Question 1

How can a firm have more than one breakeven output point?

Accepted Answer

In considering the breakeven analysis model, it is assumed that the selling pice and the variable cost per unit are constant. In reality, they are not. Often, the firm can sell additional units of ouput by lowering the price per unit which results in a curvilinear model rather than a straight line. In addition, variable costs can increase and decrease. Total cost and total revenue that are nonlinear can result in a firm having more than one breakeven point. The interpretation of this is that operating losses below a specific level (Q₁) and above a specific output level (Q₂) will be incurred.

Question 2

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35 with a variable cost per unit of $21. The company has operating costs of $1,050,000. What is the firm's breakeven point in units?

Accepted Answer

A)  75,000 
B)  50,000 
C)  80,000 
D)  65,000 
A)  75,000 
B)  50,000 
C)  80,000 
D)  65,000 A

Question 3

List the limitations of breakeven analysis:

Accepted Answer

Breakeven analysis makes certain assumptions:
1. that the selling price and variable costs stay constant
2. that all costs are classified as either fixed or variable.
3. that the firm is producing and selling a single product or a constant mix of different products.
4. that all costs - fixed costs, variable costs and selling price - are known at each level of output.
5. that the analysis is done for a time frame of one year or less.

Question 4

Explain the composition of operating costs and why they can cause an inaccurate breakeven analysis.

Accepted Answer

Breakeven analysis assumes that costs ca

Question 5

In a graphic breakeven analysis, the point where total revenue is less than total cost indicates that the firm has:

Accepted Answer

A)  net operating capital 
B)  cash flow from investing 
C)  a negative EBIT 
D)  a positive return on capital 
A)  net operating capital 
B)  cash flow from investing 
C)  a negative EBIT 
D)  a positive return on capital

Question 6

An example of a noncash outlay is:

Accepted Answer

A)  property 
B)  marketing costs 
C)  advertising 
D)  depreciation 
A)  property 
B)  marketing costs 
C)  advertising 
D)  depreciation

Question 7

The uses of breakeven analysis are all of the following EXCEPT:

Accepted Answer

A)  forecasting the profitability of the firm 
B)  forecasting the impact of certain economic conditions on the firm's profitability 
C)  analyzing the impact of substituting fixed costs for variable costs in production 
D)  analyzing the profit impact of a firm's restructuring efforts. 
A)  forecasting the profitability of the firm 
B)  forecasting the impact of certain economic conditions on the firm's profitability 
C)  analyzing the impact of substituting fixed costs for variable costs in production 
D)  analyzing the profit impact of a firm's restructuring efforts.

Question 8

Breakeven analysis is normally performed for a planning period of:

Accepted Answer

A)  five years 
B)  one year or less 
C)  ten years 
D)  one month 
A)  five years 
B)  one year or less 
C)  ten years 
D)  one month

Question 9

What are the possible uses for breakeven analysis?

Accepted Answer

Breakeven analysis can be used for:
1. f

Question 10

Breakeven analysis can be used:

Accepted Answer

A)  when planning renovations 
B)  when planning expansions 
C)  when planning financial resources 
D)  when planning new product development 
A)  when planning renovations 
B)  when planning expansions 
C)  when planning financial resources 
D)  when planning new product development

Question 11

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35 with a variable cost per unit of $21. The company has operating costs of $1,050,000. The company has operating costs of $1,050,000. What is the firm's breakeven point in dollars?

Accepted Answer

A)  $1,750,000 
B)  $4,670,000 
C)  $2,625,000 
D)  $3,875,566 
A)  $1,750,000 
B)  $4,670,000 
C)  $2,625,000 
D)  $3,875,566

Question 12

What is the breakeven point in dollars for Zippy Dippy Swimwear, makers of bathing suits and accessories? They have the following costs:  
The price of each suit is $85.
The price of each towel is $25.
The price of each umbrella is $40.
The price of each cover-up is $81.

