Deck 3: Cost-Volume-Profit Analysis

Question 1

The selling price per unit less the variable cost per unit is the ________.

A) fixed cost per unit
B) gross margin
C) margin of safety
D) contribution margin per unit

Answer 1

D

Question 2

One of the first steps to take when using CVP analysis to help make decisions is ________.

A) calculating the break-even point
B) identifying the variable and fixed costs
C) calculation of the degree of operating leverage for the company
D) estimating the volume of sales to make a good profit

Answer 2

B

Question 3

Fixed costs equal $15,000,unit contribution margin equals $25,and the number of units sold equal 1,150.Operating income is ________.

A) $28,750
B) $13,750
C) $15,000
D) $14,750

Answer 3

B

Question 4

A revenue driver is defined as ________.

A) any factor that affects costs and revenues
B) any factor that affects revenues
C) the only factor that can influence a change in selling price
D) the only factor that can influence a change in demand

Question 5

Managers use cost-volume-profit (CVP)analysis to ________.

A) forecast the cost of capital for a given period of time
B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income
C) estimate the risks associated with a given job
D) analyse a firm's profitability and help to decide wealth distribution among its stakeholders

Question 6

Pacific Company sells only one product for $11 per unit,variable production costs are $3 per unit,and selling and administrative costs are $1.50 per unit.Fixed costs for 10,000 units are $5,000.The operating income is ________.

A) $6.50 per unit
B) $6.00 per unit
C) $5.50 per unit
D) $5.00 per unit

Question 7

Answer the following questions using the information below:
Northern Star sells several products. Information of average revenue and costs is as follows:
$$\begin{array} { l r } \text { Selling price per unit } & \$ 20.00 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 4.00 \\\text { Direct manufacturing labor } & \$ 1.60 \\\text { Manufacturing overhead } & \$ 0.40 \\\text { Selling costs } & \$ 2.00 \\\text { Annual fixed costs } & \$ 96,000\end{array}$$
$\text { The company sells } 12,000 \text { units at the end of the year. }$

-The contribution margin per unit is ________.

A) $11.00
B) $12.00
C) $4.00
D) $14.00

Question 8

The contribution income statement highlights ________.

A) gross margin
B) the segregation of costs into period costs and inventoriable costs
C) different product lines
D) variable and fixed costs

Question 9

Answer the following questions using the information below:
Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs.
Contribution margin per unit is ________.

A) $4.00
B) $11.00
C) $10.00
D) $8.00

Question 10

Which of the following is true of CVP analysis?

A) Costs may be separated into separate inventoriable and period components with respect to the level of output.
B) Total revenues and total costs are linear in relation to output units.
C) Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
D) Proportion of different products will vary according to demand and supply when multiple products are sold.

Question 11

Which of the following is an assumption of CVP analysis?

A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B) When graphed, total costs curve upward.
C) The unit-selling price is variable as it is subject to demand and supply.
D) Total costs can be divided into inventoriable and period costs with respect to the level of output.

Question 12

As per CVP,operating income calculations use ________.

A) net income and dividends
B) income tax expense and net income
C) contribution margins and fixed costs
D) nonoperating revenues and nonoperating expenses

Question 13

Answer the following questions using the information below:
Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs.

-If sales increase by $60,000,operating income will increase by ________.

A) $10,000
B) $40,000
C) $45,000
D) $60,000

Question 14

Contribution margin equals ________.

A) revenues minus period costs
B) revenues minus product costs
C) revenues minus variable costs
D) revenues minus fixed costs

Question 15

Answer the following questions using the information below:
Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs.
Calculate the variable cost per unit.

A) $11.00
B) $7.00
C) $8.00
D) $7.50

Question 16

Answer the following questions using the information below:
Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs.
Contribution margin per software is ________.

A) $10.00
B) $30.00
C) $40.00
D) $36.00

Question 17

The contribution margin income statement ________.

A) reports gross margin
B) is allowed for external reporting to shareholders
C) categorizes costs as either direct or indirect
D) can be used to predict future profits at different levels of activity

Question 18

In the graph method of CVP analysis,the total revenues line always begins from the x-axis and the total costs line begins from the fixed cost line.

Question 19

Which of the following is true about the assumptions underlying basic CVP analysis?

A) Selling price varies with demand and supply of the product.
B) Only selling price and variable cost per unit are known and constant.
C) Only selling price, variable cost per unit, and total fixed costs are known and constant.
D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

Question 20

Which of the following is true of cost-volume-profit analysis?

A) The theory assumes that all costs are variable.
B) The theory assumes that units manufactured equal units sold.
C) The theory states that total variable costs remain the same over a relevant range.
D) The theory states that total costs remain the same over the relevant range.

Question 21

The shorter the time horizon,the lower the percentage of total costs considered fixed.

