Question 1

Which of the following statements is TRUE if the fixed costs increase while the sales price per unit and variable costs per unit remain constant?

Accepted Answer

The contribution margin remains unchanged because it is calculated as sales price per unit minus variable cost per unit, both of which are constant. However, the breakeven point increases because higher fixed costs require more units to be sold to cover these costs.

Question 2

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

Accepted Answer

When sales price per unit increases while variable cost per unit and total fixed costs remain constant, the contribution margin per unit increases. This means that for each unit sold, there is more money available to cover the fixed costs and contribute towards profit. Consequently, the breakeven point decreases because it takes fewer units to cover the fixed costs and start earning a profit.

Question 3

Which of the following will decrease the breakeven point in units assuming no other changes in the cost-volume-profit relationship?

Accepted Answer

An increase in the sale price per unit will increase the contribution margin per unit, which will reduce the breakeven point in units.

Question 4

If the sale price per unit decreases and variable costs remain the same,what will be the effect on the contribution margin ratio?

Accepted Answer

The contribution margin ratio is the contribution margin divided by the sales. If the sale price per unit decreases while the variable costs remain the same, the contribution margin per unit will decrease, thus lowering the contribution margin ratio.

Question 5

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

Both adding a specified target operating income and increasing fixed expenses will increase the required sales in units to achieve the desired level of profit. This is because the target operating income represents a fixed profit goal that must be earned on top of covering variable and fixed costs, similar to increasing fixed expenses.

Question 6

Which of the following statements is TRUE if total fixed costs decrease while the sale price per unit and variable costs per unit remain constant?

Accepted Answer

A decrease in total fixed costs, while keeping the sale price per unit and variable costs per unit constant, results in a lower breakeven point in units because fewer units are needed to cover the reduced fixed costs.

Question 7

After break-even on a CVP graph,the difference between sales dollars and total costs is the representation of:

Accepted Answer

After break-even, any additional sales dollars will contribute to operating income. Therefore, the difference between sales dollars and total costs represents operating income. Option A is incorrect because operating loss is incurred when total costs exceed sales revenue. Options C and D are incorrect because the slopes of variable and fixed costs are not relevant in determining the operating income after break-even.

Question 8

Checkerbox Company has a predicted operating income of $84,000 (as a targeted fixed cost).Their total variable expenses are $24,000 and their total fixed expenses are $30,000.They have a unit contribution margin of $10.
a.Calculate the break-even in sales units.
b.Calculate the break-even in sales units if the company's fixed expenses double from $30,000 to $60,000.

Accepted Answer

The answer of  Checkerbox Company has a predicted operating...

Question 9

If total fixed expenses are $50,000,the target operating income is $10,000 and the contribution margin is $15 per unit,the sales needed to achieve the target operating income will be 4,000 units.

Accepted Answer

The formula for calculating the sales needed to achieve the target operating income is as follows:
Sales = (Total Fixed Expenses + Target Operating Income) / Contribution Margin per Unit

Substituting the given values, we get:
Sales = ($50,000 + $10,000) / $15 per unit
Sales = $60,000 / $15 per unit
Sales = 4,000 units

Therefore, the answer is A)True.

Question 10

Thomas Corporation has a targeted operating income of $500,000 for the upcoming year.The selling price of their single product is $35.50 each,while the variable cost per unit is $10.50.Fixed costs total $270,000.
Calculate the following:
a.Contribution margin per unit
b.Breakeven point in units
c.Units to be sold to earn the targeted operating income

Accepted Answer

The answer of  Thomas Corporation has a targeted operating...

Question 11

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. $$\begin{array} { | l | r | r | } 
\hline \text { Praduction Category } & \text { Lawer Limit } & \text { Upper Limit } \
\hline \text { Units af Production } & 4,000 \text { units } & 6,000 \text { urits } \
\hline \text { Direct Materials } & \$ 60,000 & \$ 90,000 \
\hline \text { Direct Labor } & \$ 80,000 & \$ 120,000 \
\hline \text { Manufacturing Overhead: } & & \
\hline \text { Indirect materials } & \$ 25,000 & \$ 37,500 \
\hline \text { Indirect labar } & \$ 40,000 & \$ 50,000 \
\hline \text { Depreciation } & \$ 20,000 & \$ 20,000 \
\hline \text { Selling and Admin. Expenses: } & & \
\hline \text { Sales salaries } & \$ 50,000 & \$ 65,000 \
\hline \text { Office salaries } & \$ 30,000 & \$ 30,000 \
\hline \text { Advertising } & \$ 45,000 & \$ 45,000 \
\hline \text { Other } & \$ 15,000 & \$ 20,000 \
\hline \text { Totals } & \$ 365,000 & \$ 47,500 \
\hline
\end{array}$$ 
-The fixed expenses for this company are:

Accepted Answer

Fixed expenses are those that remain constant regardless of the level of activity. Indirect materials and indirect labor are part of variable expenses. Direct materials and direct labor are also part of variable expenses. Sales salaries are variable as they are earned based on the amount of sales. Therefore, the only choice that includes expenses that are fixed is B, which includes depreciation, office salaries, and advertising.

