Deck 7: Cost-Volume-Profit Analysis

Question 1

When using the contribution margin ratio, managers project operating income based upon sales units.

Answer 1

False

Question 2

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

A)Gross margin
B)Operating income
C)Net income
D)Unit contribution margin

Answer 2

D

Question 3

The contribution margin ratio explains the percentage of each sales dollar that

A)contributes towards variable costs.
B)contributes towards sales revenue.
C)contributes towards period expenses.
D)contributes towards fixed costs and generating a profit.

Answer 3

D

Question 4

Total contribution margin less total fixed expenses equals

A)contribution margin ratio.
B)operating income.
C)gross profit.
D)sales revenue.

Question 5

CVP analysis assumes that the only factor that affects costs is a change in sale price.

Question 6

Contribution margin on an income statement is equal to sales revenue minus fixed expenses.

Question 7

Contribution margin ratio is computed by

A)dividing contribution margin by operating income.
B)dividing contribution margin by sales revenue.
C)dividing sales revenue by contribution margin.
D)dividing operating income by contribution margin.

Question 8

A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.

Question 9

CVP analysis assumes all of the following except

A)the mix of products will not change.
B)revenues are linear throughout the relevant range.
C)inventory levels will increase.
D)a change in volume is the only factor that affects costs.

Question 10

CVP stands for Company-Volume-Profit.

Question 11

The contribution margin ratio is the unit contribution margin divided by the variable cost per unit.

Question 12

________ should be subtracted from the sales price per unit to compute the unit contribution margin.

A)All variable costs
B)Only variable inventoriable product costs
C)Only variable period costs
D)All fixed costs

Question 13

Managers can quickly forecast the total contribution margin by multiplying the

A)projected sales units by the variable cost ratio.
B)projected sales units by the contribution margin ratio.
C)projected sales revenue by the unit contribution margin.
D)projected sales revenue by the contribution margin ratio.

Question 14

The unit contribution margin is computed by

A)subtracting the variable cost per unit from the sales price per unit.
B)dividing the sales revenue by variable cost per unit.
C)dividing the variable cost per unit by the sales revenue.
D)subtracting the sales price per unit from the variable cost per unit.

Question 15

If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per unit is $9.25.

Question 16

The contribution margin per unit is how much profit each unit contributes after fixed costs are considered.

Question 17

By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

A)projected sales units by the contribution margin ratio
B)projected sales revenue by the contribution margin ratio
C)projected sales revenue by the unit contribution margin
D)projected sales units by the variable cost ratio

Question 18

CVP assumes that inventory levels will not change.

Question 19

Gross margin is another term for net income.

Question 20

The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products.

Question 21

What is contribution margin equal to on a contribution margin income statement?

A)Fixed expenses plus variable expenses
B)Fixed expenses minus variable expenses
C)Sales revenues minus variable expenses
D)Sales revenues minus fixed expenses

Question 22

The Halpert Group produces a single product selling for $40 per unit. Variable costs are $7 per unit and total fixed costs are $7000. What is the contribution margin ratio?

A)18%
B)33%
C)83%
D)121%

Question 23

Paint and Sip sells admission tickets for a painting class for $40 each. The cost of providing the canvas and supplies is $32 per ticket and the fixed cost of operating the art gallery is $35,000 per month. The company can accommodate 5600 patrons each month. What is the contribution margin per patron?

A)$5.00
B)$0.20
C)$8.00
D)$32.00

Question 24

Sweet Treats sells ice cream cones for $4.25 per customer. Variable costs are $1.25 per cone. Fixed costs are $3300 per month. What is the company's contribution margin ratio?

A)29.41%
B)3%
C)240%
D)70.59%

Question 25

Sweet Treats sells ice cream cones for $4.00 per customer. Variable costs are $1.25 per cone. Fixed costs are $2800 per month. What is the company's contribution margin per ice cream cone?

A)$1.25
B)$2.75
C)$1.50
D)$4

Question 26

The following selected data relates to Green with Envy Corporation: Assuming 9400 units are sold, what is the contribution margin?

A)$282,000
B)$81,400
C)$56,400
D)$31,400

Question 27

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $50 per 6 hours. The variable costs are $40 per 6 hours rental, and its fixed costs are $85,000 each month. What is the contribution margin ratio?

A)20%
B)80%
C)500%
D)10%

Question 28

Fave Motion Pictures sells movie tickets for $14 per movie patron. Variable costs are $4.50 per movie patron and fixed costs are $52,000 per month. The company's relevant range extends to 33,000 movie patrons per month. What is Fave Motion Pictures' projected operating income if 20,000 movie patrons see movies during a month?

A)$190,000
B)$138,000
C)$280,000
D)$228,000

Question 29

The following selected data relates to Green with Envy Corporation: If sales revenue per unit increases to $28 and 8000 units are sold, what is the contribution margin?

A)$224,000
B)$31,000
C)$32,000
D)$56,000

Question 30

Stallard Corporation gathered the following information for the year just ended: During the year, Stallard produced and sold 30,000 units of product at a selling price of $10.23 per unit. There was no beginning inventory of product at the start of the year.
What is the contribution margin for the year?

