Deck 6: Cost-Volume-Profit Analysis

Question 1

To determine the number of units needed to earn a target profit,divide the target contribution margin by the contribution margin per unit.Divide total fixed costs plus profit by the contribution margin per unit.

Answer 1

False

Question 2

Managers can use cost-volume-profit analysis to evaluate changes in price.CVP analysis is useful in evaluating changes in price and cost structure.

Answer 2

True

Question 3

Target units equals fixed costs plus target profit divided by the unit contribution margin.This is the formula for target units.

Answer 3

True

Question 4

An important assumption in multiproduct cost-volume-profit analysis is that the sales mix remains constant.The weighted average contribution margin approach assumes a constant sales mix.

Question 5

The break-even point is the point at which profit equals zero.The break-even point is where the company breaks even,or has zero profit.

Question 6

In multiproduct cost-volume-profit analysis,a break-even point must be calculated separately for each product.A combined break-even point can be calculated using a weighted average contribution margin.

Question 7

The target sales level equals fixed costs plus variable costs divided by the contribution margin ratio.Target sales level equals fixed costs plus target profit divided by the contribution margin ratio.

Question 8

The degree of operating leverage can be multiplied by a change in sales to determine change in profit.This is the primary use of degree of operating leverage.

Question 9

Contribution margin is equal to fixed costs at the break-even point.At break-even point,profit,or contribution margin minus fixed costs,is zero,so contribution margin must equal fixed costs.

Question 10

Break-even units can be found by dividing fixed costs by unit contribution margin.At break-even point,contribution margin just covers fixed costs,so dividing fixed costs by unit contribution margin yields the number of units needed.

Question 11

Degree of operating leverage is calculated by dividing sales by profit.Degree of operating leverage is calculated by dividing contribution margin by profit.

Question 12

Managers can use cost-volume-profit analysis to evaluate changes in cost structure.CVP analysis is useful in evaluating changes in price and cost structure.

Question 13

Cost-volume-profit analysis assumes that all costs can be accurately described as either fixed or variable.Cost-volume-profit analysis assumes that costs can be classified or broken down as fixed or variable.

Question 14

Cost-volume-profit analysis can only be performed for companies that sell only one product.Firms that sell more than one product can use multiproduct cost-volume-profit analysis.

Question 15

On a CVP graph,the break-even point is the point at which the contribution margin line crosses the total cost line.The break-even point is the point at which the total revenue line crosses the total cost line.

Question 16

The margin of safety is a positive number at the break-even point.The margin of safety will be zero at the break-even point.

Question 17

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage.A company with a higher degree of operating leverage will experience larger swings in profit as a result of changes in sales revenue,and so will be considered more risky.

Question 18

Cost-volume-profit analysis assumes that total costs behave in a curvilinear fashion.Cost-volume-profit analysis assumes that total costs behave in a linear fashion.

Question 19

The margin of safety is the point where zero profit is earned.The margin of safety is how much sales can drop before zero profit is earned.

Question 20

The margin of safety is the difference between actual sales and budgeted sales.The margin of safety is the difference between actual or budgeted sales and break-even sales.

Question 21

Profit is indicated on a cost-volume-profit graph by

A)the profit line.
B)the horizontal difference between the revenue line and the cost line.
C)the vertical difference between the revenue line and the cost line.
D)the horizontal distance from the breakeven point.

Question 22

Mustang Corp has a selling price of $15,variable costs of $10 per unit,and fixed costs of $35,000.How many units must be sold to break-even?

A)7,000
B)14,000
C)3,500
D)2,334

Question 23

The formula for break-even point in terms of revenue is

A)Total variable costs/Contribution margin ratio
B)Total fixed costs/Contribution margin ratio
C)Total fixed costs/Unit contribution margin
D)Total variable costs/Total fixed costs

Question 24

Skyline Corp has a selling price of $25 per unit,variable costs of $20 per unit,and fixed costs of $25,000.What sales revenue is needed to break-even?

A)$100,000
B)$5,000
C)$125,000
D)$50,000

Question 25

The formula for break-even point in terms of units is

A)Total variable costs/Unit contribution margin
B)Total fixed costs/Contribution margin ratio
C)Total fixed costs/Unit contribution margin
D)Total variable costs/Total fixed costs

Question 26

Last month Carlos Company had a $60,000 profit on sales of $300,000.Fixed costs are $120,000 a month.What sales revenue is needed for Carlos to break even?

