Question 1

A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit was:

Accepted Answer

First, we need to calculate the total cost:
Variable costs = 70% of sales = 0.7 x $1,000,000 = $700,000
Total cost = Fixed costs + Variable costs = $330,000 + $700,000 = $1,030,000

To calculate operating profit, we need to subtract the total cost from sales:
Operating profit = Sales - Total cost = $1,000,000 - $1,030,000 = ($30,000)

Therefore, the correct answer is B. The firm operated at 80% of capacity and had a loss of $30,000.

Question 2

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?

Accepted Answer

With variable costs at 80% of sales, a $40,000 increase in sales results in a $32,000 increase in variable costs (80% of $40,000). The remaining $8,000 ($40,000 - $32,000) contributes to covering fixed costs and then to operating income, leading to an $8,000 increase in operating income.

Question 3

If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?

Accepted Answer

To break even (have zero profit), the total contribution margin must equal the total fixed costs. 
Let X be the number of units to break even.
Total contribution margin = X * $20
Total fixed costs = $400,000
X * $20 = $400,000
X = 20,000 units. Therefore, the answer is D.

Question 4

If fixed costs are $300,000, the unit selling price is $31, and the unit variable costs are $22, what is the break-even sales (units) if fixed costs are reduced by $30,000?

Accepted Answer

The answer of If fixed costs are $300,000, the unit...

Question 5

Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?

Accepted Answer

Contribution margin per unit = Selling price per unit - variable costs per unit
Contribution margin per unit = $90 - $40.50 = $49.50

Contribution margin ratio = Contribution margin per unit / Selling price per unit
Contribution margin ratio = $49.50 / $90 = 0.55 or 55%

Break-even point (in units) = Fixed costs / Contribution margin per unit
Break-even point (in units) = $170,000 / $49.50 = 3,434 units (rounded up)

Operating income = (Sales in units x Contribution margin per unit) - Fixed costs
Operating income = (12,000 x $49.50) - $170,000 = $269,000

If sales increase by 5,000 units, new sales will be 12,000 + 5,000 = 17,000 units

New operating income = (New sales in units x Contribution margin per unit) - Fixed costs
New operating income = (17,000 x $49.50) - $170,000 = $516,500

Change in operating income = New operating income - Operating income
Change in operating income = $516,500 - $269,000 = $247,500 increase

Question 6

If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs are $30, what is the break-even sales (units) if fixed costs are increased by $80,000?

Accepted Answer

The answer of If fixed costs are $500,000, the unit...

Question 7

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)?

Accepted Answer

The answer of If fixed costs are $250,000, the unit...

Question 8

Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units?

Accepted Answer

Contribution margin per unit = selling price - variable cost = $60 - $35 = $25
Total contribution margin = contribution margin per unit * sales = $25 * 10,000 = $250,000
Total revenue = selling price * sales = $60 * 10,000 = $600,000
Total cost = variable cost * sales + fixed cost = $35 * 10,000 + $125,000 = $475,000
Operating income = total revenue - total cost = $600,000 - $475,000 = $125,000
If sales increase by 8,000 units, the new sales will be 10,000 + 8,000 = 18,000 units
Total revenue = selling price * sales = $60 * 18,000 = $1,080,000
Total cost = variable cost * sales + fixed cost = $35 * 18,000 + $125,000 = $755,000
Operating income = total revenue - total cost = $1,080,000 - $755,000 = $325,000
Change in operating income = $325,000 - $125,000 = $200,000
Therefore, the answer is C, $200,000 increase.

Question 9

If fixed costs are $350,000, the unit selling price is $29, and the unit variable costs are $20, what is the break-even sales (units) if the variable costs are decreased by $4?

Accepted Answer

The answer of If fixed costs are $350,000, the unit...

Question 10

If the contribution margin ratio for France Company is 45%, sales were $425,000. and fixed costs were $100,000, what was the income from operations?

Accepted Answer

The answer of If the contribution margin ratio for France...

Question 11

If sales are $914,000, variable costs are $498,130, and operating income is $260,000, what is the contribution margin ratio?

Accepted Answer

The answer of If sales are $914,000, variable costs are...

Question 12

If sales are $525,000, variable costs are 53% of sales, and operating income is $50,000, what is the contribution margin ratio?