Question 12

Which of the following statements is TRUE if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant?

Accepted Answer

When the variable cost per unit increases, it takes more units to cover the total fixed costs and start generating a profit. Therefore, the breakeven point in units increases.

Question 13

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

Accepted Answer

If the variable cost per unit decreases, the total contribution margin per unit increases because the revenue per unit (sales price) remains constant. Therefore, the contribution margin ratio (contribution margin per unit divided by sales price per unit) also increases. This means that each unit sold contributes more towards covering fixed costs, which results in a lower breakeven point.

Question 14

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

Accepted Answer

The breakeven point will increase, but it will not necessarily double. The breakeven point depends on both fixed expenses and contribution margin per unit.

Question 15

Which of the following statements is TRUE if both fixed expenses and the sale price per unit increase while variable costs per unit are unchanged?

Accepted Answer

Breakeven point in units could increase,decrease,or remain the same.The breakeven point is the point at which total revenue equals total costs. If both fixed expenses and the sale price per unit increase while variable costs per unit are unchanged, the breakeven point could increase, decrease, or remain the same. This is because the increase in fixed expenses will increase the total costs, while the increase in the sale price per unit will increase the total revenue. The net effect of these changes on the breakeven point will depend on the relative magnitudes of the increases in fixed expenses and the sale price per unit.

Question 16

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

Accepted Answer

Sensitivity analysis is a technique used to assess how the output of a model or calculation changes based on different values or assumptions. By testing different scenarios or variations in input, sensitivity analysis can help identify key drivers or risks that affect the outcome.

Question 17

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

Accepted Answer

This is because fixed costs are a component of the breakeven point formula. As fixed costs increase, the total costs increase, which means that the business needs to sell more units to cover their costs and reach the breakeven point.

Question 18

Say variable costs are $10 per unit and the sales price is $16 per unit.If volume would triple as a result of decreasing the sales price to $9 per unit,the business should strongly consider decreasing the sales price to $9 per unit.

Accepted Answer

Decreasing the sales price to $9 per unit would result in a loss of $1 per unit, as the variable cost is $10. Even if the volume triples, the business would incur losses on each unit sold.

Question 19

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. $$\begin{array} { | l | r | r | } 
\hline \text { Praduction Category } & \text { Lawer Limit } & \text { Upper Limit } \
\hline \text { Units af Production } & 4,000 \text { units } & 6,000 \text { urits } \
\hline \text { Direct Materials } & \$ 60,000 & \$ 90,000 \
\hline \text { Direct Labar } & \$ 80,000 & \$ 120,000 \
\hline \text { Manufacturing Overhead: } & & \
\hline \text { Indirect materials } & \$ 25,000 & \$ 37,500 \
\hline \text { Indirect labor } & \$ 40,000 & \$ 50,000 \
\hline \text { Depreciation } & \$ 20,000 & \$ 20,000 \
\hline \text { Selling and Admin. Expenses: } & & \
\hline \text { Sales salaries } & \$ 50,000 & \$ 65,000 \
\hline \text { Office salaries } & \$ 30,000 & \$ 30,000 \
\hline \text { Advertising } & \$ 45,000 & \$ 45,000 \
\hline \text { Other } & \$ 15,000 & \$ 20,000 \
\hline \text { Tatols } & \$ 365,000 & \$ 47,500 \
\hline
\end{array}$$
- The only variable expenses for this company are:

Accepted Answer

The answer of  Monroe Manufacturing produces and sells a...

Question 20

If the selling price per unit is $10.00,the variable expense per unit is $5.75,and the breakeven sales in dollars is $465,200,what are total fixed expenses?

Accepted Answer

To find the total fixed expenses, first calculate the contribution margin per unit, which is the selling price per unit minus the variable expense per unit: $10.00 - $5.75 = $4.25. Then, divide the breakeven sales in dollars by the contribution margin per unit to find the breakeven point in units: $465,200 / $4.25 = 109,435 units. Finally, multiply the breakeven point in units by the contribution margin per unit to find the total fixed expenses: 109,435 units * $4.25 = $197,710.

Quiz 7: Cost-Volume-Profit Analysis