Question 1

Monroe Manufacturing produces and sells a product with a price of $100/unit.The following data has been prepared for its estimated upper and lower levels of activity.

The fixed expenses for this company are

Accepted Answer

Fixed expenses are expenses that do not vary with changes in the level of activity, and are typically associated with the general operation of a business. In this case, the fixed expenses listed in choice A (depreciation, office salaries, and advertising) are all general operational expenses that would not be affected by changes in the level of activity. Choices B and C include expenses that are directly tied to the production of the product, and would therefore vary with changes in activity. Choice D includes sales salaries, which would also vary with changes in activity. Therefore, A is the best choice for fixed expenses.

Question 2

Holding all other factors constant,the breakeven point will always double if fixed expenses increase by 25%.

Accepted Answer

The breakeven point does not necessarily double when fixed expenses increase by 25%. The breakeven point is determined by the formula: Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). A 25% increase in fixed costs increases the numerator, but the breakeven point's change depends on the proportion of fixed costs to the contribution margin (Selling Price per Unit - Variable Cost per Unit). Doubling the breakeven point would require a specific and much larger increase in fixed costs or changes in other variables.

Question 3

CVP analysis helps managers prepare for and respond to economic changes,such as increasing costs and pressure to drop sales price.

Accepted Answer

CVP analysis stands for cost-volume-profit analysis, which allows managers to assess the impact of changes in costs and sales volume on their business's profitability. By performing a CVP analysis, managers can identify their company's break-even point, the level of sales volume needed to cover total costs, and target profit margins. Thus, CVP analysis helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales price.

Question 4

What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same?

Accepted Answer

The contribution margin ratio is calculated by dividing the contribution margin (selling price per unit minus variable cost per unit) by the selling price per unit. If the selling price per unit decreases and the variable cost per unit remains the same, the contribution margin per unit will decrease. Therefore, the contribution margin ratio will also decrease.

Question 5

Variable costs are $17 per unit and the sales price is $20 per unit.If volume would triple as a result of decreasing the sales price to $16 per unit,the business should strongly consider decreasing the sales price to $16 per unit.

Accepted Answer

The answer of Variable costs are $17 per unit and...

Question 6

If the fixed costs increase while the sales price per unit and variable costs per unit remain constant,which of the following statements is true?

Accepted Answer

The contribution margin, which is the sales price per unit minus the variable cost per unit, remains unchanged because neither the sales price nor the variable costs are affected by the change in fixed costs. However, the breakeven point, which is the level of sales at which total revenues equal total costs, increases because higher fixed costs require more units to be sold to cover those costs.

Question 7

The difference between sales dollars and total costs after breakeven point on a CVP graph is the representation of

Accepted Answer

After the breakeven point on a CVP graph, the difference between sales dollars and total costs represents operating income. This is because the company has covered all of its fixed and variable costs, and any additional revenue generated contributes directly to profit. Therefore, the answer is C - operating income.

Question 8

If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant,which of the following statements is true?

Accepted Answer

If the variable cost per unit decreases, the contribution margin per unit will increase because it is the difference between the sales price per unit and the variable cost per unit. Therefore, the contribution margin ratio will also increase. With a higher contribution margin ratio, the breakeven point will decrease because fewer units need to be sold to cover the total fixed costs.

Question 9

If all other factors are constant,any decrease in fixed costs will decrease the breakeven point.

Accepted Answer

Fixed costs are one of the components of the breakeven point calculation. If fixed costs decrease, then the overall breakeven point decreases as well.

Question 10

If total fixed expenses are $65,000,the target operating income is $15,000 and the contribution margin is $25 per unit,the sales needed to achieve the target operating income will be 3,200 units.

Accepted Answer

To calculate the sales needed to achieve the target operating income, we use the formula:

Sales = (Fixed Expenses + Target Operating Income) / Contribution Margin per unit

Substituting the given values:

Sales = ($65,000 + $15,000) / $25 per unit 
Sales = $80,000 / $25 per unit 
Sales = 3,200 units

Therefore, the answer is A.

Question 11

If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant,which of the following statements is true?

Accepted Answer

When the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, the contribution margin (sales price per unit - variable cost per unit) will increase. This means that each unit sold contributes more to covering the total fixed costs and generating profit. As a result, the breakeven point (total fixed costs / contribution margin) will decrease, as fewer units need to be sold to cover the fixed costs.

Question 12

Which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant?

Accepted Answer

If the sales price per unit decreases, the contribution margin (price minus variable cost) will also decrease. As total fixed costs remain constant, this means that the breakeven point (number of units sold needed to cover total fixed costs) will increase. Therefore, the correct option is D: the contribution margin decreases and the breakeven point increases.

Question 13

Della's e-Portfolio Design Service has $4,900 fixed expenses.The company's operating income is $0 and the contribution margin ratio is 60%.
What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?

Accepted Answer

A)$4,900 + $0 / 0.60 = 8,166.66 ~ $8,167

Question 14

If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged,which of the following statements is true?

Accepted Answer

The breakeven point depends on the fixed expenses, variable costs, and selling price per unit. If both fixed expenses and selling price per unit increase while variable costs per unit remain unchanged, the breakeven point could increase, decrease, or remain the same depending on the degree of increase in fixed expenses and selling price per unit. Therefore, choice B is the best answer.

Question 15

If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant,which of the following statements is true?

Accepted Answer

The breakeven point in units decreases because the total amount of fixed costs that need to be covered by the contribution margin is lower, meaning fewer units need to be sold to cover those costs.

Question 16

If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant,which of the following statements is true?

Accepted Answer

If the variable cost per unit increases while sale price per unit and total fixed costs remain constant, the breakeven point in units will increase. This is because the higher variable cost per unit makes it more difficult for the company to cover its fixed costs and make a profit. The contribution margin ratio will decrease because there is less money left over to cover fixed costs after variable costs are subtracted.

Question 17

Sophia's Delivery Service charges a $55 service fee.The variable cost per service run is $22.The company's fixed expenses amount to $6,200.If the operating income equals fixed expenses,what is the breakeven point in sales revenue for Sophia's Delivery Service?

Accepted Answer

D)
$55 - $22 = $33
$6,200 / $33 = 187.88 ~ 188 service runs
188 × $55 = $10,340 breakeven point in sales revenue

Question 18

Assuming no other changes in the cost-volume-profit relationship,which of the following will decrease the breakeven point in units?

Accepted Answer

An increase in selling price per unit will result in a higher contribution margin, which means fewer units need to be sold to cover the total fixed costs and reach the breakeven point.

Question 19

The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses.

Accepted Answer

This is because both an increase in fixed expenses and a specified target operating income will increase the required contribution margin, which will in turn increase the required sales in units.

Question 20

Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes.

Accepted Answer

This is the correct definition of sensitivity analysis. It helps to understand how changing a variable can affect the overall result.

Quiz 7: Cost-Volume-Profit Analysis

Monroe Manufacturing produces and sells a product with a price of $100/unit.The following data has been prepared for its estimated upper and lower levels of activity. The fixed expenses for this company are