Question 1

How is the contribution margin ratio calculated?

Accepted Answer

The answer of How is the contribution margin ratio calculated?...

Question 2

Which of the following appears as a line item in a contribution margin income statement?

Accepted Answer

Contribution margin income statement is a statement that shows the contribution margin of each product and the total contribution margin earned by the company. Operating income (also called operating profit) is the difference between the contribution margin and the fixed costs. Therefore, operating income appears as a line item in a contribution margin income statement. Gross profit, total cost of goods sold, and total selling and administrative expenses are all used in a traditional income statement, not a contribution margin income statement.

Question 3

Complete the table below for contribution margin per unit,total contribution margin and contribution margin ratio.
 $$\begin{array} { | l | r | r | } 
\hline & \text { Alpha } & \text { Beta } \
\hline \text { Number of units } & 2,460 & 12,800 \ 
\hline \text { Sales price per unit } & \$ 21 & \$ 78 \
\hline\text { Variable costs per unit } & \$ 10 & \$ 32 \
\hline \text { Calculate: } \
\hline \text { Contribution margin per unit } & & \
\hline \text { Total contribution margin } & & \
\hline \text { Contribution margin ratio } & & \
\hline
\end{array}$$

Accepted Answer

The answer of Complete the table below for contribution margin...

Question 4

Choice Creations,Inc.sells hand sewn shirts at $58.00 per shirt.It incurs monthly fixed costs of $8000.The contribution margin ratio is calculated to be 30%.What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places.)

Accepted Answer

We know that the contribution margin ratio is 30%, which means that 70% of the sales revenue is used to cover the variable and fixed costs.

Contribution Margin Ratio = (Price - Variable Cost) / Price 
30% = (58 - Variable Cost) / 58 
0.3 * 58 = 58 - Variable Cost 
17.4 = Variable Cost

Therefore, the variable cost per shirt is $17.40.

Question 5

Psari's,a company that sells fishing nets,provides the following information about its product: $$\begin{array} { | l | r | } 
\hline \text { Targeted operating income } & \$ 54,000 \
\hline \text { Sales price per unit } & 10.00 \
\hline \text { Variable cost per unit } & 1.50 \
\hline \text { Total fixed costs } & 120,000 \
\hline
\end{array}$$ What is the contribution margin ratio? (Round any intermediate calculations and your final answer to two decimal places.)

Accepted Answer

The contribution margin ratio is calculated as (Sales price per unit - Variable cost per unit) / Sales price per unit. So, it is (10.00 - 1.50) / 10.00 = 8.50 / 10.00 = 0.85 or 85.00%.

Question 6

Reeds Paper Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

Accepted Answer

The answer of Reeds Paper Company sells a product for...

Question 7

A CVP graph shows how changes in the level of sales will affect profits.

Accepted Answer

A CVP (Cost-Volume-Profit) graph shows the relationship between sales revenue, costs, and profits over various levels of production and sales. It illustrates how changes in the volume of sales will impact the profitability of the business. Thus, the statement is true.

Question 8

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 9

Carrabelle Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 56 \
\hline \text { Variable cost per unit } & 12 \
\hline \text { Fixed costs per month } & \$ 12,000 \
\hline
\end{array}$$ Calculate the contribution margin ratio.(Round your answer to two decimal places.)

Accepted Answer

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

Question 10

A contribution margin income statement classifies costs by function; that is,costs are classified as either product costs or period costs.

Accepted Answer

A contribution margin income statement classifies costs by behavior, not function. Costs are classified as either variable or fixed costs, regardless of whether they are product or period costs.

Question 11

Robusta Coffee Importers sold 7000 units in October at a sales price of $45 per unit.The variable cost is $20 per unit.The monthly fixed costs are $8000.What is the operating income earned in October?

Accepted Answer

First, we need to calculate the total revenue earned in October:

Total Revenue = Sales Price x Units Sold
Total Revenue = $45 x 7000
Total Revenue = $315,000

Next, we need to calculate the total variable costs:

Total Variable Costs = Variable Cost per Unit x Units Sold
Total Variable Costs = $20 x 7000
Total Variable Costs = $140,000

Now, we can calculate the contribution margin:

Contribution Margin = Total Revenue - Total Variable Costs
Contribution Margin = $315,000 - $140,000
Contribution Margin = $175,000

Finally, we can calculate the operating income:

Operating Income = Contribution Margin - Fixed Costs
Operating Income = $175,000 - $8000
Operating Income = $167,000

Therefore, the operating income earned in October is $167,000.

Question 12

A ________ groups cost by behavior; costs are classified as either variable costs or fixed costs.

Accepted Answer

The contribution margin income statement groups costs by behavior, specifically into variable costs (costs that vary with changes in activity level) and fixed costs (costs that remain constant regardless of activity level).

Question 13

The dollar amount that provides for covering fixed costs and then provides for operating income is called ________.

Accepted Answer

The dollar amount that covers fixed costs and provides for operating income is referred to as contribution margin. Variable cost refers to the costs that vary with the level of production, total cost refers to the sum of fixed and variable costs, and margin of safety refers to the excess of budgeted or actual sales over the break-even volume of sales.

Question 14

Contribution margin is the amount that contributes to covering the fixed costs and then to providing operating income.

Accepted Answer

Contribution margin is the amount of revenue that is left over after deducting variable expenses. This amount is used to cover fixed costs and provide operating income. Therefore, the statement is true.

Question 15

Complete the following statements:
A traditional income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.

Accepted Answer

The answer of Complete the following statements:
A traditional income statement...

Question 16

Which of the following formulas is the right formula for calculating contribution margin ratio?

Accepted Answer

The correct formula for calculating contribution margin ratio is Contribution margin divided by Net sales revenue. This formula is used to determine the percentage of each unit sold that contributes to covering fixed costs and generating profit. Options A, C, and D do not accurately reflect this calculation.

Question 17

Peeler's Smoothie Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 5.50 \
\hline \text { Variable cost per unit } & \$ 2.50 \
\hline \text { Fixed costs per month } & \$ 1000 \
\hline
\end{array}$$ Calculate the contribution margin ratio.(Round your answer to two decimal places.)

Accepted Answer

The contribution margin ratio is calculated as (Sales price per unit - Variable cost per unit) / Sales price per unit. So, (5.50 - 2.50) / 5.50 = 3 / 5.50 = 0.5455 or 54.55%.

Question 18

CVP analysis assumes that the sales price per unit does not change as volume changes.

Accepted Answer

CVP analysis assumes that the sales price per unit remains constant irrespective of the change in volume. This assumption helps in simplifying the calculation of contribution margin and breakeven point. However, in reality, sales price can change due to various factors such as competition, demand, and supply, pricing strategy, etc.

Question 19

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 actually that within the relevant range, total costs can be divided into a fixed component and a variable component. This means that fixed costs remain fixed within the relevant range and do not become variable costs.

Question 20

Which of the following is a period cost?

Accepted Answer

Period costs are those costs that are not directly related to the production of goods or provision of services, but rather are associated with the general administration of the business. Administrative costs are an example of period costs. Manufacturing overhead, direct labor cost, and direct materials cost are all examples of product costs, which are directly related to production.

Quiz 21: Cost-Volume-Profit Analysis