Accepted Answer

A)  $3,172,024 
B)  $4,947,196 
C)  $7,887,259 
D)  $6,425,583 
A)  $3,172,024 
B)  $4,947,196 
C)  $7,887,259 
D)  $6,425,583

Question 13

The contribution margin per unit is the difference between:

Accepted Answer

A)  the selling price per unit and fixed costs 
B)  the fixed costs and the variable costs 
C)  the variable cost per unit and the selling price per unit 
D)  the variable costs and the number of units sold 
A)  the selling price per unit and fixed costs 
B)  the fixed costs and the variable costs 
C)  the variable cost per unit and the selling price per unit 
D)  the variable costs and the number of units sold

Question 14

Bouncy Bungee Rubber Band Company is trying to determine its probability of incurring a loss. Its fixed costs are $2,760,000 per year, it sells its rubber bands for $3.75 per pack and the variable cost of these packs is $.75. They estimate they will sell 1,000,000 packs this year and they have a standard deviation of 40,000 units. (A normal distribution table - Table V - must accompany this problem).

Accepted Answer

A)  3.22% 
B)  6.71% 
C)  5.48% 
D)  2.87% 
A)  3.22% 
B)  6.71% 
C)  5.48% 
D)  2.87%

Question 15

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35 with a variable cost per unit of $21. The company has operating costs of $1,050,000. What is the probability of the firm having operating losses if the firm has a standard deviation of 4,000 units and the firm expects to sell 80,000 almanacs? (A normal distribution table - Table V - must accompany this problem)

Accepted Answer

A)  10.56% 
B)  11.12% 
C)  14.92% 
D)  13.57% 
A)  10.56% 
B)  11.12% 
C)  14.92% 
D)  13.57%

Question 16

The difference between the selling price per unit and the variable cost per unit is the:

Accepted Answer

A)  contribution to the bottom line 
B)  contribution to revenue 
C)  contribution margin 
D)  contribution to EBIT 
A)  contribution to the bottom line 
B)  contribution to revenue 
C)  contribution margin 
D)  contribution to EBIT

Question 17

What is the breakeven point for Rough and Tough Clothiers, makers of heavy duty dungarees? They have the following costs:  
The price of the dungarees is $55 per pair.

Accepted Answer

A)  13,040 
B)  10,867 
C)  25,000 
D)  17,650 
A)  13,040 
B)  10,867 
C)  25,000 
D)  17,650

Question 18

Breakeven analysis can be used to assess ____ risk.

Accepted Answer

A)  financial 
B)  operating 
C)  sales 
D)  volume 
A)  financial 
B)  operating 
C)  sales 
D)  volume

Question 19

The breakeven point occurs where total revenues intersect with:

Accepted Answer

A)  market returns 
B)  the risk-free rate 
C)  total costs 
D)  total interest and taxes 
A)  market returns 
B)  the risk-free rate 
C)  total costs 
D)  total interest and taxes

Question 20

The Fanny Nanny Weight Monitors Corporation offers an annual diet plans for sale each year with information about nutrition, diet tips and food substitutes. The finished product sells for $60 with a variable cost per unit of $27. The company has fixed operating costs of $1,250,000. What is its breakeven point?

Accepted Answer

A)  22,187 
B)  37,879 
C)  56,124 
D)  48,961 
A)  22,187 
B)  37,879 
C)  56,124 
D)  48,961

Exam 26: Breakeven Analysis

How can a firm have more than one breakeven output point?

List the limitations of breakeven analysis:

Explain the composition of operating costs and why they can cause an inaccurate breakeven analysis.

In a graphic breakeven analysis, the point where total revenue is less than total cost indicates that the firm has:

An example of a noncash outlay is:

The uses of breakeven analysis are all of the following EXCEPT:

Breakeven analysis is normally performed for a planning period of:

What are the possible uses for breakeven analysis?

Breakeven analysis can be used:

What is the breakeven point in dollars for Zippy Dippy Swimwear, makers of bathing suits and accessories? They have the following costs: The price of each suit is $85. The price of each towel is $25. The price of each umbrella is $40. The price of each cover-up is $81.

The contribution margin per unit is the difference between:

The difference between the selling price per unit and the variable cost per unit is the:

What is the breakeven point for Rough and Tough Clothiers, makers of heavy duty dungarees? They have the following costs: The price of the dungarees is $55 per pair.

Breakeven analysis can be used to assess ____ risk.

The breakeven point occurs where total revenues intersect with:

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Bond Refunding Analysis

Taxes

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