Question 1

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

Accepted Answer

The statement is true. Breakeven point refers to the level at which a company's total revenue equals its total expenses, resulting in zero operating income or profit.

Question 2

Paulson Company has provided the following information:

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

B)Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Contribution margin ratio = Contribution margin / Net sales revenue
 11ea8a42_4f98_316b_8b44_a3c47488dc31_TB5024_00 Contribution margin ratio = ($35 / $50)× 100 = 70%
Required sales in dollars = (16,000 + 0)/ 70% = $22,857

Question 3

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 cost-volume-profit (CVP)analysis is that all costs can be classified as either variable or fixed, and that the sales price, variable cost per unit, and total fixed costs are known and constant. Fixed costs are assumed to remain constant regardless of changes in the volume of activity.

Question 4

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

Accepted Answer

This is because fixed costs are costs that do not change with changes in sales volume, and therefore must be covered before the company can start earning a profit. An increase in fixed costs would mean that the total costs of the company have increased, and thus the breakeven point, which is the point at which the company's total revenue equals its total costs, would also increase.

Question 5

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, or that any changes in inventory levels can be accurately accounted for and included in the analysis. Changes in accounts payable, cash balance, and accounts receivables can all be included in the CVP analysis.

Question 6

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 7

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 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

A CVP graph displays the relationship between cost, volume, and profit and illustrates how changes in sales volume will impact profits.

Question 10

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

The correct formula for calculating contribution margin ratio is Contribution margin / Net sales revenue. This ratio shows the amount of each sales dollar that contributes to covering fixed costs and generating profit.

Question 11

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 12

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 13

Iversen Company has provided the following information:

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

D)Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit
 11ea8a42_4f98_3169_8b44_0fa33352e0cd_TB5024_00 Required sales in units = ($16,000 + 0)/ $27 = 593 units

Question 14

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 15

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

Accepted Answer

The breakeven point is where the company's total revenue equals its total expenses, including fixed and variable costs, resulting in zero net income.

Question 16

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)
 11ea8a42_4f97_e346_8b44_4d6185537c1e_TB5024_00

Question 17

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

Accepted Answer

This statement is true according to the breakeven formula, which is: 
Breakeven point (in unit sales) = Fixed costs / Contribution margin per unit

Question 18

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, while volume changes. This is known as the assumption of constant selling price.

Question 19

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 20

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

Quiz 21: Cost-Volume-Profit Analysis

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

Paulson Company has provided the following information: What is the amount of sales in dollars required for Paulson to break even?

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

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

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

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?

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?

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

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

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

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.

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?

Iversen Company has provided the following information: What are the required sales in units for Iversen to break even?

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

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

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?

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

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

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

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?