Question 1

How can contribution margin per unit be used to find the break-even point in units?

Accepted Answer

Answers will vary
Feedback: Th

Question 2

Preston Company sells a product whose contribution margin ratio is 20%.Assuming fixed costs don't change,incremental sales of $50,000 will generate $20,000 of additional profit.

Accepted Answer

A) True 
 B)False

Question 3

What is the formula for calculating contribution margin ratio?

Accepted Answer

A)  Contribution margin ÷ Net income 
B)  Contribution margin ÷ Fixed costs 
C)  Contribution margin ÷ Desired profit 
D)  Contribution margin ÷ Sales 
A)  Contribution margin ÷ Net income 
B)  Contribution margin ÷ Fixed costs 
C)  Contribution margin ÷ Desired profit 
D)  Contribution margin ÷ Sales

Question 4

Chesterfield Corporation has been operating well above its break-even point.What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

Accepted Answer

A)  The break-even point would decrease,and the margin of safety would decrease. 
B)  The break-even point would decrease,and the margin of safety would increase. 
C)  The break-even point would increase,and the margin of safety would decrease. 
D)  The break-even point would increase,and the margin of safety would increase. 
A)  The break-even point would decrease,and the margin of safety would decrease. 
B)  The break-even point would decrease,and the margin of safety would increase. 
C)  The break-even point would increase,and the margin of safety would decrease. 
D)  The break-even point would increase,and the margin of safety would increase.

Question 5

Explain how to calculate contribution margin per unit.

Accepted Answer

Answers will vary
Unit contrib

Question 6

Consider the following cost-volume-profit graph:   What is the approximate amount of fixed costs in this organization?

Accepted Answer

A)  $0 
B)  $25,000 
C)  $60,000 
D)  $30,000 
A)  $0 
B)  $25,000 
C)  $60,000 
D)  $30,000

Question 7

The following information is for a product manufactured and sold by Richards Corporation:
Sales price per unit,$70
Variable cost per unit,$40
Total fixed costs,$600,000
Last year,Richards earned a profit of $30,000.
Required:
1)How many units did Richards sell last year?
2)Richards' managers are considering decreasing the sales price to $60 in an effort to increase market share.Also,the company wants a profit of $60,000.How many units would it have to sell at the lower selling price to achieve this target?

Accepted Answer

1)($600,000 + $30,00

Question 8

Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

Accepted Answer

A)  93,333 units 
B)  33,333 units 
C)  50,000 units 
D)  200,000 units 
A)  93,333 units 
B)  33,333 units 
C)  50,000 units 
D)  200,000 units

Question 9

Rose Corporation sells backpacks.Variable costs for this product are $30 per unit,and the sales price per unit is $50 per unit.Total fixed costs amount to $100,000.How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

Accepted Answer

A)  2,000 units 
B)  5,000 units 
C)  5,333 units 
D)  8,000 units 
A)  2,000 units 
B)  5,000 units 
C)  5,333 units 
D)  8,000 units

Question 10

Which of the following is not an assumption made when performing cost-volume-profit analysis?

Accepted Answer

A)  Number of units produced is greater than the number of units sold. 
B)  Worker efficiency is held constant. 
C)  The company produces within the relevant range of activity. 
D)  There is a linear relationship between cost and volume for both fixed and variable cost. 
A)  Number of units produced is greater than the number of units sold. 
B)  Worker efficiency is held constant. 
C)  The company produces within the relevant range of activity. 
D)  There is a linear relationship between cost and volume for both fixed and variable cost.

Question 11

Goff Corporation sells products for $75 each that have variable costs of $50 per unit.Goff's fixed cost is $350,000.
Required:
Calculate the contribution margin per unit,then use the per unit contribution margin approach to find the break-even point in units and dollars.

Accepted Answer

Unit contribution margin is $2

Question 12

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

Accepted Answer

A) True 
 B)False

Question 13

To find the break-even point for a company that sells several products,the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix.

Accepted Answer

A) True 
 B)False

Question 14

Contribution margin cannot be calculated for a service-type business,and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

Accepted Answer

A) True 
 B)False

Question 15

When performing sensitivity analysis,which of the following is an example of a variable that management may consider changing to answer "what if" questions?

Accepted Answer

A)  Variable cost per unit 
B)  Sales price per unit 
C)  Fixed cost per unit 
D)  Both variable cost per unit and sales price per unit are correct. 
A)  Variable cost per unit 
B)  Sales price per unit 
C)  Fixed cost per unit 
D)  Both variable cost per unit and sales price per unit are correct.