A)$360,000
B)$420,000
C)$200,000
D)$240,000

Question 27

The profit equation is

A)(Unit price × Q)- (Unit variable costs × Q)- Total fixed costs = Profit
B)(Unit price × Q)- (Unit variable costs × Q)+ Total fixed costs = Profit
C)(Unit price - Unit variable costs - Total fixed costs)× Q = Profit
D)(Unit price × Q)+ (Unit variable costs × Q)+ Total fixed costs = Profit

Question 28

Mira Corp has a selling price of $50 per unit,variable costs of $40 per unit,and fixed costs of $90,000.How many units must be sold to break-even?

A)1,800
B)2,250
C)9,000
D)2,000

Question 29

Thunder Corp has a selling price of $25 per unit,variable costs of $20 per unit,and fixed costs of $35,000.How many units must be sold to break even?

A)7,000
B)14,000
C)3,500
D)2,334

Question 30

If production does not equal sales,

A)it must adjust the CVP formulas for that fact if it wishes to use CVP.
B)it cannot use CVP,as an assumption is violated.
C)a CVP analysis will always indicate a breakeven point that cannot be reached.
D)the conclusions it draws from a CVP analysis will not be as sound as they would be if production equaled sales.

Question 31

What component of the profit equation should be set equal to zero to find the breakeven point?

A)Total sales revenue
B)Total variable costs
C)Total fixed costs
D)Profit

Question 32

Jasper Corp has a selling price of $30,and variable costs of $20 per unit.When 12,000 units are sold,profits equaled $70,000.How many units must be sold to break-even?

A)19,000
B)12,000
C)14,333
D)5,000

Question 33

Maggie Corp has a selling price of $20 per unit,variable costs of $10 per unit,and fixed costs of $140,000.How many units must be sold to break even?

A)7,000
B)14,000
C)3,500
D)2,334

Question 34

The break-even point is

A)the point where zero contribution margin is earned.
B)the point where zero profit is earned.
C)the point where selling price just equals variable cost.
D)equal to sales revenue less fixed costs.

Question 35

Which of the following is not a key assumption of cost-volume-profit?

A)Costs may be fixed,variable,mixed,or step.
B)Production and sales are equal.
C)Changes in total cost are strictly due to changes in activity.
D)Total costs and revenues can be depicted with a straight line.

Question 36

Dancer Corp has a selling price of $20 per unit,and variable costs of $10 per unit.When 12,000 units are sold,profits equaled $35,000.How many units must be sold to break-even?

A)32,300
B)20,400
C)24,366
D)8,500

Question 37

At a level of 20,000 units sold,Gail Corp has sales of $400,000,a contribution margin ratio of 40%,and a profit of $40,000.What is the break-even point in units?

A)12,000
B)8,000
C)20,000
D)15,000

Question 38

Allen,Inc,has a contribution margin of 40% and fixed costs of $250,000.What is the break-even point?

A)$100,000
B)$250,000
C)$375,000
D)$625,000

Question 39

Last month Peggy Company had a $30,000 profit on sales of $250,000.Fixed costs are $60,000 a month.What sales revenue is needed for Peggy to break even?

A)$166,667
B)$90,000
C)$30,000
D)$280,000

Question 40

Quail,Inc,has a contribution margin of 40% and fixed costs of $130,000.What is the break-even point?

A)$52,000
B)$325,000
C)$225,000
D)$78,000

Question 41

Megan,Inc.has fixed costs of $400,000,sales price of $40,and variable cost of $30 per unit.How many units must be sold to earn profit of $80,000?

A)2,000
B)10,000
C)40,000
D)48,000

Question 42

Martol,Inc.has fixed costs of $200,000 and a contribution margin ratio of 40%.How much sales revenue must be earned for a profit of $80,000?

A)$140,000
B)$560,000
C)$700,000
D)$1,120,000

Question 43

Louise Corp has a contribution margin ratio of 35%,fixed costs of $60,000,and a profit of $45,000.What are total sales?

A)$300,000
B)$105,000
C)$36,750
D)$171,429

Question 44

Belle Corp has a selling price of $50 per unit,variable costs of $40 per unit,and fixed costs of $100,000.What sales revenue is needed to break-even?

