Question 1

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed:

Accepted Answer

The break-even point for a business selling multiple products can be determined regardless of the number of different products sold, as long as the overall costs and revenues can be accurately calculated. There is no specific limit to the number of products.

Question 2

The difference between the current sales revenue and the sales at the break-even point is called the:

Accepted Answer

The margin of safety is the difference between actual sales revenue and the sales revenue at the break-even point. This indicates how much sales can decline before the company incurs a loss. Option A is incorrect because the contribution margin is the difference between total sales revenue and variable costs. Option C and D are also incorrect as they do not refer to the difference between sales revenue and the break-even point.

Question 3

Cost-volume-profit analysis cannot be used if which of the following occurs?

Accepted Answer

Cost-volume-profit analysis relies on being able to properly classify costs into fixed and variable categories. If costs cannot be classified properly, the analysis cannot be used.

Question 4

The following is a list of various costs of producing sweatshirts.Classify each cost as either a variable, fixed, or mixed cost for units produced and sold.
(a)Electricity costs of $0.025 per kilowatt-hour
(b)Warehouse rent of $6,000 per month plus $0.50 per square foot of storage used
(c)Thread
(d)Zip used in sweatshirts
(e)Janitorial costs of $2,000 per month
(f)Advertising costs of $10,000 per month
(g)Plant manager salary
(h)Color dyes for producing different colors of sweatshirts
(i)Salary of the production supervisor
(j)Straight-line depreciation on sewing machines
(k)Patterns for different designs.Patterns typically last many years before being replaced
(l)Maintenance costs for the company's sewing machine.The cost is $2,000 per year plus $0.001 for each machine hour of use
(m)Property taxes on factory, building, and equipment
(n)Cotton and polyester cloth
(o)Hourly wages of sewing machine operators

Accepted Answer

The answer of The following is a list of various...

Question 5

Calculate the break-even sales when a business has sales of $824,000 and a margin of safety of 21%.

Accepted Answer

The answer of Calculate the break-even sales when a business...

Question 6

A business has a capacity of $4,000,000 of sales, actual sales of $1,500,000, break-even sales of $900,000, fixed costs of $540,000, and variable costs that are 40% of sales.What is the margin of safety expressed as a percentage of sales?

Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Here, it is ($1,500,000 - $900,000) / $1,500,000 = 0.4 or 40%.

Question 7

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit.Such an analysis is called:

Accepted Answer

The analysis described in the statement is a "what if" or sensitivity analysis, which is used to determine the impact of changing assumptions on the break-even point and profit.

Question 8

Calculate operating leverage if sales are $342,000, variable costs are 58% of sales, and operating income is $42,000.

Accepted Answer

The answer of Calculate operating leverage if sales are $342,000,...

Question 9

What is the margin of safety (in sales) when a business has sales of $485,000, sales of $225,000 at break-even point, and unit selling price of $55?

Accepted Answer

The margin of safety (in sales) can be calculated by subtracting the break-even point sales from the actual or budgeted sales, and dividing the result by actual or budgeted sales, then multiplying that by 100 to get a percentage. 
Margin of safety (in sales) = [(Actual or Budgeted Sales - Break-Even Point Sales) / Actual or Budgeted Sales] x 100
Margin of safety (in sales) = [($485,000 - $225,000) / $485,000] x 100
Margin of safety (in sales) = 53.61%

Therefore, the business has a margin of safety of 53.61%. To find the dollar amount of the margin of safety, we can multiply the margin of safety percentage by actual or budgeted sales:
Margin of safety (in dollars) = Margin of safety (in sales) x Actual or Budgeted Sales
Margin of safety (in dollars) = 53.61% x $485,000
Margin of safety (in dollars) = $260,000

So the best choice is C, $260,000 as the margin of safety.

Quiz 11: Cost-Volume-Profit Analysis