A)$43,100
B)$216,100
C)$306,900
D)$133,900

Question 31

Stallard Corporation gathered the following information for the year just ended: During the year, Stallard produced and sold 50,000 units of product at a selling price of $5.64 per unit. There was no beginning inventory of product at the start of the year.
What is the operating income (loss)for the year?

A)$104,000
B)$282,000
C)-$13,000
D)$165,000

Question 32

Who Done It Mystery Theater sells tickets for dinner and a show for $60 each. The cost of providing dinner is $27 per ticket and the fixed cost of operating the theater is $110,000 per month. The company can accommodate 8000 patrons each month. What is the projected monthly income if 15,000 patrons visit the theater each month?

A)$790,000
B)$264,000
C)$374,000
D)$385,000

Question 33

Who Done It Mystery Theater sells tickets for dinner and a show for $55 each. The cost of providing dinner is $21 per ticket and the fixed cost of operating the theater is $60,000 per month. The company can accommodate 15,000 patrons each month. What is the contribution margin ratio?

A)99.38%
B)62.00%
C)34%
D)162%

Question 34

Crazy Coasters Amusement Park sells admission tickets for $65 per person for one visit. Variable costs are $30 per visitor and fixed costs are $60,000,000 per month. The company's relevant range extends to 1,900,000 visitors per month. What is Crazy Coaster's projected operating income if 1,760,000 visitors come to the park during the month?

A)$1,600,000
B)$61,600,000
C)$114,400,000
D)$54,400,000

Question 35

Who Done It Mystery Theater sells tickets for dinner and a show for $30 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $120,000 per month. The company can accommodate 13,000 patrons each month. What is the contribution margin per patron?

A)$7.50
B)$4
C)$0.13
D)$26

Question 36

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $35 for 6 hours. The variable costs are $24 per 6 hour rental, and its fixed costs are $65,000 each month. What is the contribution margin per 6 hour jet ski rental?

A)$24
B)$0.31
C)$11
D)$3.18

Question 37

Dairy Days Ice Cream sells ice cream cones for $5 per customer. Variable costs are $2 per cone. Fixed costs are $2100 per month. What is Dairy Days' contribution margin ratio?

A)262%
B)60%
C)350%
D)57%

Question 38

Paint and Sip sells admission tickets for a painting class for $60 each. The cost of providing the canvas and supplies is $31 per ticket and the fixed cost of operating the art gallery is $45,000 per month. The company can accommodate 5400 patrons each month. What is the contribution margin ratio?

A)52%
B)207%
C)29%
D)48%

Question 39

Dairy Days Ice Cream sells ice cream cones for $5 per customer. Variable costs are $2 per cone. Fixed costs are $2900 per month. What is Dairy Days' contribution margin per ice cream cone?

A)$3.00
B)$2.00
C)$0.60
D)$5.00

Question 40

Paint and Sip sells admission tickets for a painting class for $70 each. The cost of providing the canvas and supplies is $38 per ticket and the fixed cost of operating the art gallery is $55,000 per month. The company can accommodate 5900 patrons each month. What is the projected monthly income if 4400 patrons visit the theater each month?

A)$195,800
B)$140,800
C)$133,800
D)$85,800

Question 41

Fancy Scarf Factory Contribution Margin The managerial accountant at Fancy Scarf Factory reported the price per scarf is $22. The only variable cost is $15 per scarf. The managerial accountant also reported that the sales goals were increased to 1000 scarves during the next quarter. First, compute the unit contribution margin per scarf. If fixed expenses are $5000, what is the forecasted operating income if 1000 scarves are sold in the next quarter?

A)$4; $1700
B)$7; $2000
C)$6; $1900
D)$5; $1800

Question 42

Spice Company has a product which sells for $190 and has a unit contribution margin of $60. It has fixed costs of $20/unit at the current production volume. Spice Company's contribution margin ratio is

A)11%.
B)32%.
C)21%.
D)42%.

Question 43

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 60,000 units of product at a selling price of $10.92 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin for the year?

A)$278,200
B)$655,200
C)$463,200
D)$470,200

Question 44

Jack's Toys sells kites for $20 each. Variable costs are $5 per kite. Fixed costs are $1800 per month. What is the contribution margin per kite?

A)$1.33
B)$0.75
C)$5.00
D)$15.00

Question 45

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 10,000 units of product at a selling price of $18.32 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin ratio for Blaine Corporation (round to 1 decimal)?

A)-77.4%
B)2)3%
C)-3376.2%
D)79.7%

Question 46

Only the income statement approach may be used to calculate the breakeven point.

Question 47

Jack's Toys sells kites for $40 each. Variable costs are $4 per kite. Fixed costs are $2400 per month. What is the contribution margin ratio for the kites?

A)111%
B)90%
C)36%
D)10%

Question 48

On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the variable expenses.

Question 49

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 40,000 units of product at a selling price of $10.42 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin per unit for Blaine Corporation? (Round any intermediary calculations and your final answer to the nearest cent.)