A)$500,000
B)$125,000
C)$5,000,000
D)$1,000,000

Question 45

Payton Corp has sales of $200,000,a contribution margin ratio of 35%,and a target profit of $40,000.If 10,000 units were sold,what are total variable costs?

A)$200,000
B)$130,000
C)$240,000
D)$160,000

Question 46

Virgil Corp has a selling price of $30 per unit,and variable costs of $20 per unit.When 12,000 units are sold,profits equaled $55,000.How many units must be sold to break-even?

A)4,000
B)12,000
C)6,500
D)5,500

Question 47

At a sales level of 20,000 units,Pony Corp has sales of $400,000,a variable cost ratio of 60%,and a profit of $40,000.What is the break-even point in units?

A)8,000
B)12,000
C)15,000
D)20,000

Question 48

Munoz Inc.has a contribution margin ratio of 30% and fixed costs of $90,000.What sales revenue is needed to generate a $60,000 profit?

A)$45,000
B)$200,000
C)$500,000
D)$214,286

Question 49

Last month Empire Company had a $30,000 profit on sales of $250,000.Fixed costs are $60,000 a month.How much would sales have to decrease for Empire to break even?

A)$90,000
B)$83,333
C)$166,667
D)$280,000

Question 50

Ironwood Inc.has a variable cost ratio of 60% and fixed costs of $90,000.What sales revenue is needed to generate a $120,000 profit?

A)$128,572
B)$225,000
C)$375,000
D)$525,000

Question 51

Pecan,Inc,has a contribution margin of 50% and fixed costs of $220,000.What sales revenue is needed to attain a $60,000 profit?

A)$70,400
B)$440,000
C)$560,000
D)$240,000

Question 52

Chelsea Company has sales of $400,000,variable costs of $10 per unit,fixed costs of $100,000,and a target profit of $60,000.How many units were sold?

A)12,000
B)18,000
C)24,000
D)30,000

Question 53

Merlot,Inc.has fixed costs of $200,000,sales price of $50,and variable cost of $30 per unit.How many units must be sold to earn profit of $80,000?

A)2,800
B)11,200
C)14,000
D)202,400

Question 54

The formula for target sales is

A)(Total fixed costs + Target profit)/Contribution margin ratio
B)(Total variable costs + Total fixed costs)/Contribution margin ratio
C)(Total fixed costs + Target profit)/Unit contribution margin
D)(Total variable costs + Total fixed costs)/Unit contribution margin

Question 55

Elk Corp has sales of $300,000,a contribution margin ratio of 40%,and a target profit of $30,000.If 20,000 units were sold,what is the variable cost per unit?

A)$22.50
B)$9.00
C)$6.00
D)$2.00

Question 56

Last month Dexter Company had a $15,000 loss on sales of $150,000.Fixed costs are $60,000 a month.How much do sales have to increase for Dexter to break even?

A)$60,000
B)$75,000
C)$45,000
D)$50,000

Question 57

The formula for target units is

A)(Total fixed costs + Target profit)/Contribution margin ratio
B)(Total variable costs + Total fixed costs)/Contribution margin ratio
C)(Total fixed costs + Target profit)/Unit contribution margin
D)(Total variable costs + Total fixed costs)/Unit contribution margin

Question 58

Last month Stagecoach Company had a $60,000 loss on sales of $300,000.Fixed costs are $120,000 a month.What sales revenue is needed for Stagecoach to break even?

A)$360,000
B)$480,000
C)$600,000
D)$420,000

Question 59

Fern,Inc.has fixed costs of $400,000 and a contribution margin ratio of 30%.How much sales revenue must be earned for a profit of $80,000?

A)$144,000
B)$336,000
C)$1,600,000
D)$1,920,000

Question 60

Last month Angus Company had a $30,000 loss on sales of $250,000.Fixed costs are $60,000 a month.What sales revenue is needed for Angus to break even?

A)$166,667
B)$500,000
C)$280,000
D)$220,000

Question 61

Idaho Corp has fixed costs of $20,000 and a contribution margin ratio of 50%.Currently,sales are $75,000.What is Idaho's margin of safety?

A)$28,000
B)$35,000
C)$42,000
D)$70,000

Question 62

Last month Lyle Company had a $60,000 profit on sales of $300,000.Fixed costs are $120,000 a month.How much do sales have to increase for Lyle to earn a $100,000 profit?