Question 22

Answer the following questions using the information below:
Bell Company sells several products. Information of average revenue and costs is as follows:
$\begin{array}{lr}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 5.25 \\\text { Direct manufacturing labor } & \$ 1.15 \\\text { Manufacturing overhead } & \$ 0.25 \\\quad \text { Selling costs } & \$ 1.85 \\\text { Annual fixed costs } & \$ 110,000\end{array}$
$\text { The company sells } 10,000 \text { units. }$

-The contribution margin per unit is ________.

A) $15
B) $20
C) $22
D) $125

Question 23

The three methods used to study CVP analysis are graphical method,contribution method,and equation method.

Question 24

Operating income plus total fixed costs equals the contribution margin.

Question 25

Sales margin = Contribution margin percentage × Revenues (in dollars).

Question 26

Answer the following questions using the information below:
Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month.
What is the budgeted operating income for the month assuming that Alex sells 175 tables?

A) $45,250
B) $37,000
C) $36,250
D) $36,750

Question 27

Contribution margin = Contribution margin percentage × Revenues (in dollars).

Question 28

The classification of costs as variable and fixed depends on the relevant range,the length of the time horizon,and the specific decision situation.

Question 29

Answer the following questions using the information below:
Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month.
What is the budgeted revenue for the month assuming that Alex sells 175 tables?

A) $145,750
B) $148,750
C) $150,000
D) $142,250

Question 30

Answer the following questions using the information below:
Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month.
Winnz sells 8,000 units resulting in $100,000 of sales revenue,$35,000 of variable costs,and $45,000 of fixed costs.The contribution margin percentage is ________.

A) 66.67%
B) 65.0%
C) 37.5%
D) 75.0%

Question 31

It is assumed in CVP analysis that the unit selling price,unit variable costs,and unit fixed costs are known and constant.

Question 32

A revenue driver is a variable,such as volume,that causally affects revenues.

Question 33

Which of the following is the mathematical expression of contribution margin ratio?

A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
B) Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars)
C) Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars)
D) Contribution margin ratio = Contribution margin percentage × Operating leverage

Question 34

In CVP analysis,the number of output units is the only revenue driver.

Question 35

While doing cost-volume-profit analysis,a company should separate costs into fixed and variable components.

Question 36

Answer the following questions using the information below:
Northern Star sells several products. Information of average revenue and costs is as follows:
$$\begin{array} { l r } \text { Selling price per unit } & \$ 20.00 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 4.00 \\\text { Direct manufacturing labor } & \$ 1.60 \\\text { Manufacturing overhead } & \$ 0.40 \\\text { Selling costs } & \$ 2.00 \\\text { Annual fixed costs } & \$ 96,000\end{array}$$
$\text { The company sells } 12,000 \text { units at the end of the year. }$

-If direct labor and direct material costs increase by $1 each,contribution margin ________.

A) increases by $20,000
B) increases by $14,000
C) decreases by $24,000
D) decreases by $14,000

Question 37

Answer the following questions using the information below:
Bell Company sells several products. Information of average revenue and costs is as follows:
$\begin{array}{lr}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 5.25 \\\text { Direct manufacturing labor } & \$ 1.15 \\\text { Manufacturing overhead } & \$ 0.25 \\\quad \text { Selling costs } & \$ 1.85 \\\text { Annual fixed costs } & \$ 110,000\end{array}$
$\text { The company sells } 10,000 \text { units. }$

-What is the proportion of variable costs to total costs?

A) 45.00%
B) 48.56%
C) 53.56%
D) 43.56%

Question 38

In CVP analysis,the graph of total revenues versus total costs is linear in nature relation to units sold within a relevant range and time period.

Question 39

A revenue driver is a variable,such as volume,that causally affects revenues.

Question 40

The difference between total revenues and total variable costs is called profit margin.

Question 41

If the breakeven point is 1,000 units and each unit sells for $50,then ________.

A) selling 1,040 units will result in a loss
B) selling $60,000 will result in a loss
C) selling $50,000 will result in zero profit
D) selling $45,000 will result in profit

Question 42

Assume only the specified parameters change in a CVP analysis.The contribution margin percentage increases when ________.

A) total fixed costs increase
B) total fixed costs decrease
C) variable costs per unit increase
D) variable costs per unit decrease

Question 43

Answer the following questions using the information below:
Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs.
Breakeven point in units is ________.

A) 196 units
B) 203 units
C) 185 units
D) 192 units

Question 44

The breakeven point is the activity level where ________.

A) revenues equal fixed costs
B) revenues equal variable costs
C) contribution margin equals total costs
D) revenues equal the sum of variable and fixed costs

Question 45

Answer the following questions using the information below:
Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs.
The number of units that must be sold to achieve $40,000 of operating income is ________.

