Question 1

Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45 000. What is Able's break-even point?

Accepted Answer

The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit (selling price per unit minus variable cost per unit). Here, it is $45,000 / ($50 - $35) = 3,000 units.

Question 2

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. To make a profit of $4000, Heath Ltd must produce (to the nearest integer):

Accepted Answer

D

Question 3

Under the assumptions used in cost-volume-profit analysis, as volume increases:

Accepted Answer

In cost-volume-profit analysis, it is assumed that fixed costs remain constant regardless of changes in volume, while variable costs per unit remain constant. Therefore, as volume increases, the total variable costs will increase proportionally, but the variable cost per unit will stay the same.

Question 4

To calculate the break-even point, that is, where neither a profit nor a loss is made, the formula
Sx = VCx + FC + P can be used, but only if P is equal to zero.

Accepted Answer

The formula for break-even point is Sx = VCx + FC + P, but P must be zero for the calculation to result in neither a profit nor a loss. Therefore, the statement is true.

Question 5

All of the following are assumptions made in cost-volume-profit analysis except:

Accepted Answer

Cost-volume-profit (CVP) analysis typically assumes that the cost of materials, along with other variable costs, remains constant per unit at different levels of volume. This means that choice A, which suggests that the cost of materials can change at different levels of volume, is not an assumption made in CVP analysis.

Question 6

A company has net profit of $10 000, sales price per unit of $25 and fixed costs of $40 000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?

Accepted Answer

The answer of A company has net profit of $10...

Question 7

The break-even point is the point at which the total contribution margin is equal to total:

Accepted Answer

The break-even point occurs when total contribution margin (which is sales minus variable costs) equals total fixed costs. Therefore, the correct answer is C, fixed costs.

Question 8

Sweet Things, Inc. had the following results for the year ended 31 December. Volume was 60 000 units this year.  If volume increased to 70 000 units, what should Sweet Things, Inc. have expected net profit to be next year?

Accepted Answer

The answer of Sweet Things, Inc. had the following results...

Question 9

Jany Ltd produces 20 000 golf balls. Each golf ball sells for $4, and it costs $50 000 to produce the golf balls. The cost of the fixed plant and equipment needed to produce the golf balls is $15 000 per period. The break-even point for Jany Ltd is (to the nearest integer):

Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit. However, the variable cost per unit is not directly provided. Instead, we know the total cost to produce 20,000 golf balls is $50,000, and the fixed cost is $15,000, implying the variable cost is $35,000 ($50,000 total cost - $15,000 fixed cost). Therefore, the variable cost per golf ball is $35,000 / 20,000 = $1.75. The selling price per golf ball is $4, so the contribution margin per unit is $4 - $1.75 = $2.25. The total fixed costs are $15,000, so the break-even point in units is $15,000 / $2.25 ≈ 6,667 golf balls. However, none of the provided options match this calculation, suggesting a misunderstanding in the calculation process. Given the options, recalculating based on the provided information and the correct approach to determine the break-even point is necessary. The correct calculation should consider the fixed costs and the profit margin per unit without mistakenly subtracting variable costs from the total production cost, as the variable costs are not explicitly provided. The break-even point formula is Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Without clear variable costs, we should focus on the provided options and the understanding that the break-even point involves covering the fixed costs through the contribution margin. Given the misunderstanding in the initial explanation, let's correct the approach: The total costs include both fixed and variable costs, and without clear variable costs, we calculate the break-even point as Fixed Costs / (Selling Price per Unit - (Total Costs - Fixed Costs) / Total Units). This calculation aims to find how many units need to be sold to cover all costs, but with the given data and options, the precise calculation seems to have been misinterpreted. Revisiting the calculation with the correct understanding that the total cost to produce the golf balls ($50,000) includes both variable and fixed costs, and the fixed costs are $15,000, we aim to find the point where revenue equals cost. The selling price is $4 per golf ball, and if we consider the total production cost as a mix of variable and fixed costs, we should calculate the variable costs correctly and apply the break-even formula accurately. Given the error in the initial explanation and calculation, the focus should be on understanding the break-even analysis correctly, which involves calculating the point at which total revenues equal total costs, considering both fixed and variable costs, and the selling price per unit. The correct answer, based on the options provided and the need for a precise calculation, should align with the principles of break-even analysis, taking into account the selling price, fixed costs, and correctly identifying variable costs per unit if possible.

Question 10

The contribution margin ratio is equal to the contribution margin divided by sales, and shows the proportion of each sales dollar available to cover fixed costs and contribute to profit.

Accepted Answer

This statement is true. The contribution margin ratio is calculated by dividing the contribution margin (which is sales revenue minus variable costs) by sales revenue. The resulting ratio represents the portion of each sales dollar that can be used to cover fixed costs and contribute to profits.

