Question 1

Both the income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.

Accepted Answer

Both the income statement approach and the contribution margin approach use the same basic formula to calculate the breakeven point (total fixed costs divided by the contribution margin per unit). Therefore, they will yield the same result.

Question 2

Ace Card Company has variable costs of $0.40 per unit of product. The remainder of its production costs are fixed. In May, the volume was 12 000 units and the total production costs were $6 900. How much are the fixed costs?

Accepted Answer

Fixed costs = Total production costs - (Variable costs per unit * Volume)= $6,900 - ($0.40 * 12,000)= $6,900 - $4,800= $2,100

Question 3

Olympus Company sells 1 400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. How much is the total contribution margin? (Please round to nearest whole dollar.)

Accepted Answer

The answer of Olympus Company sells 1 400 units per...

Question 4

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total of all costs? (Assume all volumes are within the relevant range.)

Accepted Answer

The total costs would increase by some amount less than 20% because only the variable costs would increase with volume, while the fixed costs would remain unchanged.

Question 5

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total variable costs? (Assume all volumes are within the relevant range.)

Accepted Answer

Total variable costs increase in direct proportion to the increase in volume, so a 20% increase in volume results in a 20% increase in total variable costs.

Question 6

Breakeven is the point where the sales revenues are exactly equal to the fixed costs.

Accepted Answer

Breakeven is the point where total sales revenues equal total costs (both fixed and variable), not just fixed costs.

Question 7

Reevis Company sells hand- sewn shirts for $25 per unit, and has fixed costs of $7 500. Their contribution margin ratio is 20%. How many units do they have to sell to break even?

Accepted Answer

The contribution margin per unit is $25 * 20% = $5. To break even, fixed costs of $7,500 must be covered. Therefore, $7,500 / $5 = 1,500 units need to be sold to break even.

Question 8

The breakeven point represents the sales volume at which the company's net profit is zero.

Accepted Answer

The breakeven point is the point where the company's total sales revenue equals its total costs. At this point, the net profit is zero.

Question 9

Contribution margin is defined as the sales revenue minus the fixed costs.

Accepted Answer

Contribution margin is defined as the sales revenue minus the variable costs, not the fixed costs.

Question 10

Arturo Company's model A generator sells for $456, and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo sells more of model B than model A, it will generate lower revenues, but higher net profit.

Accepted Answer

If Arturo sells more of model B, the revenue per unit is lower, but the profit margin (selling price minus variable cost) is higher for model B ($70) compared to model A ($52), leading to higher net profit.

Question 11

Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed costs.

Accepted Answer

This is the definition of the breakeven point.

Question 12

Paula sells hand- knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. How many scarves does she need to sell to break even?

Accepted Answer

The answer of Paula sells hand- knitted scarves at the...

Question 13

Paula sells hand- knitted scarves at the flea market. Each scarf sells for $25. Paula pays $30 to rent a vending space for one day. Her variable costs are $15 per scarf. What total revenue amount does she need to earn to break even?

Accepted Answer

The answer of Paula sells hand- knitted scarves at the...

Question 14

Reevis Company sells hand- sewn shirts for $25 per unit, and has fixed costs of $7 500. Their contribution margin ratio is 20%. How much is the variable cost per unit?

Accepted Answer

The answer of Reevis Company sells hand- sewn shirts for...

Question 15

Arturo Company's model A generator sells for $456 and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo Company's sales incentives reward sales of the goods with highest contribution margin, the sales force will be motivated to push sales of model A more aggressively than model B.

Accepted Answer

Calculations:
$456 - $404 = $52
$390 - $320 = $70

Question 16

Olympus Company sells 1 400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. Fixed costs are $6 900 per month. How much is the net profit?

Accepted Answer

Net profit is calculated as (Sales - Variable Costs - Fixed Costs). Sales = 1,400 units * $28 = $39,200. Variable Costs = 1,400 units * $22.50 = $31,500. Net Profit = $39,200 - $31,500 - $6,900 = $800.

Question 17

CVP analysis assumes that the ONLY factor that affects costs is change in volume.

Accepted Answer

The answer of CVP analysis assumes that the ONLY factor...

Question 18

Reevis Company has fixed costs of $7 500. Their contribution margin ratio is 20%. What is the break- even point in sales dollars?

Accepted Answer

The break-even point in sales dollars is calculated by dividing the fixed costs by the contribution margin ratio. $7,500 / 0.20 = $37,500.

Question 19

Orleans Company has a normal range of production volumes between 100 000 units and 180 000 units per month. That is considered the relevant range for production cost analysis. If the company expands significantly beyond 180 000 units per month, which of the following would be the most likely expectation?

Accepted Answer

When production expands significantly beyond the relevant range, both fixed costs and variable costs per unit may change due to factors like the need for additional facilities or changes in efficiency.

Question 20

If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60.

Accepted Answer

Contribution margin per unit is calculated by subtracting variable cost per unit from the selling price per unit.

Contribution margin per unit = Selling price per unit - Variable cost per unit 
$7.60 = $11.40 - $3.80

Quiz 22: Short-Term Business Decisions