Deck 6: Cost-Volume-Profit Analysis

Question 1

All else being equal, which of the following would not cause the contribution margin to decrease?

A) An increase in total variable costs.
B) A decrease in sales volume.
C) A decrease in variable costs per unit.
D) A decrease in the sales price per unit.

Answer 1

C

Question 2

Which of the following would you not find on a traditional income statement?

A) Net operating income
B) Gross profit
C) Contribution margin
D) Sales revenue

Answer 2

C

Question 3

For each unit sold , the contribution margin per unit:

A) will increase.
B) will decrease.
C) will stay the same.
D) can not be predicted.

Answer 3

C

Question 4

Which of the following is usually not one of the factors that cost-volume-profit analysis focuses on?

A) Sales prices of products
B) Mix of products or services produced
C) Variable costs per unit
D) Fixed costs per unit

Question 5

The ____ represents the amount of each additional sales dollar that contributes towards the payment of fixed costs and, ultimately, increasing net operating profit.

A) contribution margin ratio
B) contribution margin per unit
C) break-even point
D) variable cost per unit

Question 6

Assuming a company's income statement shows a net operating income, which of the following statements is true regarding the contribution margin per unit?

A) It will decrease as the number of units sold increases.
B) It will decrease as the number of units purchased decreases.
C) It indicates the amount that net operating income will increase with the sale of each additional unit.
D) It indicates the amount that variable costs will decrease with the sale of each additional unit.

Question 7

The contribution margin income statement is structured in such a way as to emphasize:

A) cost functionality.
B) cost behavior.
C) organizational efficiency.
D) cost drivers.

Question 8

All else being equal, which of the following would cause the total contribution margin to increase?

A) A decrease in variable costs per unit.
B) An increase in sales volume.
C) A decrease in fixed costs per unit.
D) An increase in the sales price per unit.

Question 9

All else being equal, which of the following would cause the contribution margin to increase?

A) An increase in variable costs per unit.
B) An increase in total variable costs.
C) A decrease in total fixed costs.
D) An increase in sales volume.

Question 10

The traditional income statement focuses on:

A) cost function.
B) cost behavior.
C) contribution margin.
D) variable costing.

Question 11

While preparing a traditional income statement, the costs are shown into which of the two categories?

A) Direct materials and indirect materials
B) Product and period
C) Variable and fixed
D) Avoidable and unavoidable

Question 12

Which of the following statements is true regarding the traditional income statement?

A) Sales revenue is based on the units produced rather than the units sold.
B) It will include a subtotal called contribution margin.
C) It will group costs into categories based on their behavior (fixed or variable).
D) It is required for external reporting purposes.

Question 13

The difference between sales and cost of goods sold is called:

A) net income.
B) gross profit.
C) contribution margin.
D) finished goods inventory.

Question 14

All else being equal, which of the following would cause net operating income to increase?

A) An increase in total variable costs.
B) A decrease in total fixed costs.
C) A decrease in sales price per unit.
D) A decrease in contribution margin.

Question 15

The difference between sales and variable costs is called:

A) net income.
B) gross profit
C) contribution margin.
D) cost of goods sold.

Question 16

While preparing a contribution margin income statement, the costs are shown into which of the two categories?

A) Direct materials and indirect materials
B) Product and period
C) Variable and fixed
D) Avoidable and unavoidable

Question 17

Which of the following would you not find on a contribution margin income statement?

A) Net operating income
B) Gross profit
C) Contribution margin
D) Sales revenue

Question 18

Which of the following statements is false regarding the contribution margin income statement?

A) It will group costs into categories based on their behavior (fixed or variable).
B) It will include a subtotal called gross profit.
C) It is not allowed for external reporting purposes.
D) It is used by management to perform cost-volume-profit analysis.

Question 19

Assuming that the fixed cost do not change, with the sale of each additional unit (above the break-even point), net operating income will increase by the ____.

A) contribution margin ratio
B) contribution margin per unit
C) sales price per unit
D) fixed cost per unit

Question 20

Which of the following accounting system outputs is not needed for cost-volume-profit analysis?

A) Sales price per unit
B) Variable costs per unit
C) Total fixed costs
D) Fixed cost per unit

Question 21

Jazz Products has the following information available for the month of March: The company's manager is considering several options to increase net operating income. By what amount do sales dollars need to increase in order for net operating income to increase to $62,000?