Accepted Answer

The answer of If sales are $525,000, variable costs are...

Question 13

If fixed costs are $561,000 and the unit contribution margin is $8.00, what is the break-even point in units if variable costs are decreased by $.50 a unit?

Accepted Answer

The answer of If fixed costs are $561,000 and the...

Question 14

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

Accepted Answer

Contribution margin per unit = selling price per unit - variable cost per unit
Contribution margin per unit = $21 - $10 = $11
Contribution margin ratio = contribution margin per unit / selling price per unit
Contribution margin ratio = $11 / $21 = 0.5238 or 52.38%
Fixed cost per unit = total fixed cost / total number of units
Fixed cost per unit = $75,000 / 25,000 units = $3 per unit
Therefore, the unit contribution margin is $11 per unit and the contribution margin ratio is 52%. The correct answer is D.

Question 15

If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?

Accepted Answer

The formula to calculate break-even point in sales dollars is:
Break-even point = Fixed costs / (1 - Variable costs as a percentage of sales)
Variable costs as a percentage of sales = 60/100 = 0.6
Break-even point = $750,000 / (1 - 0.6)
Break-even point = $750,000 / 0.4
Break-even point = $1,875,000
Therefore, the best choice is C.

Question 16

If fixed costs are $1,200,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales required to realize an operating income of $200,000?

Accepted Answer

First, we need to use the formula for computing the break-even point:

Break-even point = Fixed costs / Contribution margin per unit

Contribution margin per unit = Unit selling price - Unit variable costs
Contribution margin per unit = $240 - $110 = $130

Break-even point = $1,200,000 / $130 per unit
Break-even point = 9,231 units

Now that we know the break-even point, we can use another formula to incorporate operating income:

Operating income = (Unit selling price x Q) - (Unit variable costs x Q) - Fixed costs

Rearranging the formula, we get:

(Unit selling price x Q) - (Unit variable costs x Q) = Operating income + Fixed costs

Q (Contribution margin per unit) = Operating income + Fixed costs

Q = (Operating income + Fixed costs) / Contribution margin per unit
Q = ($200,000 + $1,200,000) / $130 per unit
Q = 10,769 units

Therefore, we need to sell 10,769 units to realize an operating income of $200,000. The best choice is C.

Question 17

If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs are $50, what are the old and new break-even sales (units) if the unit selling price increases by $10?

Accepted Answer

The old break-even point can be calculated as:

Break-even point (units) = Fixed costs / (Unit selling price - Unit variable costs)
Break-even point (units) = 450,000 / (75 - 50) = 18,000 units

The new unit selling price is $85, therefore the new unit variable cost (assuming no change in cost structure) would still be $50, leading to the following break-even point:

Break-even point (units) = Fixed costs / (Unit selling price - Unit variable costs)
Break-even point (units) = 450,000 / (85 - 50) = 12,858 units

Therefore, the old break-even point was 18,000 units and the new break-even point is 12,858 units. The best choice is C.

Question 18

If fixed costs are $700,000 and the unit contribution margin is $17, what amount of units must be sold in order to realize an operating income of $100,000?

Accepted Answer

The equation to solve for the required sales volume to achieve a desired operating income is:

(Sales Volume x Unit Contribution Margin) - Fixed Costs = Operating Income

Substituting the given values, we get:

(Sales Volume x $17) - $700,000 = $100,000

Simplifying the equation, we get:

Sales Volume x $17 = $800,000

Sales Volume = $800,000 / $17

Sales Volume = 47,058.82

Rounding up to the nearest whole unit, we get:

Sales Volume = 47,059

Therefore, the answer is choice C - 47,059 units must be sold to realize an operating income of $100,000.

Question 19

If fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000?

Accepted Answer

The answer of If fixed costs are $600,000 and the...

Question 20

If fixed costs are $500,000 and the unit contribution margin is $20, what is the break-even point in units if fixed costs are reduced by $80,000?

Accepted Answer

Break-even point in units = Fixed costs / Unit contribution margin

BEP = ($500,000 - $80,000) / $20
BEP = $420,000 / $20
BEP = 21,000 units.

Quiz 4: Cost Behavior and Cost-Volume-Profit Analysis