A) 677 units
B) 717 units
C) 617 units
D) 650 units

Question 46

What is the breakeven point in units,assuming a product's selling price is $100,fixed costs are $16,000,unit variable costs are $20,and operating income is $5,200?

A) 100 units
B) 300 units
C) 400 units
D) 200 units

Question 47

At breakeven point,________.

A) operating income is equal to zero
B) contribution margin minus fixed costs is equal to profits earned
C) revenues equal fixed costs minus variable costs
D) breakeven revenues equal fixed costs divided by the variable cost per unit

Question 48

Contribution margin per unit is a useful tool for calculating contribution margin and operating income.

Question 49

Winnz sells 8,000 units resulting in $100,000 of sales revenue,$35,000 of variable costs,and $45,000 of fixed costs.To achieve $150,000 in operating income,sales must total ________.

A) $440,000
B) $160,000
C) $130,000
D) $300,000

Question 50

At the breakeven point of 2,000 units,variable costs total $4,000 and fixed costs total $6,000.The 2,001st unit sold will contribute ________ to profits.

A) $1
B) $2
C) $3
D) $5

Question 51

How many units would have to be sold to yield a target operating income of $23,000,assuming variable costs are $25 per unit,total fixed costs are $2,000,and the unit selling price is $30?

A) 4,800 units
B) 4,400 units
C) 5,000 units
D) 5,200 units

Question 52

Breakeven point in units is ________.

A) total costs divided by profit margin per unit
B) contribution margin per unit divided by total cost per unit
C) fixed costs divided by contribution margin per unit
D) the sum of fixed and variable costs divided by contribution margin per unit

Question 53

The breakeven point revenues is calculated by dividing ________.

A) fixed costs by total revenues
B) fixed costs by contribution margin percentage
C) total revenues by fixed costs
D) contribution margin percentage by fixed costs

Question 54

Sky High sells helicopters.During the current year,100 helicopters were sold resulting in $820,000 of sales revenue,$250,000 of variable costs,and $342,000 of fixed costs.Breakeven point in units is ________.

A) 80 units
B) 64 units
C) 60 units
D) 78 units

Question 55

If unit outputs exceed the breakeven point ________.

A) there will be an increase in fixed costs
B) total sales revenue will exceed fixed costs
C) total sales revenue will exceed variable costs
D) there will be a profit

Question 56

Sky High sells helicopters.During the current year,100 helicopters were sold resulting in $820,000 of sales revenue,$250,000 of variable costs,and $342,000 of fixed costs.The number of helicopters that must be sold to achieve $300,000 of operating income is ________.

A) 113 units
B) 102 units
C) 96 units
D) 100 units

Question 57

The breakeven point decreases if ________.

A) the variable cost per unit increases
B) the total fixed costs decrease
C) the contribution margin per unit decreases
D) the selling price per unit decreases

Question 58

The difference between total revenues and total variable costs is called contribution margin.

Question 59

Arthur's Plumbing reported the following:
Required:
a.Compute contribution margin.
b.Compute contribution margin percentage.
c.Compute gross margin.
d.Compute gross margin percentage.
e.Compute operating income.

Question 60

Sales total $400,000 when variable costs total $300,000 and fixed costs total $50,000.The breakeven point in sales dollars is ________.

A) $200,000
B) $120,000
C) $170,000
D) $210,000

Question 61

Frazer Corp sells several products.Information of average revenue and costs is as follows: $\begin{array}{lr}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 5.50 \\\text { Direct manufacturing labor } & \$ 1.15 \\\text { Manufacturing overhead } & \$ 0.85 \\\text { Selling costs } & \$ 2.50 \\\text { Annual fixed costs } & \$ 125,000\end{array}$
If the company decides to lower its selling price by 12.25%,the operating income is reduced by ________.

A) $52,500
B) $50,500
C) $55,500
D) $29,500

Question 62

Zealz Manufacturing produces a single product that sells for $80.Variable costs per unit equal $30.The company expects total fixed costs to be $70,000 for the next month at the projected sales level of 2,000 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.What is the current breakeven point in terms of number of units?

A) 1,400 units
B) 2,250 units
C) 3,333 units
D) 1725 units

Question 63

Answer the following questions using the information below:
Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.
What is the Bridal Shoppe's operating income when 200 dresses are sold?

A) $30,000
B) $80,000
C) $200,000
D) $100,000

Question 64

Bovous Stores,Inc.,sells several products.Information of average revenue and costs is as follows: $\begin{array}{lr}\text { Selling price per unit } & \$ 20.00 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 4.00 \\\text { Direct manufacturing labor } & \$ 1.60 \\\text { Manufacturing overhead } & \$ 0.40 \\\text { Selling costs } & \$ 2.00 \\\text { Annual fixed costs } & \$ 96,000\end{array}$
What is the contribution margin percentage?

