Question 1

What is the purpose of doing a cost-volume-profit (CVP)analysis?
A)CVP analysis provides managers with information used for control only.
B)CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or costs on volume.
C)CVP analysis shows how revenues, expenses, and profits behave as volume changes.
D)CVP analysis is effectively used by single-product firms only.

Accepted Answer

CVP analysis helps managers understand how changes in volume affect revenues, expenses, and profits. This can be useful in making decisions about pricing, cost control, and production planning. Sensitivity analysis is one application of CVP analysis, but it is not the sole purpose. The analysis can also be applied to multi-product firms.

Question 2

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the break-even point in units?
A)2,167
B)2,800
C)5,833
D)8,000

Accepted Answer

D

Question 3

Green Acres Company provides home health care. Green Acres charges $35 per hour for professional care. Variable casts are $21 per hour and fixed costs are $78,000. Next year, Green Acres expects to charge out 12,000 hours of home health care.
-Refer to the Figure.What is the budgeted operating income?
A)$90,000
B)$168,000
C)$174,000
D)$342,000

Accepted Answer

D

Question 4

What is the formula to calculate operating income?
A)(price × units sold) − (unit variable cost × units sold) − fixed cost
B)(price × units sold) + (unit variable cost × units sold) + fixed cost
C)(price + units sold) − (unit variable cost + units sold) − fixed cost
D)(price − units sold) + (unit variable cost − units sold) + fixed cost

Accepted Answer

Operating income is calculated by deducting the total cost of goods sold and operating expenses from total revenue. Formula for operating income is Revenue − Cost of Goods Sold − Operating Expenses. Using the given options, option A correctly follows this formula whereas the other options do not.

Question 5

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the break-even point in sales dollars?
A)$21,670
B)$28,000
C)$58,330
D)$80,000

Accepted Answer

The break-even point in sales dollars is calculated by dividing the total fixed costs by the contribution margin ratio. Total fixed costs are $13,000 (marketing) + $35,000 (administrative) = $48,000. The contribution margin per unit is $10 (price) - $4 (total variable costs) = $6. The contribution margin ratio is $6 / $10 = 0.6. Therefore, the break-even point in sales dollars is $48,000 / 0.6 = $80,000.

Question 6

What is the break-even point?
A)Total revenue minus total cost.
B)Profit is greater than zero.
C)Total contribution margin equals total fixed cost.
D)Margin of safety is positive.

Accepted Answer

The break-even point is the level of sales at which total revenues equal total costs. In other words, it is the point where there is neither profit nor loss. Total contribution margin refers to the amount of money left over after variable costs have been subtracted from revenue, and represents the amount available to cover fixed costs. When total contribution margin equals total fixed cost, the company has no profit or loss, and is at its break-even point. Therefore, the best choice is C.

Question 7

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.How many units must be sold to yield a targeted income of $36,000?
A)5,833
B)6,000
C)12,000
D)14,000

Accepted Answer

To find the number of units needed to achieve a targeted income, calculate the contribution margin per unit and use the formula: (Fixed Costs + Target Income) / Contribution Margin per Unit. Contribution Margin per Unit = Selling Price - Variable Costs = $10 - ($1.50 + $1.20 + $0.90 + $0.40) = $6. Fixed Costs = $13,000 + $35,000 = $48,000. Target Income = $36,000. Units needed = ($48,000 + $36,000) / $6 = 14,000.

Question 8

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the budgeted operating income?
A)$92,500
B)$320,000
C)$322,500
D)$457,500

Accepted Answer

Budgeted operating income is calculated as budgeted sales minus budgeted variable costs minus budgeted fixed costs. So, $550,000 - $230,000 - $227,500 = $92,500.

Question 9

What is total variable cost divided by sales revenue?
A)the variable cost ratio
B)the revenue ratio
C)the contribution ratio
D)the sales ratio

Accepted Answer

The variable cost ratio is calculated by dividing total variable costs by sales revenue. This ratio indicates the proportion of sales revenue that is consumed by variable costs.

Question 10

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the variable product expense per unit?
A)$1.30
B)$3.60
C)$4.00
D)$4.60

Accepted Answer

Variable product expense per unit includes direct materials, direct labor, and variable overhead, which sum up to $1.50 + $1.20 + $0.90 = $3.60. Variable marketing expense is not included in product costs.

Question 11

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the variable expense ratio?
A)36%
B)40%
C)46%
D)50%

Accepted Answer

The variable expense ratio is calculated by dividing the total variable expenses by the sales price per unit. The total variable expenses per calendar are $1.50 (direct materials) + $1.20 (direct labor) + $0.90 (variable overhead) + $0.40 (variable marketing expense) = $4.00. The sales price per calendar is $10. Therefore, the variable expense ratio is $4.00 / $10 = 0.40 or 40%.

Question 12

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the variable cost ratio?
A)19%
B)42%
C)50%
D)54%

Accepted Answer

The variable cost ratio is calculated by dividing the budgeted variable costs by budgeted sales, then multiplying by 100 to convert to a percentage.

Variable cost ratio = (Budgeted variable costs / Budgeted sales) x 100
Variable cost ratio = ($230,000 / $550,000) x 100
Variable cost ratio = 0.41818 x 100
Variable cost ratio = 41.82%
Rounding to the nearest whole percentage, the variable cost ratio is 42%. The correct answer is B.

Question 13

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the contribution ratio?
A)35%
B)50%
C)58%
D)65%

Accepted Answer

Contribution ratio is the proportion of the sales revenue that remains after covering variable costs.

