Question 1

What decisions are supported by break-even point analysis?

Accepted Answer

Break-even point analysis helps determine the minimum sales volume needed to cover costs, which is crucial for making informed pricing decisions.

Question 2

Within the framework of the break-even point analysis, what do profit decisions help a company to achieve?

Accepted Answer

Profit decisions help a company to achieve a certain level of profit before taxes.

Question 3

What costs remain constant at varying levels of production?

Accepted Answer

Period costs remain constant at varying levels of production because they are not directly tied to the production process and include expenses like administrative salaries and office rent, which do not change with the level of production.

Question 4

What costs fluctuate directly with changes in volume of production?

Accepted Answer

The answer of What costs fluctuate directly with changes in...

Question 5

What costs change disproportionately with changes in output levels?

Accepted Answer

Semi-variable costs change disproportionately with changes in output levels because they have both fixed and variable components.

Question 6

A business can produce 1,000 units at a zero cost per unit with a total cost of $100,000. Production increases to 2,000 units at a zero cost per unit with a total cost of $100,000. What type of cost is the $100,000?

Accepted Answer

The $100,000 cost does not change with the level of production (it remains the same whether 1,000 or 2,000 units are produced), indicating it is a fixed cost.

Question 7

Sales are at 2,000 units at a cost of $20,000, then increase to 4,000 units at a cost of $40,000, and finally reach 6,000 units at a cost of $60,000. What are these costs called?

Accepted Answer

The costs increase proportionally with the number of units, indicating they are variable costs.

Question 8

A company sells 10,000 units at a cost of $10 per unit for a total of $200,000 in costs. The same company sells 20,000 units at the same cost of $10 per unit for a total of $300,000 in costs. What are these costs called?

Accepted Answer

Total costs are the sum of all costs incurred by a company in producing and selling its products or services. In this case, the total costs are the sum of the costs of producing 10,000 units and the costs of producing 20,000 units, which is $200,000 + $300,000 = $500,000.

Question 9

What costs are associated with fixed costs but are NOT related to inventory, such as distribution costs and administrative expenses?

Accepted Answer

Period costs are expenses that are not directly tied to the production process and include administrative, sales, and distribution expenses. These costs are expensed in the period they are incurred, rather than being capitalized into inventory.

Question 10

Which of the following is a period cost?

Accepted Answer

Office salaries are considered period costs because they are not directly tied to the production process and are expensed in the period in which they are incurred. Direct labor, raw materials, and purchases are all considered product costs, which are capitalized as inventory on the balance sheet and expensed as cost of goods sold when the product is sold.

Question 11

Which of following is an out-of-pocket cost for a retail store?

Accepted Answer

Purchases are an out-of-pocket cost for a retail store because they represent the cost of goods that the store has purchased from suppliers.

Question 12

Where does the break-even point occur on a break-even chart?

Accepted Answer

The break-even point occurs where the revenue line intersects the total cost line, indicating the point at which a business neither makes a profit nor incurs a loss.

Question 13

Which of the following is divided by the contribution margin to calculate the revenue break-even point?

Accepted Answer

The revenue break-even point is calculated by dividing the fixed costs by the contribution margin. This calculation shows how much revenue needs to be generated to cover all fixed costs, assuming variable costs are covered by each unit's sale price.

Question 14

Given the following information, what is the contribution margin? Fixed costs $200 Sales revenue $1,000 Variable costs $750

Accepted Answer

The contribution margin is calculated as Sales Revenue minus Variable Costs, which is $1,000 - $750 = $250.

Question 15

What formula is used to calculate the PV ratio?

Accepted Answer

The PV ratio, or Profit Volume ratio, is calculated as the contribution margin divided by revenue. This ratio indicates the contribution margin per unit of revenue.

Question 16

Given the following information, what is the PV ratio?

Accepted Answer

The answer of Given the following information, what is the...

Question 17

What is the effect when a company decides to increase the unit selling price of its product, while keeping variable cost per unit, units sold, and fixed costs unchanged?

Accepted Answer

When a company increases the unit selling price of its product while keeping variable cost per unit, units sold, and fixed costs unchanged, the revenue per unit sold increases without an increase in costs, leading to an increase in profit before tax.

Question 18

What is the effect when a company sells more units strictly on the basis of "image" improvement, and its variable costs per unit, selling price per unit, and fixed costs remain unchanged?

Accepted Answer

When a company sells more units without changing the selling price per unit, variable costs per unit, or fixed costs, its revenue increases because revenue is directly proportional to the number of units sold.

Question 19

What is the effect when a company decreases its fixed costs while its variable cost per unit, units sold, and selling price per unit remain unchanged?

Accepted Answer

When a company decreases its fixed costs while keeping variable cost per unit, units sold, and selling price per unit unchanged, its total costs decrease, leading to an increase in profit before tax.

Question 20

A supplier has just informed a company about an increase in the cost per unit, although the number of units sold, the unit selling price, and the fixed costs remain unchanged. What will be the effect of these changes?

Accepted Answer

The increase in the cost per unit will lead to a decrease in profit before tax because the cost of goods sold will increase while revenue remains unchanged.

Quiz 5: Profit Planning and Decision-Making