Deck 8: Cost-Volume-Profit Analysis

Question 1

Which of the following are true in cost-volume profit analysis?

A) Selling price per unit is usually treated as constant.
B) Fixed costs per unit decrease as volume increases.
C) Total variable costs vary directly in proportion with sales volume.
D) Fixed costs are constant.
E) All of the above.

Answer 1

E

Question 2

In the course of a year, cost items such as rent, insurance, external property maintenance and a general manager's salary represent what types of cost?

A) Incremental
B) Semi-variable
C) Fixed
D) Opportunity
E) None of the above

Answer 2

C

Question 3

Use this information to answer the next two questions. The following data relates to the Excelsior Hotel that provides overnight accommodation but no other services:
$\bullet$ Fixed costs: $120,000 per annum.
$\bullet$ Variable cost per room night sold: $10.
$\bullet$ Average selling price per room: $110.
$\bullet$ Annual after tax target profit: $144,000.
$\bullet$ Excelsior's profit taxed at: 40%

-What is the Excelsior Hotel's monthly breakeven in terms of rooms sold?

A) 100
B) 1,200
C) 960
D) 80
E) None of the above

Answer 3

100

Question 4

Use this information to answer the next two questions. The following data relates to the Excelsior Hotel that provides overnight accommodation but no other services:
$\bullet$ Fixed costs: $120,000 per annum.
$\bullet$ Variable cost per room night sold: $10.
$\bullet$ Average selling price per room: $110.
$\bullet$ Annual after tax target profit: $144,000.
$\bullet$ Excelsior's profit taxed at: 40%

-What annual number of rooms sold does the Excelsior Hotel have to achieve in order to achieve its target level of profit?

A) 2,640
B) 1,200
C) 3,600
D) 3,140
E) None of the above

Question 5

In a profit and loss statement that is prepared using the contribution margin layout:

A) Costs are classified according to function
B) Costs are segregated into controllable and uncontrollable.
C) Fixed costs are distinguished from variable costs.
D) Direct costs are distinguished from overheads.
E) None of the above.

Question 6

Percentage contribution margin ratio is:

A) Sales minus variable costs
B) Contribution as a percentage of sales
C) Variable costs as a percentage of sales.
D) Gross profit as a percentage of sales
E) None of the above

Question 7

Use the following data to answer the next 3 questions. The Glorious hotel generally charges conference organisers $65 per delegate attending a one day conference. It also incurs $10 in variable costs per delegate. Over the last few years it has averaged 80 delegates for each conference sold. Last year the hotel incurred $88,000 of fixed costs and allocated $2,000 to each of the 44 conferences that it hosted.
-On average, what is the total contribution generated per conference sold?

A) $4,400.
B) $5,480.
C) $8,840.
D) $9,840
E) None of the above

Question 8

Use the following data to answer the next 3 questions. The Glorious hotel generally charges conference organisers $65 per delegate attending a one day conference. It also incurs $10 in variable costs per delegate. Over the last few years it has averaged 80 delegates for each conference sold. Last year the hotel incurred $88,000 of fixed costs and allocated $2,000 to each of the 44 conferences that it hosted.
-If the fixed costs for the hotel are truly $2,000 per conference, how many delegates must be attracted to one of its conferences in order for it to breakeven?

A) 36.36 delegates
B) 42.42 delegates.
C) 54.54 delegates.
D) 78.78 delegates
E) None of the above

Question 9

Use the following data to answer the next 3 questions. The Glorious hotel generally charges conference organisers $65 per delegate attending a one day conference. It also incurs $10 in variable costs per delegate. Over the last few years it has averaged 80 delegates for each conference sold. Last year the hotel incurred $88,000 of fixed costs and allocated $2,000 to each of the 44 conferences that it hosted.
-If conferences sold by the Glorious hotel in the current year are expected to attract an average of 80 delegates, how many conferences must the hotel host in the year in order to breakeven?

A) 50 conferences.
B) 40 conferences.
C) 20 conferences.
D) 15 conferences.
E) None of the above

Question 10

A hotel sells its single room nights for an average of $86 and its double room nights for an average of $102. The variable cost per single room night sold is $8 and the variable cost per double room night sold is $10. The hotel has annual fixed costs of $992,000. In the past the hotel has sold two single rooms for each double room sold. Based on the 2:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven?

A) 8,000 singles and 4,000 doubles.
B) 9,000 singles and 4,500 doubles.
C) 10,000 singles and 5,000 doubles.
D) 11,000 singles and 5,500 doubles.
E) None of the above

Question 11

Break-even is the level of sales where

A) Total revenue equals all of an organisation's fixed costs.
B) Total revenue equals all of an organisation's variable costs.
C) Total revenue equals all of an organisation's direct and fixed costs.
D) Total revenue is the same as total costs.
E) The revenue from the next item sold is the same at its cost.

Question 12

Contribution margin is:

A) The surplus of revenue over fixed costs
B) Profit as a percentage of sales
C) The amount contributed to covering variable costs by an incremental increase in the sales level.
D) Revenue minus variable costs
E) None of the above

Question 13

Use this information to answer the next two questions. The following data relates to the Bravo Hotel that provides overnight accommodation but no other services:
Fixed costs: $240,000 per annum; Variable cost per room night sold: $15; Average selling price per room night: $65; Annual after tax target profit: $288,000; Bravo's profit taxed at: 40%.
-What is the Bravo Hotel's monthly breakeven in terms of room nights sold?