Question 16

At the break-even point:

Accepted Answer

A)  Sales would be equal to total costs. 
B)  Contribution margin would be equal to total fixed costs. 
C)  Sales would be equal to fixed costs. 
D)  Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct. 
A)  Sales would be equal to total costs. 
B)  Contribution margin would be equal to total fixed costs. 
C)  Sales would be equal to fixed costs. 
D)  Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

Question 17

During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

Accepted Answer

A)  $240,000 
B)  $560,000 
C)  $840,000 
D)  $360,000 
A)  $240,000 
B)  $560,000 
C)  $840,000 
D)  $360,000

Question 18

Lex Company produces products that it sells for $10 each.Variable costs per unit are $4,and annual fixed costs are $120,000.
Required:
Use the equation method to determine the break-even point in units and dollars.

Accepted Answer

Selling price per unit x Number of units

Question 19

The following information is for a product manufactured and sold by Drake Company:
Sales price per unit: $100
Variable cost per unit: $30
Total annual fixed costs: $350,000
Required:
1)Calculate the contribution margin per unit.
2)How many units must Crane sell to break-even?
3)How many units must Crane sell to achieve a profit of $35,000?

Accepted Answer

1)Contribution margin per unit

Question 20

What happens to the break-even point in sales dollars when the contribution margin ratio increases?

Accepted Answer

A)  Break-even point increases. 
B)  Break-even point decreases. 
C)  Break-even point stays the same. 
D)  Not enough information to answer the question. 
A)  Break-even point increases. 
B)  Break-even point decreases. 
C)  Break-even point stays the same. 
D)  Not enough information to answer the question.

How can contribution margin per unit be used to find the break-even point in units?

Preston Company sells a product whose contribution margin ratio is 20%.Assuming fixed costs don't change,incremental sales of $50,000 will generate $20,000 of additional profit.

What is the formula for calculating contribution margin ratio?

Chesterfield Corporation has been operating well above its break-even point.What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

Explain how to calculate contribution margin per unit.

Consider the following cost-volume-profit graph: What is the approximate amount of fixed costs in this organization?

Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

Rose Corporation sells backpacks.Variable costs for this product are $30 per unit,and the sales price per unit is $50 per unit.Total fixed costs amount to $100,000.How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

Which of the following is not an assumption made when performing cost-volume-profit analysis?

Goff Corporation sells products for $75 each that have variable costs of $50 per unit.Goff's fixed cost is $350,000. Required: Calculate the contribution margin per unit,then use the per unit contribution margin approach to find the break-even point in units and dollars.

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

To find the break-even point for a company that sells several products,the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix.

Contribution margin cannot be calculated for a service-type business,and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

When performing sensitivity analysis,which of the following is an example of a variable that management may consider changing to answer "what if" questions?

At the break-even point:

During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

Lex Company produces products that it sells for $10 each.Variable costs per unit are $4,and annual fixed costs are $120,000. Required: Use the equation method to determine the break-even point in units and dollars.

What happens to the break-even point in sales dollars when the contribution margin ratio increases?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 3: Analysis of Cost,Volume,and Pricing to Increase Profitability

How can contribution margin per unit be used to find the break-even point in units?

Preston Company sells a product whose contribution margin ratio is 20%.Assuming fixed costs don't change,incremental sales of $50,000 will generate $20,000 of additional profit.

What is the formula for calculating contribution margin ratio?

Chesterfield Corporation has been operating well above its break-even point.What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

Explain how to calculate contribution margin per unit.

Consider the following cost-volume-profit graph: What is the approximate amount of fixed costs in this organization?

Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

Rose Corporation sells backpacks.Variable costs for this product are $30 per unit,and the sales price per unit is $50 per unit.Total fixed costs amount to $100,000.How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

Which of the following is not an assumption made when performing cost-volume-profit analysis?

Goff Corporation sells products for $75 each that have variable costs of $50 per unit.Goff's fixed cost is $350,000. Required: Calculate the contribution margin per unit,then use the per unit contribution margin approach to find the break-even point in units and dollars.

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

To find the break-even point for a company that sells several products,the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix.

Contribution margin cannot be calculated for a service-type business,and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

When performing sensitivity analysis,which of the following is an example of a variable that management may consider changing to answer "what if" questions?

At the break-even point:

During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

Lex Company produces products that it sells for $10 each.Variable costs per unit are $4,and annual fixed costs are $120,000. Required: Use the equation method to determine the break-even point in units and dollars.

What happens to the break-even point in sales dollars when the contribution margin ratio increases?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters