Question 1

Answer the following questions using the information below:
Assume the following cost information for Fernandez Company:
 
-In CVP analysis, focusing on target net income rather than operating income:
A)will increase the breakeven point
B)will decrease the breakeven point
C)will not change the breakeven point
D)does not allow calculation of breakeven point

Accepted Answer

Target net income focuses on profit goals beyond breakeven, but the breakeven point itself remains unchanged as it is the level of sales where total revenues equal total costs, resulting in zero profit.

Question 2

Breakeven point is that quantity of output where total revenues equal total costs.

Accepted Answer

The definition of breakeven point is based on the concept that total revenue (or sales) equals total costs, so option A is correct.

Question 3

Answer the following questions using the information below:
Nancy's Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs.
-The breakeven point in total sales dollars is:
A)$40,000
B)$13,334
C)$100,000
D)None of these answers are correct.

Accepted Answer

To calculate the breakeven point in total sales dollars, we can use the following formula:
Breakeven Point = Fixed Costs / (Unit Price - Variable Costs per unit)

In this case:
Unit Price = Sales Revenue / Number of Units sold = $80,000 / 8,000 = $10
Variable Costs per unit = $20,000 / 8,000 = $2.50
Fixed Costs = $10,000

Breakeven Point = $10,000 / ($10 - $2.50) = $10,000 / $7.50 = $1,333.33

Therefore, the breakeven point in total sales dollars is $13,333.33 or approximately $13,334. Answer B is correct.

Question 4

Answer the following questions using the information below:
Assume the following cost information for Fernandez Company:
 
-What is the number of units that must be sold to earn an after-tax net income of $42,000?
A)3,750 units
B)4,625 units
C)3,050 units
D)1,875 units

Accepted Answer

The answer of Answer the following questions using the information...

Question 5

What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point?

Accepted Answer

The answer of What is meant by the term breakeven...

Question 6

Answer the following questions using the information below:
Bush Manufacturing produces a single product that sells for $100. Variable costs per unit equal $25. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
-What is the current breakeven point in terms of number of units?
A)800 units
B)900 units
C)2,400 units
D)None of these answers are correct.

Accepted Answer

To calculate the breakeven point, we use the formula: 
Breakeven point (units) = Total fixed costs / Contribution margin per unit 
Contribution margin per unit = Selling price per unit – Variable cost per unit 
Contribution margin per unit = $100 - $25 = $75 
Breakeven point (units) = $60,000 / $75 = 800 units

Question 7

In the graph method of CVP analysis, the breakeven point is the (X-axis)quantity of units sold for which the total revenues line crosses the total costs line.

Accepted Answer

This is correct, the breakeven point is the quantity of units sold where the total revenues line intersects the total costs line on the x-axis.

Question 8

If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.

Accepted Answer

To achieve a target operating income of $10,000, the company needs to cover both fixed costs and the desired income. The contribution margin per unit is $10 ($50 - $40). To cover $60,000 ($50,000 fixed costs + $10,000 target income), the company must sell 6,000 units ($60,000 / $10 per unit).

Question 9

In the graph method of CVP analysis, the total revenue line can be calculated by determining the total revenue at only one real output level because the starting point of the line is always the intersection of the X and Y axes.

Accepted Answer

This statement is true. The total revenue line is a straight line that starts from the point where the X and Y axes intersect, and the slope of the line represents the unit selling price. Therefore, determining the total revenue at one real output level can help to calculate the slope of the line and the total revenue at any other output level.

Question 10

Answer the following questions using the information below:
Assume the following cost information for Fernandez Company:
 
-What minimum volume of sales dollars is required to earn an aftertax net income of $30,000?
A)$465,000
B)$330,000
C)$390,000
D)$165,000

Accepted Answer

The answer of Answer the following questions using the information...

Question 11

Answer the following questions using the information below:
Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.
-How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%?
A)200 dresses
B)170 dresses
C)150 dresses
D)145 dresses

Accepted Answer

To yield after-tax net income of $18,000, the Bridal Shoppe must first earn pre-tax income of $30,000 ($18,000 / (1 - 0.40)).  To earn pre-tax income of $30,000, the Bridal Shoppe must sell 200 dresses (($30,000 + $90,000) / ($1,000 - $400)).