A) 60%
B) 66%
C) 33%
D) 55%

Question 65

Lights Manufacturing produces a single product that sells for $125.Variable costs per unit equal $50.The company expects total fixed costs to be $75,000 for the next month at the projected sales level of 1,000 units.What is the current breakeven point in terms of number of units?

A) 800 units
B) 1033 units
C) 667 units
D) 1,000 units

Question 66

Frazer Corp sells several products.Information of average revenue and costs is as follows: $\begin{array}{lr}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 5.50 \\\text { Direct manufacturing labor } & \$ 1.15 \\\text { Manufacturing overhead } & \$ 0.85 \\\text { Selling costs } & \$ 2.50 \\\text { Annual fixed costs } & \$ 125,000\end{array}$ What is the operating income earned if the company sells 15,000 units?

A) $162,750
B) $150,000
C) $148,500
D) $152,500

Question 67

If breakeven point is 1,000 units,each unit sells for $30,and fixed costs are $10,000,then on a graph the ________.

A) total revenue line and the total cost line will intersect at $30,000 of revenue
B) total cost line will be zero at zero units sold
C) revenue line will start at $10,000
D) total revenue line and the total cost line will intersect at $40,000 of revenue

Question 68

For every $25,000 of ticket packages sold,operating income will increase by ________.

A) $6,250
B) $12,500
C) $18,750
D) $15,000

Question 69

Dr.Charles Hunter,MD,performs a certain outpatient procedure for $1,000.His fixed costs are $20,000,while his variable costs are $500 per procedure.Dr.Hunter currently plans to perform 200 procedures this month.What is the breakeven point for the month assuming that Dr.Hunter plans to perform the procedure 200 times?

A) 40 times
B) 30 times
C) 20 times
D) 10 times

Question 70

Pearl Lights sells only pearl necklaces.8,000 units were sold resulting in $240,000 of sales revenue,$60,000 of variable costs,and $40,000 of fixed costs.The breakeven point in total sales dollars is ________.

A) $40,000
B) $53,334
C) $100,000
D) $58,334

Question 71

Answer the following questions using the information below:
Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.
How many ticket packages will Ruben need to sell to break even?

A) 34 packages
B) 50 packages
C) 100 packages
D) 150 packages

Question 72

When fixed costs are $50,000 and variable costs are 60% of the selling price,then breakeven sales are ________.

A) $115,000
B) $125,000
C) $175,000
D) $275,000

Question 73

Answer the following questions using the information below:
The following information is for High Corp:
$\begin{array}{lr}\text { Selling price } & \$ 60 \text { per unit } \\\text { Variable costs } & \$ 40 \text { per unit } \\\text { Total fixed costs } & \$ 125,000\end{array}$

-If targeted operating income is $50,000,then targeted sales revenue is ________.

A) $525,052
B) $533,333
C) $498,133
D) $517,072

Question 74

Answer the following questions using the information below:
Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.
How many dresses are sold when operating income is zero?

A) 225 dresses
B) 150 dresses
C) 100 dresses
D) 90 dresses

Question 75

Answer the following questions using the information below:
Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.
What is the contribution margin per ticket package?

A) $50
B) $100
C) $150
D) $200

Question 76

Bovous Stores,Inc.,sells several products.Information of average revenue and costs is as follows: $\begin{array}{lr}\text { Selling price per unit } & \$ 20.00 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 4.00 \\\text { Direct manufacturing labor } & \$ 1.60 \\\text { Manufacturing overhead } & \$ 0.40 \\\text { Selling costs } & \$ 2.00 \\\text { Annual fixed costs } & \$ 96,000\end{array}$
The revenues that the company must earn annually to make a profit of $144,000 are ________.

A) $378,000
B) $425,000
C) $400,000
D) $450,000

Question 77

The breakeven point is the quantity of output at which total revenues equal fixed costs.

Question 78

Answer the following questions using the information below:
Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.
How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?

A) 367 packages
B) 434 packages
C) 1,100 packages
D) 1,300 packages

Question 79

Answer the following questions using the information below:
The following information is for High Corp:
$\begin{array}{lr}\text { Selling price } & \$ 60 \text { per unit } \\\text { Variable costs } & \$ 40 \text { per unit } \\\text { Total fixed costs } & \$ 125,000\end{array}$

-The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________.

A) 6,000 units
B) 7,500 units
C) 3,334 units
D) 4,334 units

Question 80

Which of the following will increase a company's breakeven point?

A) increasing variable cost per unit
B) increasing contribution margin per unit
C) reducing its total fixed costs
D) increasing the selling price per unit