A) 1,200
B) 800
C) 600
D) 400
E) None of the above

Question 14

Use this information to answer the next two questions. The following data relates to the Bravo Hotel that provides overnight accommodation but no other services:
Fixed costs: $240,000 per annum; Variable cost per room night sold: $15; Average selling price per room night: $65; Annual after tax target profit: $288,000; Bravo's profit taxed at: 40%.
-What annual number of rooms sold does the Bravo Hotel have to achieve in order to achieve its target level of profit?

A) 14,400
B) 12,200
C) 10,800
D) 8,600
E) None of the above

Question 15

A hotel sells its single room nights for an average of $100 and its double room nights for an average of $130. The variable cost per single room night sold is $10 and the variable cost per double room night sold is $12. The hotel has annual fixed costs of $1,358,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven?

A) 10,500 singles and 3,500 doubles.
B) 12,000 singles and 4,000 doubles.
C) 13,500 singles and 4,500 doubles.
D) 15,000 singles and 5,000 doubles.
E) None of the above

Question 16

An ice cream stall is planning to sell 1,000 ice creams at $4 each at the next Gold Coast grand prix event. This will generate a contribution margin ratio of 75%. If the ice cream stall will break even at this level of sales, what are its fixed costs associated with the event.

A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
E) None of the above.

Question 17

The revenue required to obtain a target net profit can be determined by:

A) Fixed costs + target net profit
B) Variable costs + fixed costs + target net profit
C) Variable costs + target net profit
D) Variable costs + fixed costs
E) None of the above

Question 18

Use this information to answer the next two questions. The following data relates to the Exquisite Hotel that provides overnight accommodation but no other services:
Fixed costs: $252,000 per annum; Variable cost per room night sold: $14; Average selling price per room night: $84; Annual after tax target profit: $63,000; Bravo's profit taxed at: 40%.
-What is the Exquisite Hotel's monthly breakeven in terms of room nights sold?

A) 200
B) 250
C) 300
D) 350
E) None of the above

Question 19

Use this information to answer the next two questions. The following data relates to the Exquisite Hotel that provides overnight accommodation but no other services:
Fixed costs: $252,000 per annum; Variable cost per room night sold: $14; Average selling price per room night: $84; Annual after tax target profit: $63,000; Bravo's profit taxed at: 40%.
-What annual number of rooms sold does the Exquisite Hotel have to achieve in order to achieve its target level of profit?

A) 4,600
B) 5,100
C) 5,600
D) 6,100
E) None of the above

Question 20

Which of the following is not needed to calculate breakeven level:

A) The proportion of sales between different services (when more than one service is sold).
B) Selling price per unit for each service sold.
C) Variable cost per unit for each service sold.
D) Total fixed costs.
E) All of the above are needed to calculate breakeven.

Question 21

A T-shirt retailer is planning to sell 500 T-shirts for $20 each at the next Olympics. This will generate a contribution margin ratio of 70%. If this level of sales will signify breakeven for the T-shirt retailer's operations at the Olympics, what are the retailer's fixed costs associated with selling at the Olympics.

A) $5,000.
B) $6,000.
C) $7,000.
D) $8,000.
E) None of the above.

Question 22

A hotel sells its single room nights for an average of $110 and its double room nights for an average of $140. The variable cost per single room night sold is $8 and the variable cost per double room night sold is $12. The hotel has annual fixed costs of $3,472,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven?

A) 18,000 singles and 6,000 doubles.
B) 21,000 singles and 7,000 doubles.
C) 24,000 singles and 8,000 doubles.
D) 27,000 singles and 9,000 doubles.
E) None of the above

Question 23

Which of the following signifies that a target profit level has been achieved:

A) Total revenue is equal to all of an organisation's fixed costs plus the before tax value of the target profit.
B) Total revenue is equal to all of an organisation's variable costs plus the before tax value of the target profit.
C) Total revenue is equal to all of an organisation's direct and fixed costs plus the before tax value of the target profit.
D) Total revenue is equal to total costs plus the before tax value of the target profit.
E) None of the above.

Question 24

Which of the following statements regarding contribution margin is correct?

A) An increase in contribution margin will negatively affect net profit margin.
B) Contribution margin is equivalent to revenue less cost of sales.
C) Reducing variable costs while maintaining the sales price will improve contribution margin.
D) A decline in total sales will reduce the contribution margin.
E) If fixed costs increase, a greater contribution margin is required to break-even.

Question 25

A hotel sells its single room nights for an average of $90 and its double room nights for an average of $120. The variable cost per single room night sold is $10 and the variable cost per double room night sold is $20. The hotel has annual fixed costs of $884,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven?

A) 7,800 singles and 2,600 doubles.
B) 7,200 singles and 2,400 doubles.
C) 12,600 singles and 4,200 doubles.
D) 14,700 singles and 4,900 doubles.
E) None of the above