A)$6.07
B)$6.62
C)$4.35
D)$8.15

Question 50

Neeley Incorporated had the following fixed costs:
The company also had the following variable costs:
The company produced and sold 55,000 units of the product during the year at a selling price of $9.00 per unit. The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Question 51

Marie's Magic Shoppe provides the following information about its single product. What is the contribution margin ratio?

A)268%
B)37%
C)44%
D)63%

Question 52

In the last reporting period, Helena's Heavenly Fixture Company recorded 90,000 units sold for the first time in the history of the company. The price per unit was $91.97 and variable costs per unit at $35.77. Compute the contribution margin. Next, compute the fixed costs if the operating income is $3,910,000.

A)$5,058,000; $1,148,000
B)$8,277,300; $7,886,300
C)$3,219,300; $2,828,300
D)$3,219,300; $3,610,300

Question 53

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

Question 54

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 40,000 units of product at a selling price of $14.03 per unit. There was no beginning inventory of product at the beginning of the year.
What is the operating income (loss)for the year?

A)$375,200
B)$561,200
C)$386,200
D)$200,200

Question 55

Antonio's Flowers sells bouquets for $75 each. The variable costs for each bouquet are $35. The total contribution margin for 45 bouquets is

A)$3375.
B)$4950.
C)$1800.
D)$1575.

Question 56

The breakeven point is the sales level where operating income is positive.

Question 57

William's Steel had the following fixed costs:
The company also had the following variable costs:
During the year, the company produced and sold 55,000 units of the product at a selling price of $100.00 per unit. The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Question 58

Helga's Pretzels sells pretzels for $8. The variable costs for each pretzel are $1, while the total fixed costs are $1000. The contribution margin for 1900 pretzels is

A)$1000.
B)$13,300.
C)$8000.
D)$14,200.

Question 59

The managerial accountant at Right Stripes T-Shirt Company reported the following information: The Right Stripes T-Shirt Company
Contribution Margin Income Statement
How many units did Right Stripes T-Shirt Company sell to achieve the above listed revenue? Compute the company's contribution margin.

A)6 units; $1.83
B)950 units; $8425
C)1)6 units; $28,625
D)518 units; $8425

Question 60

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

Question 61

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

A)Generate a net loss
B)Generate a zero profit
C)Earn more net income than the previous accounting period
D)Generate a net income

Question 62

If total fixed expenses are $65,000, the target operating income is $15,000 and the contribution margin is $25 per unit, the sales needed to achieve the target operating income will be 3,200 units.

Question 63

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

Question 64

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

A)(fixed expenses + operating income)÷ contribution margin per unit.
B)(fixed expenses + operating income)÷ contribution margin ratio.
C)(fixed expenses - operating income)÷ contribution margin ratio.
D)(fixed expenses - operating income)÷ contribution margin per unit.

Question 65

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

Question 66

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line represents which of the following?

A)Operating loss
B)Operating income
C)Slope of variable costs per unit
D)Slope of fixed costs per unit

Question 67

A company that sells one product would be more likely to calculate breakeven in terms of sales units, rather than sales revenue.

Question 68

The line that begins at the origin on a CVP graph represents

A)total fixed expenses.
B)total sales revenues.
C)total expenses.
D)both the total expenses and the total sales revenues.

Question 69

To find the sales revenue needed to breakeven, the formula used could be

A)fixed expenses ÷ contribution margin ratio.
B)contribution margin per unit ÷ fixed expenses.
C)contribution margin ratio ÷ fixed expenses.
D)fixed expenses ÷ contribution margin per unit.

Question 70

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

A)(fixed expenses + operating income)÷ contribution margin per unit.
B)(fixed expenses + operating income)÷ contribution margin ratio.
C)(fixed expenses - operating income)÷ contribution margin ratio.
D)(fixed expenses - operating income)÷ contribution margin per unit.

Question 71

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

A)The income statement approach
B)The shortcut approach using the unit contribution margin
C)The balance sheet approach
D)The shortcut approach using the contribution margin ratio

Question 72

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

A)loss; loss
B)loss; profit
C)profit; profit
D)profit; loss

Question 73

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

Question 74

To find the number of units that need to be sold to breakeven, the formula used could be

A)fixed expenses ÷ contribution margin per unit.
B)contribution margin per unit ÷ fixed expenses.
C)fixed expenses ÷ contribution margin ratio.
D)contribution margin ratio ÷ fixed expenses.

Question 75

The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents

A)total costs.
B)total variable costs.
C)total fixed costs.
D)breakeven point.

Question 76

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

A)The breakeven point
B)The level of the variable costs
C)The level of the fixed costs
D)None of the above

Question 77

When using the income statement approach to finding breakeven, which of the following is true?

A)(variable expenses × number of units)- fixed expenses = operating income
B)sales revenue - variable expenses - fixed expenses = operating income
C)fixed expenses + variable expenses + sales revenue = operating income
D)fixed expenses + variable expenses - sales revenue = operating income

Question 78

The breakeven point on a CVP graph is the point where the sales revenue line intersects the total expense line.

Question 79

Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500.

Question 80

To find the breakeven point using the shortcut formulas, you use

A)zero for the contribution margin per unit.
B)zero for the fixed expenses.
C)zero for the contribution margin ratio.
D)zero for the operating income.