Question 12

A profit-volume graph shows the impact on operating income from changes in the output level.

Accepted Answer

A profit-volume graph, also known as a break-even analysis or cost-volume-profit analysis, illustrates the relationship between the level of output and operating income. It shows the point at which a company's total revenues equal its total costs and operating income is zero, as well as the levels of sales needed to generate a desired level of operating income.

Question 13

Answer the following questions using the information below:
Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month.
-What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)40 times
B)30 times
C)20 times
D)10 times

Accepted Answer

The breakeven point is calculated by dividing the fixed costs by the contribution margin per procedure. The contribution margin is the price per procedure ($1,000) minus the variable cost per procedure ($500), which equals $500. The breakeven point is $20,000 / $500 = 40 procedures.

Question 14

Answer the following questions using the information below:
Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
-What is the current breakeven point in terms of number of units?
A)1,500 units
B)2,250 units
C)3,333 units
D)None of these answers are correct.

Accepted Answer

To calculate the breakeven point, we use the formula: BEP = Fixed Costs / (Price - Variable Costs) = $72,000 / ($80 - $32) = 1,500 units. Therefore, the current breakeven point is 1,500 units.

As no alternatives are given, there is no best choice to evaluate.

Question 15

Gilley, Inc., sells a single product. The company's most recent income statement is given below.
  Required:
  b. If sales are doubled to $240,000,
  c. If sales are doubled to $240,000,
    f. Compute how many units must be sold

Accepted Answer

The answer of Gilley, Inc., sells a single product. The...

Question 16

The selling price per unit is $25, variable cost per unit $15, and fixed cost per unit is $4. When this company operates above the breakeven point, the sale of one more unit will increase net income by $6.

Accepted Answer

If the company is operating above the breakeven point, it means that the company is making a profit. To calculate the contribution margin per unit, we subtract the variable cost per unit from the selling price per unit: $25 - $15 = $10. This means that for every unit sold, $10 is contributing toward covering the fixed costs and increasing profit.

Therefore, if one more unit is sold, it will increase net income by $10 (contribution margin per unit), not $6 as stated in the question. Thus, the statement is false.

Question 17

A company with sales of $50,000, variable costs of $35,000, and fixed costs of $25,000 will reach its breakeven point if sales are increased by $20,000.

Accepted Answer

The breakeven point is reached when total sales equal total costs (variable + fixed). With current sales of $50,000, variable costs of $35,000, and fixed costs of $25,000, the company is at a loss of $10,000. Increasing sales by $20,000 will not cover the $10,000 loss and the additional $7,000 in variable costs (35% of $20,000), resulting in a new loss of $3,000.

Question 18

Berhannan's Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500.
Required:
a. What is the contribution margin per phone?
b. What is the breakeven point in phones?
c. How many phones must be sold to earn pretax income of $7,500?

Accepted Answer

The answer of Berhannan's Cellular sells phones for $100. The...

Question 19

Breakeven point is NOT a good planning tool since the goal of business is to make a profit.

Accepted Answer

The breakeven point is a valuable planning tool as it helps businesses understand the minimum sales needed to cover costs, which is essential for making informed decisions to achieve profitability.

Question 20

Black Pearl, Inc., sells a single product. The company's most recent income statement is given below.
  Required:

Accepted Answer

The answer of Black Pearl, Inc., sells a single product....

Quiz 3: Cost-Volume-Profit Analysis

Answer the following questions using the information below: Assume the following cost information for Fernandez Company: -In CVP analysis, focusing on target net income rather than operating income:

Breakeven point is that quantity of output where total revenues equal total costs.

Answer the following questions using the information below: Nancy's Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. -The breakeven point in total sales dollars is:

Answer the following questions using the information below: Assume the following cost information for Fernandez Company: -What is the number of units that must be sold to earn an after-tax net income of $42,000?