A) $40,000
B) $62,000
C) $162,000
D) $38,000

Question 22

All else being equal, which of the following changes would increase a company's net operating income?

A) A decrease in sales price.
B) A decrease in contribution margin.
C) An increase in variable costs
D) A decrease in fixed costs.

Question 23

Stealth Software Inc. Stealth Software Inc. has the following information available from last year for one of its software products:
Refer to the Stealth Software Inc. information above. If the software had a sales price of $20 per unit, what is the contribution margin per unit?

A) $10
B) $6
C) $14
D) $20

Question 24

Stealth Software Inc. Stealth Software Inc. has the following information available from last year for one of its software products:
Refer to the Stealth Software Inc. information above. If the software had a sales price of $20 per unit, what is the variable cost per unit?

A) $ 20
B) $ 14
C) $ 10
D) $ 6

Question 25

Carolina Products Carolina Products sells a unique item with the following information available:
Refer to the Carolina Products information above. If one more unit is sold, net operating income will:

A) increase by $30.
B) increase by $25.
C) increase by $45.
D) increase by $40.

Question 26

Hunter Inc. Hunter Inc. sells a unique product with the following information available:
Refer to Hunter Inc. information above. If one more unit is sold, net operating income will:

A) decrease by $55.
B) increase by $45.
C) increase by $60.
D) decrease by $15.

Question 27

Carolina Products Carolina Products sells a unique item with the following information available:
Refer to the Carolina Products information above. What is the contribution margin ratio?

A) 33.33%
B) 66.67%
C) 55.56%
D) 44.44%

Question 28

Joe's Coffee House Joe's Coffee House has the following information available for the month of July:
Refer to the Joe's Coffee House information above. If Joe's sells 500 more cups of coffee per month, net operating income will:

A) increase by $850.
B) increase by $100.
C) increase by $150.
D) increase by $1,500.

Question 29

Joe's Coffee House Joe's Coffee House has the following information available for the month of July:
Refer to the Joe's Coffee House information above. Each additional cup of coffee sold will increase net operating income by:

A) $1.70.
B) $3.00.
C) $1.00.
D) $0.57.

Question 30

Assuming a company has a positive contribution margin, which of the following changes will cause net operating income to increase?

A) A decrease in variable costs.
B) A decrease in the sale price
C) An increase in total fixed costs.
D) A decrease in the sales volume.

Question 31

Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are expected to remain at $50,000 and sales are expected to increase by $90,000. What should the contribution margin ratio be this year if the company wishes to increase net operating income by $31,500?

A) 78.75%
B) 40.00%
C) 35.00%
D) 55.56%

Question 32

Stealth Software Inc. Stealth Software Inc. has the following information available from last year for one of its software products:
Refer to the Stealth Software Inc. information above. If the sales price per unit is $20 and the company expects a 25% increase in sales volume this year along with a 10% decrease in fixed costs. What will be expected net operating income this year?

A) $22,250
B) $53,500
C) $32,750
D) $34,750

Question 33

Carolina Products Carolina Products sells a unique item with the following information available:
Refer to the Carolina Products information above. What is the contribution margin per unit?

A) $25
B) $40
C) $45
D) $30

Question 34

Hunter Inc. Hunter Inc. sells a unique product with the following information available:
Refer to Hunter Inc. information above. What is the contribution margin ratio?

A) 55%
B) 25%
C) 60%
D) 40%

Question 35

Haywood Inc. has the following information available for one of its products: In Haywood sells one more unit, net operating income will:

A) increase by $20.75.
B) increase by $12.25.
C) increase by $22.75.
D) increase by $35.

Question 36

If a company has a positive contribution margin but net operating income is low or negative, what are some ways of increasing net operating income?

A) Increase sales price
B) Increase sales volume
C) Decrease variable costs
D) All of these are ways to increase net operating income

Question 37

Which of the following statements is true when making decisions using cost-volume-profit (CVP) analysis?

A) As long as the contribution margin is a positive number, net operating income will be positive.
B) As long as variable costs are more than fixed costs, net operating income will be negative.
C) As long as the contribution margin is greater than fixed costs, net operating income will be positive.
D) As long as the sales price per unit is greater than fixed costs per unit, net operating income will be positive.

Question 38

Laverne's Soda Shop wishes to decrease variable costs. Which of the following options should she consider?