Question 11

If the break-even point is 300 units and the contribution margin is $30 per unit, then every unit sold above 300 will contribute $30 to profit.

Accepted Answer

This statement is true according to the definition of contribution margin. The contribution margin represents the amount of revenue that contributes towards covering fixed costs and ultimately profits. In this case, if the break-even point is 300 units and the contribution margin is $30 per unit, then every additional unit sold beyond 300 will contribute $30 towards profit, as all fixed costs have already been covered.

Question 12

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. If Heath Ltd's cost of plant and equipment increases, which of the following is true?

Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs. Since the fixed plant and equipment costs are increasing, the total costs will increase, which will cause the break-even point to increase as well. The contribution margin and variable costs will remain the same unless there are changes in the labour or material costs. Therefore, (A) and (B) are not correct, and (D) is also not correct as there will be a change in the break-even point.

Question 13

The contribution margin is equal to sales revenue less fixed costs.

Accepted Answer

The contribution margin is equal to sales revenue less variable costs, not fixed costs.

Question 14

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. What is the break-even point for Heath Ltd?

Accepted Answer

The answer of Heath Ltd owns and operates a textile...

Question 15

Cost-volume-profit (CVP) analysis is a technique that examines the interrelationship between cost, volume and profit at constant activity levels.

Accepted Answer

CVP analysis examines the interrelationship between cost, volume, and profit, but it does not assume constant activity levels; it analyzes how changes in activity levels affect costs and profits.

Question 16

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. Heath Ltd's contribution margin per garment is:

Accepted Answer

The contribution margin per garment is calculated by subtracting the variable costs (labour and material costs) from the selling price. Here, the variable costs are $15 (labour) + $7.80 (material) = $22.80. Therefore, the contribution margin per garment is $40 (selling price) - $22.80 (variable costs) = $17.20.

Question 17

A firm sells a product for $250. Variable costs are $100 per unit and total fixed costs are $120 000. The break-even point will be 800 units.

Accepted Answer

The break-even point can be calculated as:

Break-even point in units = Total fixed costs / (Price per unit - Variable cost per unit)
Break-even point in units = $120,000 / ($250 - $100)
Break-even point in units = 800 units

Since the given break-even point matches with the calculated break-even point, the answer is A) True.

Question 18

The contribution margin of every unit of goods or services sold after the break-even point has been reached will contribute to profit.

Accepted Answer

Once the break-even point has been reached, every additional unit sold will generate a contribution margin that will contribute to the company's profit.

Question 19

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. If Heath Ltd is considering advertising costs of $4300, how many garments must be sold to break even?

Accepted Answer

The answer of Heath Ltd owns and operates a textile...

Question 20

A break-even point occurs when:

Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs (both fixed and variable costs). Therefore, option B is the correct choice as it states that sales revenue equals the total of variable and fixed costs of production. Option A is incorrect as it only refers to variable and fixed costs, without considering sales revenue. Option C is incorrect as it refers to the financial position (assets and liabilities) rather than the break-even point. Option D is incorrect as it only refers to variable costs and not fixed costs.

Quiz 16: Cost-Volume-Profit Analysis

Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45 000. What is Able's break-even point?

Under the assumptions used in cost-volume-profit analysis, as volume increases:

To calculate the break-even point, that is, where neither a profit nor a loss is made, the formula Sx = VCx + FC + P can be used, but only if P is equal to zero.

All of the following are assumptions made in cost-volume-profit analysis except:

A company has net profit of $10 000, sales price per unit of $25 and fixed costs of $40 000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?

The break-even point is the point at which the total contribution margin is equal to total:

Sweet Things, Inc. had the following results for the year ended 31 December. Volume was 60 000 units this year. If volume increased to 70 000 units, what should Sweet Things, Inc. have expected net profit to be next year?

Jany Ltd produces 20 000 golf balls. Each golf ball sells for $4, and it costs $50 000 to produce the golf balls. The cost of the fixed plant and equipment needed to produce the golf balls is $15 000 per period. The break-even point for Jany Ltd is (to the nearest integer) :

The contribution margin ratio is equal to the contribution margin divided by sales, and shows the proportion of each sales dollar available to cover fixed costs and contribute to profit.

If the break-even point is 300 units and the contribution margin is $30 per unit, then every unit sold above 300 will contribute $30 to profit.

The contribution margin is equal to sales revenue less fixed costs.

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. What is the break-even point for Heath Ltd?

Cost-volume-profit (CVP) analysis is a technique that examines the interrelationship between cost, volume and profit at constant activity levels.

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. Heath Ltd's contribution margin per garment is:

A firm sells a product for $250. Variable costs are $100 per unit and total fixed costs are $120 000. The break-even point will be 800 units.

The contribution margin of every unit of goods or services sold after the break-even point has been reached will contribute to profit.

A break-even point occurs when: