B) the profit break-even point
C) the contribution margin ratio
D) the unit break-even point

Question 43

Given the following information, what is the revenue break-even point?

A) $ 250
B) $ 800
C) $ 1,000
D) $ 2,666

Question 44

Given the following information, what is the unit break-even point?

A) 500 units
B) 800 units
C) 1,000 units
D) 2,000 units

Question 45

A company's break-even point is 5,000 units, and the president sets a profit objective. What will the company need to do to realize the objective?

A) increase its fixed costs
B) sell exactly 5,000 units
C) sell more than 5,000 units
D) sell less than 5,000 units

Question 46

An entrepreneur is absolutely certain his new company will sell 10,000 units. He has already determined the break-even point is 3,000 units. Should he launch the company, and why or why not?

A) Do NOT start the company because the risk is too high.
B) Launch the company because the risk of NOT reaching the break-even point is high.
C) Launch the company because there is little risk since the break-even point is well below expected sales.
D) Do NOT start the company because according to the calculation, the break-even point will not be reached.

Question 47

Product A has a contribution margin of $100 while product B has a contribution margin of $50., Which product should the company concentrate on selling, and why?

A) Changing the sales mix will not affect the profit level.
B) The company should concentrate on selling product B because it has a lower CM and will produce higher profit.
C) The company should concentrate on selling product A because it has a lower CM and will produce higher profit.
D) The company should concentrate on selling product A because it has a higher CM and will produce higher profit.

Question 48

Which of the following are variable costs?

A) general expenses
B) direct labour
C) administrative expenses
D) depreciation

Question 49

Which of the following are period costs?

A) general expenses
B) purchases
C) contribution margin
D) electricity

Question 50

Given the following information, what is the contribution margin?

A) $50,000
B) $200,000
C) $250,000
D) $750,000

Question 51

What is the contribution margin?

A) the difference between revenue and fixed costs
B) the sum of revenue and variable costs
C) the revenue minus variable and direct costs
D) the difference between revenue and variable costs

Question 52

Given the following information, what is the PV ratio?

A) 0.50
B) 2.0
C) 0.50%
D) $20,000

Question 53

Given the following information, what is the unit break-even point?

A) 1,000 units
B) 10,500 units
C) 20,000 units
D) 100,000 units

Question 54

Given the following information, what is the revenue break-even point?

A) $ 100,000
B) $ 200,000
C) $ 250,000
D) $ 500,000

Question 55

Given the following information, what is the required number of units that must be sold?

A) 55 units
B) 200 units
C) 550 units
D) 1,000 units

Question 56

A company wants to make a $10,000 profit by selling 500 units. By how much should the selling price per unit be increased?

A) $5
B) $20
C) $33
D) $50

Question 57

A company wants to make a $10,000 profit by selling 500 units, without changing the selling price. By how much should the fixed costs be reduced?

A) $5,000
B) $10,000
C) $30,000
D) $100,000

Question 58

Given the following information, what are the maximum fixed costs the company should incur if it wants to break even selling the three products? ?

A) $ 48,000
B) $ 55,000
C) $ 58,000
D) $ 60,000

Question 59

Which of the following is an example of fixed costs?

A) freight in
B) purchases
C) salaries (selling)
D) sales commission

Question 60

Which of the following is an example of variable costs?

A) office salaries
B) property taxes
C) purchases
D) telephone

Question 61

A company provides the information below. If the company increases its selling price by 5% and increases its fixed costs by $100,000, how much more (or less) profit will the company realize?

A) Profit will decrease $ 25,000.
B) Profit will increase $ 25,000.
C) Profit will decrease $ 50,000.
D) Profit will increase $ 50,000.

Question 62

A company provides the information below. If the company increases its advertising budget by $30,000, how much more revenue will need to be realized to maintain the same profit level?

A) $ 14,443
B) $ 20,833
C) $ 43,333
D) $ 93,750

Question 63

A company provides the information below. If the company hires a new sales representative at an estimated cost of $60,000, what is the company's new revenue break-even point?

A) $ 2,187,500
B) $ 2,375,000
C) $ 2,575,000
D) $ 2,675,000

Question 64

Given the following information, what is the company's cash break-even point?

A) $ 1,500,553
B) $ 1,642,553
C) $ 2,220,245
D) $ 2,642,857

Question 65

Break-even analysis is a straightforward and very powerful financial analytical technique than can help managers make a wide range of important decisions related to cash flows.

Question 66

Break-even analysis can help managers improve their decisions related to pricing and modernization.

Question 67

Pricing and automation decisions can be made more clearly with break-even analysis.

Question 68

Break-even analysis is an effective decision-making tool for market share analysis.

Question 69

Fixed costs remain constant at varying levels of production.

Question 70

Costs that fluctuate directly with changes in volume of production are called semi-variable.

Question 71

Cost of sales is considered a variable cost.

Question 72

Packing materials is considered is a semi-variable cost because this type of cost varies almost automatically with volume of production.

Question 73

Finance costs on a mortgage are considered fixed costs because they vary directly with sales volume.

Question 74

The factors that affect profit levels are: market share, price | earnings ratio, fixed costs and variable costs.

Question 75

Changes in product mix can have an impact on the level of the break-even point.

Question 76

Break-even point takes place when revenue equals fixed costs.

Question 77

When total costs meet revenue, it is the point where break-even is achieved.

Question 78

You can calculate the PV ratio by dividing the contribution margin by variable costs.

Question 79

The higher the PV ratio the better it is.

Question 80

Changes in variables costs can alter the PV ratio.