A) Decrease in advertising costs
B) Decrease in rent
C) Decrease in direct labor costs
D) Increase in equipment rentals

Question 39

If sales revenue stays the same but the contribution margin ratio decreases, then:

A) net operating income will increase.
B) fixed costs will decrease.
C) net operating income will decrease.
D) fixed costs will increase.

Question 40

Joe's Coffee House Joe's Coffee House has the following information available for the month of July:
Refer to the Joe's Coffee House information above. All else being equal, if Joe's increases the sales price per unit by 10%, net operating income will:

A) increase by $425.
B) increase by $750.
C) increase by $75.
D) not change.

Question 41

A company's manager estimates that in the upcoming year, total variable costs will increase by $7,500 and total fixed costs will increase by $3,500. Assume that the unit sales price did not change. What will be the anticipated effect on net operating income?

A) Net operating income will increase by $11000.
B) Net operating income will decrease by $11,000.
C) Net operating income will increase by $4,000.
D) Net operating income will decrease by $4,000.

Question 42

A company's manager estimates that in the upcoming year, total variable costs will increase by $20,000 and total fixed costs will decrease by $14,000. Assume that the unit sales price did not change. What will be the anticipated effect on net operating income?

A) Net operating income will increase by $34,000.
B) Net operating income will decrease by $34,000.
C) Net operating income will increase by $6,000.
D) Net operating income will decrease by $6,000.

Question 43

Village Manufacturing Village Manufacturing produces two types of products - Card Games and Puzzles. The following information is available related to each product:
60% of the products sold are Card Games and 40% are Puzzles.
Refer to the Village Manufacturing information above. If total fixed costs are $24,500, how many Puzzles need to be sold in order for the company to break even?

A) 852 units
B) 1,265 units
C) 1,400 units
D) 3,500 units

Question 44

Village Manufacturing Village Manufacturing produces two types of products - Card Games and Puzzles. The following information is available related to each product:
60% of the products sold are Card Games and 40% are Puzzles.
Refer to the Village Manufacturing information above. If total fixed costs are $24,500, how many Card Games need to be sold in order for the company to break even?

A) 2,100 units
B) 3,675 units
C) 4,200 units
D) 3,500 units

Question 45

In a multi-product environment:

A) cost-volume-profit analysis is not advisable to use.
B) only the product with the highest contribution margin should be sold.
C) the product with the highest sales prices per unit should account for the majority of the sales.
D) a weighted-average contribution margin per unit should be computed for all products produced and sold.

Question 46

Bergman Inc. Bergman Inc. has the following product information available:
Refer to the Bergman Inc. information above. What is the break-even point in units?

A) 1,500 units
B) 643 units
C) 600 units
D) 900 units

Question 47

Crabtree Inc. produces two types of products - Gizmos and Gadgets. The following information is available related to each product: Three-fourths of the products sold are Gizmos and one-fourth are Gadgets. If total fixed costs are $50,000, how many total units need to be sold in order for the company to break even?

A) 1,250 units
B) 1,389 units
C) 2,500 units
D) 690 units

Question 48

Poole Products Inc. Poole Products Inc. has the following product information available:
Refer to the Poole Products Inc. information above. How many units need to be sold in order to earn a target profit of $249,000?

A) 8,143 units
B) 14,200 units
C) 16,600 units
D) 19,000 units

Question 49

Crabtree Inc. produces two types of products - Gizmos and Gadgets. The following information is available related to each product: If total fixed costs are $29,000, how many total units need to be sold in order for the company to break even? (round computations to nearest number)

A) 1,933 units
B) 1,036 units
C) 1,500 units
D) 1,349 units

Question 50

Poole Products Inc. Poole Products Inc. has the following product information available:
Refer to the Poole Products Inc. information above. What is the break-even point in sales dollars?

A) $21,600
B) $36,000
C) $60,000
D) $90,000

Question 51

LMN Manufacturing produces two products - Product S and Product W. The following information is available related to each product: Product S accounts for 40% of total product sales and Product W accounts for the rest. LMN's total fixed costs are $24,990. How many total number of products need to be sold in order for the company to break even?

A) 1,922 units
B) 2,403 units
C) 962 units
D) 1,785 units

Question 52

A company's manager estimates that in the upcoming year, increasing advertising costs by $25,000 will cause sales revenue to increase by $60,000. If the company's contribution margin ratio is 35%, what will be overall effect on net operating income?