Contribution Ratio = (Sales - Variable Costs) / Sales

Contribution Ratio = ($550,000 - $230,000) / $550,000

Contribution Ratio = 58%

Therefore, the answer is C.

As for the best choice, it depends on the context and the criteria for evaluation. If we want to maximize profitability, we should choose products or markets with higher contribution ratios. If we want to increase sales volume or market share, we may need to adjust the pricing or promotion strategies. If we want to reduce costs, we may need to improve efficiency, negotiate better deals with suppliers, or eliminate non-essential fixed costs. Ultimately, the best choice is the one that aligns with the overall goals and values of the company.

Question 14

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the contribution margin per unit?
A)$5.00
B)$5.40
C)$6.00
D)$6.30

Accepted Answer

The contribution margin per unit is calculated by subtracting all variable costs from the selling price per unit. Here, the variable costs include direct materials ($1.50), direct labor ($1.20), variable overhead ($0.90), and variable marketing expense ($0.40), totaling $4.00. Subtracting this from the selling price of $10 gives a contribution margin of $6.00 per unit. However, the correct calculation should include all variable costs from the selling price, which I mistakenly summed up to $4.00 instead of the correct total variable costs. The correct total variable costs are $1.50 (direct materials) + $1.20 (direct labor) + $0.90 (variable overhead) + $0.40 (variable marketing expense) = $4.00. Subtracting this from the selling price of $10 indeed gives a contribution margin of $6.00 per unit, not $6.30. My initial instruction to subtract all variable costs from the selling price was correct, but the final answer provided was incorrect due to a miscalculation. The correct answer, based on the provided calculation, should be $6.00 per unit, not $6.30.

Question 15

What is the break-even point?
A)the point at which total sales are greater than total cost
B)the point at which total sales equal total cost
C)the point at which fixed costs equal variable costs
D)the point at which total sales are less than total cost

Accepted Answer

The break-even point is the point at which total sales equal total cost. This means that a company has sold enough products or services to cover all of its expenses, but has not yet made a profit. At this point, any additional sales will result in a profit for the company. Therefore, the best choice is B, the point at which total sales equal total cost.

Question 16

Green Acres Company provides home health care. Green Acres charges $35 per hour for professional care. Variable casts are $21 per hour and fixed costs are $78,000. Next year, Green Acres expects to charge out 12,000 hours of home health care.
-Refer to the Figure.What is the contribution margin ratio?
A)33%
B)40%
C)50%
D)60%

Accepted Answer

Contribution margin ratio is calculated as contribution margin divided by total sales.

Contribution margin = sales revenue - variable costs
= ($35 per hour x 12,000 hours) - ($21 per hour x 12,000 hours)
= $420,000 - $252,000
= $168,000

Total sales = $35 per hour x 12,000 hours = $420,000

Contribution margin ratio = ($168,000 / $420,000) x 100%
= 40%

Therefore, the correct answer is C) 50%.

There is no best choice given in the question.

Question 17

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the contribution margin?
A)$92,500
B)$320,000
C)$322,500
D)$457,500

Accepted Answer

The contribution margin is calculated as Sales - Variable Costs. Therefore, $550,000 - $230,000 = $320,000.

Question 18

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500.
-Refer to the Figure.What is the break-even point in sales dollars?
A)$392,241
B)$420,000
C)$761,905
D)$948,275

Accepted Answer

The break-even point in sales dollars can be calculated using the formula: Break-even Sales = Fixed Costs / (1 - (Variable Costs / Sales)). Plugging in the given numbers: $227,500 / (1 - ($230,000 / $550,000)) = $392,241.

Question 19

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the contribution margin ratio?
A)36%
B)40%
C)44%
D)50%

Accepted Answer

The contribution margin ratio is calculated as (Sales price per unit - Variable costs per unit) / Sales price per unit. Here, the variable costs per unit are the sum of direct materials ($1.50), direct labor ($1.20), variable overhead ($0.90), and variable marketing expense ($0.40), which totals $4.00. The sales price per unit is $10. Therefore, the contribution margin ratio is ($10 - $4) / $10 = $6 / $10 = 0.6 or 60%. However, since 60% is not an option and there seems to be a misunderstanding in the options provided, the closest correct option based on the calculation method is D) 50%, assuming a typo or error in the question or options.

Question 20

Date Company makes calendars. Information on cost per unit is as follows:
Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The price per calendar is $10.
 $\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the variable expense per unit?
A)$1.30
B)$3.70
C)$4.00
D)$4.60

Accepted Answer

The variable expense per unit is the sum of all variable costs: Direct materials ($1.50) + Direct labour ($1.20) + Variable overhead ($0.90) + Variable marketing expense ($0.40) = $4.00.

Quiz 4: Costvolumeprofit Analysis: a Managerial Planning Tool

What is the purpose of doing a cost-volume-profit (CVP) analysis?

What is the formula to calculate operating income?

What is the break-even point?

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500. -Refer to the Figure.What is the budgeted operating income?

What is total variable cost divided by sales revenue?

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500. -Refer to the Figure.What is the variable cost ratio?

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500. -Refer to the Figure.What is the contribution ratio?

What is the break-even point?

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500. -Refer to the Figure.What is the contribution margin?

Desjardin's makes power tools. The budgeted sales are $550,000, budgeted variable costs are $230,000, and budgeted fixed costs are $227,500. -Refer to the Figure.What is the break-even point in sales dollars?