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

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 contribution margin is calculated as sales minus variable costs, which is $914,000 - $498,130 = $415,870. The contribution margin ratio is then the contribution margin divided by sales, $415,870 / $914,000 = 0.455 or 45.5%.

Question 3

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 contribution margin ratio is calculated as (Sales - Variable Costs) / Sales. Variable costs are 53% of sales, so the contribution margin ratio is 47% (100% - 53%).

Question 4

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

Accepted Answer

The break-even point is the level of sales at which total revenues equal total costs. If variable costs per unit increase, the cost of producing each unit will increase, which means the break-even point will increase as well. This is because more units will need to be sold to cover the higher variable costs and reach the same level of total costs.

Question 5

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

Explanation:The break-even sales (units) is calculated as follows:Break-even sales (units) = Fixed costs / (Unit selling price - Unit variable costs)If the unit variable costs are decreased by $4, the new unit variable costs will be $20 - $4 = $16.Therefore, the break-even sales (units) will be:Break-even sales (units) = $350,000 / ($29 - $16) = 26,924 units

Question 6

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 formula to calculate the break-even point in units is:
Break-even point (in units) = Fixed Costs / Unit Contribution Margin

Substituting the given values:
Break-even point (in units) = $700,000 / $17 = 41,176.47

To calculate the operating income, we use the formula:
Operating Income = (Unit Contribution Margin x Number of units sold) - Fixed Costs

Substituting the values:
$100,000 = ($17 x Number of units sold) - $700,000
$800,000 = $17 x Number of units sold
Number of units sold = $800,000 / $17 = 47,058.82

Therefore, the answer is C) 47,059 units.

Question 7

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 8

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 
$21 - $10 = $11

Contribution margin ratio = (Contribution margin per unit / Selling price per unit) x 100% 
= ($11 / $21) x 100% = 52.38%

Therefore, the closest answer is D, with a contribution margin ratio of 52% and a unit contribution margin of $11.

Question 9

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 10

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

Fixed costs = $561,000Unit contribution margin = $8.00Variable costs decreased by $0.50 a unitNew unit contribution margin = $8.00 + $0.50 = $8.50Break-even point in units = Fixed costs / Unit contribution margin= $561,000 / $8.50= 66,000 units

Question 11

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, calculate the contribution margin per unit:

Unit Selling Price - Unit Variable Cost = Contribution Margin per Unit 
$240 - $110 = $130

Next, calculate the number of units required to cover the fixed costs and achieve the desired operating income:

[($1,200,000 + $200,000) ÷ $130] = 10,769 units

Question 12

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

First, calculate the current operating income:

Current operating income = (unit selling price - unit variable cost) * current sales - fixed costs

Current operating income = ($60 - $35) * 10,000 - $125,000 = $225,000

Then, calculate the operating income if sales increase by 8,000 units:

New sales = 10,000 + 8,000 = 18,000 units

New operating income = ($60 - $35) * 18,000 - $125,000 = $425,000

The increase in operating income is:

Increase in operating income = New operating income - Current operating income

Increase in operating income = $425,000 - $225,000 = $200,000

Therefore, the correct answer is C) $200,000 increase.

Question 13

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 formula for calculating the break-even point in units is:

Break-even point (units) = Fixed costs / (Selling price per unit - Variable costs per unit)

Using the original values, we get:

Break-even point (units) = $450,000 / ($75 - $50)
Break-even point (units) = 18,000 units

To find the new break-even point, we need to use the new selling price of $85:

Break-even point (units) = $450,000 / ($85 - $50)
Break-even point (units) = 12,857.14 units

Rounding up to the nearest whole number, we get:

Old break-even point = 18,000 units
New break-even point = 12,858 units

Therefore, the correct answer is C.

Question 14

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 and have zero profit, the total revenue from selling a certain number of units must be equal to the total cost of producing and selling those units. The total cost includes both variable and fixed costs.
 
The formula to calculate the breakeven point in units is:
Breakeven Point (in units) = Fixed Costs / Unit Contribution Margin
 
Using the given information, we can calculate the breakeven point as:
Breakeven Point (in units) = $400,000 / $20
Breakeven Point (in units) = 20,000 units
 
Therefore, 20,000 units must be sold in order to have a zero profit. Choice D is the only option that matches the calculated answer.

Question 15

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 16

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

Accepted Answer

Break-even point = Fixed Costs / Contribution Margin Ratio

Contribution margin ratio = 1 - variable cost ratio 
Variable cost ratio = 60% = 0.6 
Contribution margin ratio = 1 - 0.6 = 0.4

Break-even point = $750,000 / 0.4 
Break-even point = $1,875,000

Question 17

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 18

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

Current sales revenue = $90 x 12,000 = $1,080,000 
Current total variable costs = $40.50 x 12,000 = $486,000 
Current contribution margin = $90 - $40.50 = $49.50 
Current operating income = ($1,080,000 - $486,000) - $170,000 = $424,000

If sales increase by 5,000 units:

New sales revenue = $90 x 17,000 = $1,530,000 
New total variable costs = $40.50 x 17,000 = $688,500 
New contribution margin = $90 - $40.50 = $49.50 
New operating income = ($1,530,000 - $688,500) - $170,000 = $671,500

Operating income will increase by $671,500 - $424,000 = $247,500.

Therefore, the correct answer is D.

Question 19

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 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

The formula to calculate the break-even point is:

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

So, initially the break-even point is:

Break-even point = $500,000 / $20 = 25,000 units

If fixed costs are reduced by $80,000, the new fixed costs will be:

New fixed costs = $500,000 - $80,000 = $420,000

Using the same formula, the new break-even point will be:

New break-even point = $420,000 / $20 = 21,000 units

Therefore, the best choice is D, as the break-even point decreases to 21,000 units with the $80,000 reduction in fixed costs.

Quiz 21: Cost Behavior and Cost-Volume-Profit Analysis