A) Net operating income will increase by $12,250.
B) Net operating income will increase by $29,750.
C) Net operating income will increase by $35,000.
D) Net operating income will decrease by $4,000.

Question 53

Poole Products Inc. Poole Products Inc. has the following product information available:
Refer to the Poole Products Inc. information above. What is the break-even point in units?

A) 1,029 units
B) 1,440 units
C) 2,400 units
D) 5,400 units

Question 54

Bergman Inc. Bergman Inc. has the following product information available:
Refer to the Bergman Inc. information above. How many units need to be sold in order to earn a target profit of $180,000?

A) 24,750 units
B) 16,500 units
C) 20,842 units
D) 22,500 units

Question 55

RET Manufacturing RET Manufacturing produces two types of children's products - Rubles and Twizzles. The following information is available related to each product:
Rubles account for 60% of total product sales and Twizzles accounts for the rest. RET's total fixed costs are $30,024.
Refer to the RET Manufacturing information above. How many total number of products need to be sold in order for the company to break even?

A) 2,780 units
B) 2,730 units
C) 5,560 units
D) 2,176 units

Question 56

When calculating the break-even point in a multi-product environment, which of the following statements is false?

A) The contribution margin per unit for each product needs to be determined.
B) Total fixed costs need to be determined.
C) Each product is assumed to count for an equal percentage of total sales.
D) The weighted-average contribution margin per unit needs to be determined.

Question 57

A company's manager estimates that in the upcoming year, decreasing advertising costs by $50,000 will cause sales revenue to decrease by $120,000. If the company's contribution margin ratio is 35%, what will be overall effect on net operating income?

A) Net operating income will increase by $8,000.
B) Net operating income will decrease by $8,000.
C) Net operating income will increase by $24,500.
D) Net operating income will decrease by $24,500.

Question 58

RET Manufacturing RET Manufacturing produces two types of children's products - Rubles and Twizzles. The following information is available related to each product:
Rubles account for 60% of total product sales and Twizzles accounts for the rest. RET's total fixed costs are $30,024.
Refer to the RET Manufacturing information above. How many Rubles need to be sold in order for the company to break even?

A) 1,638 units
B) 1,668 units
C) 819 units
D) 2,780 units

Question 59

When calculating the break-even point in a multi-product environment, which of the following pieces of information wouldnot be relevant?

A) Contribution margin per unit for each type of product
B) Each product's percentage of total sales
C) Total fixed costs
D) Fixed costs per unit

Question 60

Which of the following statements is correct as it relates to a company that sells multiple products?

A) CVP analysis cannot be used.
B) Contribution margin is based on sales mix.
C) CVP analysis is much easier to use.
D) The break-even point remains the same even if sales mix changes.

Question 61

Poole Products Inc. has the following product information available: If Poole is in the 40% tax bracket, how many units need to be sold in order to earn an after-tax target profit of $249,000?

A) 30,067 units
B) 12,360 units
C) 27,667 units
D) 31,667 units

Question 62

Tucker Corp. Tucker Corp. has the following product information:
Refer to the Tucker Corp. information above. How many units need to be sold in order to earn a target profit of $542,400?

A) 234,960 units.
B) 216,960 units.
C) 113,000 units.
D) 122,375 units.

Question 63

When a company desires to achieve a after-tax profit, which of the following statements is true?

A) Fixed costs will increase.
B) As the tax rate increases, the number of units that need to be sold will decrease.
C) The before-tax profit will need to be calculated.
D) The contribution margin per unit will decrease.

Question 64

Cameron Corp. Cameron Corp. has the following product information:
Refer to the Cameron Corp. information above. What is the break-even point in sales dollars?

A) $20,825
B) $59,500
C) $170,000
D) $416,500

Question 65

Harrison Manufacturing Harrison Manufacturing has the following product information available:
Refer to the Harrison Manufacturing information above. What is the break-even point in units?

A) 3,369 units
B) 1,752 units
C) 3,650 units
D) 1,153 units

Question 66

Floyd's Barbershop has fixed costs of $3,000 per month. Floyd regularly performs 400 haircuts a month and he does not anticipate this to change. Each haircut has a variable cost of $4.00. If Floyd would like to earn a target profit of $2,000, what does he need to charge for each haircut?

