Question 1

Which of the following the correct formula for calculating contribution margin ratio?
A) Contribution margin ratio = Contribution margin + Net sales revenue
B) Contribution margin ratio = Contribution margin / Net sales revenue
C) Contribution margin ratio = Contribution margin × Net sales revenue
D) Contribution margin ratio = Contribution margin - Net sales revenue

Accepted Answer

Contribution margin ratio is calculated by dividing contribution margin by net sales revenue. Therefore, the correct formula is Contribution margin ratio = Contribution margin / Net sales revenue. Option A is incorrect because it adds contribution margin and net sales revenue instead of dividing. Option C is incorrect because it multiplies contribution margin and net sales revenue. Option D is incorrect because it subtracts net sales revenue from contribution margin instead of dividing.

Question 2

If all other factors remain constant,an increase in fixed costs will increase the breakeven point.

Accepted Answer

This is because fixed costs are expenses that do not vary with the output or sales, such as rent, salaries, and insurance. Therefore, an increase in fixed costs will increase the total cost, which means that the company needs to sell more units or generate more revenue to cover these additional costs and break even.

Question 3

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Accepted Answer

The breakeven point is the point where total sales revenues equal total costs (both fixed and variable), not just fixed costs.

Question 4

Paulson Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 50 \
\hline \text { Variable cost per unit } & 15 \
\hline \text { Fixed costs per month } & \$ 16,000 \
\hline
\end{array}$$ What is the amount of sales in dollars required for Paulson to break even?
A) $4,800
B) $22,857
C) $53,333
D) $16,000

Accepted Answer

The answer of Paulson Company has provided the following information:...

Question 5

Lori sells hand-knit scarves at a flea market.Each scarf sells for $35.Lori pays $70 to rent a vending space for one day.The variable costs are $20 per scarf.How many scarves should she sell each day in order to break even?
A) 35 scarves
B) 5 scarves
C) 7 scarves
D) 4 scarves

Accepted Answer

B) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit
Unit contribution margin = $35 - $20 = $15 per scarf
Required sales in units = ($70 + 0) / $15 = 5 scarves

Question 6

The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.

Accepted Answer

This is the definition of the breakeven point.

Question 7

Tanaka Company has fixed costs of $14,000.Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%.What is the breakeven point in sales dollars?
A) $70,000
B) $35,000
C) $5,600
D) $2,800

Accepted Answer

B) Required sales in dollars = (Fixed costs + Target profit) / Contribution margin ratio
Required sales in dollars = ($14,000 + 0) / 40% = $35,000

Question 8

Fixed costs divided by contribution margin per unit equals breakeven point in unit sales.

Accepted Answer

This statement is true. The breakeven point in unit sales is calculated by dividing the fixed costs by the contribution margin per unit.

Question 9

One of the assumptions of cost-volume-profit (CVP)analysis is that there are no changes in the ________.
A) accounts payable
B) cash balance
C) inventory levels
D) accounts receivables

Accepted Answer

CVP analysis assumes that inventory levels remain constant. This means that the cost of goods sold and the variable cost per unit also remain constant. Any changes in inventory levels could affect the cost of goods sold, which would in turn affect the breakeven point and the profit or loss of the company. Therefore, it is important to keep inventory levels in mind when conducting CVP analysis.

Question 10

Iversen Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 42 \
\hline \text { Variable cost per unit } & 15 \
\hline \text { Fixed costs per month } & \$ 16,000 \
\hline
\end{array}$$ What are the required sales in units for Iversen to break even?
A) 381 units
B) 1,067 units
C) 281 units
D) 593 units

Accepted Answer

The answer of Iversen Company has provided the following information:...

Question 11

The fundamental assumption of cost-volume-profit (CVP)analysis is that in the long-run fixed costs become variable costs.

Accepted Answer

The fundamental assumption of CVP analysis is that within the relevant range, unit variable costs and unit fixed costs are constant. It does not assume that fixed costs become variable costs in the long run.

Question 12

A cost-volume-profit (CVP)graph shows how changes in the level of sales will affect profits.

Accepted Answer

A CVP graph is specifically designed to show the relationship between sales volume, costs, and profits. It allows businesses to understand how changes in sales volume will impact their bottom line.

Question 13

Clausen Company sells a product for $70 per unit.Variable costs are $25 per unit and fixed costs are $8,000 per month.Clausen sold 1,000 units in April,2017.Prepare an income statement for April using the contribution margin format.

Accepted Answer

The answer of Clausen Company sells a product for $70...

Question 14

Lacey sells hand-knit scarves at the flea market.Each scarf sells for $50.Lacey pays $30 to rent a vending space for one day.The variable costs are $15 per scarf.What total revenue amount does she need to earn to break even?
A) $45
B) $43
C) $100
D) $93

Accepted Answer

B) Required sales in dollars = (Fixed costs + Target profit) / Contribution margin ratio
Contribution margin ratio = Contribution margin / Net sales revenue
Unit contribution margin = $50 - $15 = $35 per scarf
Contribution margin ratio = ($35 / $50) × 100 = 70%
Required sales in dollars = ($30 + 0) / 70% = $43

Question 15

Neptune Company sold 4,000 units in November at a price of $35 per unit.The variable cost is $22 per unit.The monthly fixed costs are $10,000.What is the operating income earned in November?
A) $52,000
B) $140,000
C) $42,000
D) $88,000

Accepted Answer

C)
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Question 16

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Accepted Answer

This is the correct formula for calculating the breakeven point in sales dollars.

Question 17

Cost-volume-profit (CVP)analysis assumes that the selling price per unit does not change as volume changes.

Accepted Answer

CVP analysis assumes that the selling price per unit remains constant regardless of changes in volume. This simplifies the analysis as it eliminates the need to consider the impact of changes in pricing on the contribution margin and profitability. However, in reality, selling prices may change due to various factors such as competition, changes in customer preferences, or changes in production costs.

Question 18

The breakeven point represents the sales volume at which the company's net income is zero.

Accepted Answer

This statement is true. The breakeven point is the point of sales volume where the total cost equals total revenue, and the net income is zero.

Question 19

Caty Couture sells designer shirts for $43 per shirt.It incurs monthly fixed costs of $7,000.The contribution margin ratio is calculated to be 20%.What is the breakeven point in units?
A) 163 units
B) 131 units
C) 5,600 units
D) 814 units

Accepted Answer

D) Required sales in dollars = (Fixed costs + Target profit) / Contribution margin ratio
Required sales in dollars = ($7,000 + 0) / 20% = $35,000
Number of units to be sold to break even = $35,000 / $43 = 814 shirts

Question 20

The sales level at which operating income is zero is called the breakeven point.

Accepted Answer

This statement is true. The breakeven point is the level of sales at which the company's total revenues are equal to its total expenses, resulting in an operating income of zero.

Quiz 21: Cost-Volume-Profit Analysis

Which of the following the correct formula for calculating contribution margin ratio?

If all other factors remain constant,an increase in fixed costs will increase the breakeven point.

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Lori sells hand-knit scarves at a flea market.Each scarf sells for $35.Lori pays $70 to rent a vending space for one day.The variable costs are $20 per scarf.How many scarves should she sell each day in order to break even?

The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.

Tanaka Company has fixed costs of $14,000.Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%.What is the breakeven point in sales dollars?

Fixed costs divided by contribution margin per unit equals breakeven point in unit sales.

One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in the ________.