A)$66,667
B)$83,333
C)$220,000
D)$400,000

Question 63

Dexter Corp has fixed costs of $500,000 and a contribution margin ratio of 25%.Currently,margin of safety is $1,000,000.What are Dexter's current sales?

A)$1,000,000
B)$2,000,000
C)$3,000,000
D)$4,000,000

Question 64

Leather Company sold 20,000 units,had variable costs of $12 per unit,fixed costs of $100,000,and profits of $60,000.What is the selling price per unit?

A)$8
B)$17
C)$20
D)$32

Question 65

Fountain Corp has a selling price of $15 per unit and variable costs of $10 per unit.When 14,000 units are sold,profits equaled $45,000.What is the margin of safety?

A)$210,000
B)$105,000
C)$135,000
D)$75,000

Question 66

Nancy Company has sales of $100,000,variable costs of $5 per unit,fixed costs of $25,000,and a profit of $15,000.How many units were sold?

A)20,000
B)16,000
C)12,000
D)8,000

Question 67

Keith Corp has sales of $200,000,a contribution margin ratio of 35%,and a profit of $40,000.If 10,000 units were sold,what is the variable cost per unit?

A)$13.00
B)$20.00
C)$7.00
D)$3.00

Question 68

Vesper Company has sales of $200,000,variable costs of $8 per unit,fixed costs of $50,000,and a profit of $30,000.How many units were sold?

A)10,000
B)15,000
C)20,000
D)25,000

Question 69

Knoll,Inc.currently sells 15,000 units a month for $50 each,has variable costs of $20 per unit,and fixed costs of $300,000.Knoll is considering increasing the price of its units to $60 per unit.This will not affect costs,but demand is expected to drop 20%.Should Knoll increase the cost of its product?

A)Yes;profit will increase $30,000.
B)Yes,profit will increase $150,000.
C)No,profit will decrease $150,000.
D)No,profit will decrease $30,000.

Question 70

Indigo Corp has a selling price of $45 and variable costs of $30 per unit.When 10,000 units are sold,profits equaled $25,000.What is the margin of safety?

A)$75,000
B)$25,000
C)$80,000
D)$150,000

Question 71

Harvest Corp has a contribution margin ratio of 30%,fixed costs of $45,000,and a profit of $60,000.What are total sales?

A)$31,500
B)$105,000
C)$150,000
D)$350,000

Question 72

Bugle Corp has sales of $400,000,a variable cost ratio of 40%,and a profit of $40,000.If 10,000 units were sold,what is the contribution margin per unit?

A)$60.00
B)$36.00
C)$24.00
D)$18.00

Question 73

The margin of safety tells managers

A)how much sales would have to increase to hit the target profit.
B)how much profit would drop if sales decreased.
C)how much sales could drop before the firm no longer earns profits.
D)how much profit would have to increase to hit target sales.

Question 74

Jerome Corp has fixed costs of $500,000 and a contribution margin ratio of 40%.Currently,sales are $3,000,000.What is Jerome's margin of safety?

A)$1,750,000
B)$3,500,000
C)$5,250,000
D)$7,000,000

Question 75

Paint Corp has sales of $600,000,a contribution margin ratio of 30%,and a profit of $40,000.If 20,000 units were sold,what is the variable cost per unit?

A)$9.00
B)$30.00
C)$21.00
D)$3.00

Question 76

Fontaine Corp has a selling price of $15 and variable costs of $10 per unit.When 10,000 units are sold,profits equaled $25,000.What is the margin of safety?

A)$75,000
B)$25,000
C)$105,000
D)$50,000

Question 77

Dragon,Inc.has actual sales of $400,000 and a margin of safety of $150,000.What is Dragon's break-even point in sales?

A)$100,000
B)$250,000
C)$350,000
D)$450,000

Question 78

Irwin Corp has fixed costs of $20,000 and a contribution margin ratio of 40%.Currently,margin of safety is $35,000.What are Irwin's current sales?

A)$35,000
B)$37,500
C)$50,000
D)$85,000

Question 79

The margin of safety is the difference between

A)actual sales and budgeted sales.
B)actual sales and break-even sales.
C)target sales and actual sales.
D)target sales and budgeted sales.

Question 80

Rollag Corp has a selling price of $30 and variable costs of $20 per unit.When 14,000 units are sold,profits equaled $45,000.What is the margin of safety?

A)$420,000
B)$135,000
C)$142,500
D)$75,000