A) $12.50
B) $16.50
C) $11.50
D) $8.50

Question 67

Harrison Manufacturing Harrison Manufacturing has the following product information available:
Refer to the Harrison Manufacturing information above. What is the break-even point in sales dollars?

A) $87,600
B) $42,048
C) $168,462
D) $182,500

Question 68

Tucker Corp. Tucker Corp. has the following product information:
Refer to the Tucker Corp. information above. What is the break-even point in units?

A) 1,500 units.
B) 112,500 units.
C) 216,000 units.
D) 9,375 units.

Question 69

Grisham Inc. wishes to have an after-tax profit of $400,000. If Grisham's tax rate is 35%, what is their before-tax profit?

A) $615,385
B) $540,000
C) $1,142,857
D) $660,000

Question 70

Charlie's Hotdog Stand Charlie's Hotdog Stand sells hotdogs for $2.50 each. The variable costs per hotdog are $.50. Charlie's fixed costs are currently $800 per month. Charlie is considering expanding his business to three hotdog stands which will increase fixed costs per month by $1,200.
Refer to the Charlie's Hotdog Stand information above. If Charlie does expand his business to three stands, how many hotdogs will need to be sold per month in order to earn a target profit of $5,000?

A) 2,500 hotdogs
B) 3,100 hotdogs
C) 3,500 hotdogs
D) 2,800 hotdogs

Question 71

Harrison Manufacturing has the following product information available: If Harrison is in the 35% tax bracket, how many units need to be sold in order to earn an after-tax target profit of $260,000?

A) 16,667 units
B) 14,483 units
C) 22,282 units
D) 20,317 units

Question 72

Angelo's is a locally run and operated pizza parlor. Last month, the restaurant broke-even when 400 pizzas were served. The average variable costs per pizza are $2.50 and fixed costs for the month totaled $6,000. What is the average selling price of a pizza?

A) $15.00
B) $12.50
C) $17.50
D) $6.00

Question 73

Mulvaney Inc. ignored the effect of income taxes in its calculation of the sales volume needed to achieve a target profit of $1,000,000. If the company considers the impact of income taxes in its calculation, which of the following statements would be true?

A) Total fixed costs will increase.
B) Contribution margin per unit will decrease.
C) Sales volume will increase to reach an after-tax profit.
D) Sales price per unit will decrease.

Question 74

Harrison Manufacturing Harrison Manufacturing has the following product information available:
Refer to the Harrison Manufacturing information above. How many units need to be sold in order to earn a target profit of $175,000?

A) 10,942 units
B) 7,292 units
C) 3,642 units
D) 5,252 units

Question 75

Floyd's Barbershop has fixed costs of $3,000 per month. Floyd currently breaks-even when it performs 400 haircuts a month. Floyd charges customers $10 per cut. What is Floyd's variable cost per cut?

A) $2.50
B) $7.50
C) $17.50
D) $1.33

Question 76

Cameron Corp. Cameron Corp. has the following product information:
Refer to the Cameron Corp. information above. What is the break-even point in units?

A) 8,500 units
B) 2,975 units
C) 1,041 units
D) 170,000 units

Question 77

Tucker Corp. Tucker Corp. has the following product information:
Refer to the Tucker Corp. information above. What is the break-even point in sales dollars?

A) $45,000
B) $112,500
C) $18,000
D) $3,750

Question 78

Charlie's Hotdog Stand Charlie's Hotdog Stand sells hotdogs for $2.50 each. The variable costs per hotdog are $.50. Charlie's fixed costs are currently $800 per month. Charlie is considering expanding his business to three hotdog stands which will increase fixed costs per month by $1,200.
Refer to the Charlie's Hotdog Stand information above. If Charlie does expand his business to three stands, how many additional hotdogs will need to be sold per month in order to break even?

A) 1,000 hotdogs
B) 600 hotdogs
C) 200 hotdogs
D) 480 hotdogs

Question 79

Harrison Manufacturing Harrison Manufacturing has the following product information available:
Refer to the Harrison Manufacturing information above. What do total sales dollars need to be in order to earn a target profit of $200,400?

A) $235,000
B) $600,000
C) $288,000
D) $417,500

Question 80

Cameron Corp. Cameron Corp. has the following product information:
Refer to the Cameron Corp. information above. How many units need to be sold in order to earn a target profit of $299,950?

A) 42,850 units
B) 51,350 units
C) 34,350 units
D) 125,808 units