Question 1

Discuss how CVP analysis can be useful in planning.

Accepted Answer

CVP analysis is useful in determining the relation of costs to sales and the impact of sales volume on profit or loss. With insight on the relations, CVP analysis can be used to predict costs and selling prices. This can help management plan operations and formulate strategies as well as project target incomes.

Question 2

Break-even analysis is a special case of cost-volume-profit analysis.

Accepted Answer

A) True 
 B)False  True

Question 3

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Accepted Answer

A)  Increase by 20,000. 
B)  Equal 6,000. 
C)  Increase by 6,000. 
D)  Decrease by 20,000. 
E)  Not changE.Current break-even point in units = $720,000/($30 - $18) = 60,000 units 
A)  Increase by 20,000. 
B)  Equal 6,000. 
C)  Increase by 6,000. 
D)  Decrease by 20,000. 
E)  Not changE.Current break-even point in units = $720,000/($30 - $18) = 60,000 units E

Question 4

Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point:
(a) In units.
(b) In dollar sales.

Accepted Answer

The answer of Narrows Co. is considering the production and...

Question 5

A step-wise variable cost can be separated into a fixed component and a variable component.

Accepted Answer

A) True 
 B)False

Question 6

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution margin ratio.

Accepted Answer

A)  37.5%. 
B)  62.5%. 
C)  55.0%. 
D)  50.0%. 
E)  47.5%. 
A)  37.5%. 
B)  62.5%. 
C)  55.0%. 
D)  50.0%. 
E)  47.5%.

Question 7

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars for Dunkin Company.

Accepted Answer

A)  $3,210,000. 
B)  $2,640,000. 
C)  $1,560,000. 
D)  $2,440,000. 
E)  $3,500,000. 
A)  $3,210,000. 
B)  $2,640,000. 
C)  $1,560,000. 
D)  $2,440,000. 
E)  $3,500,000.

Question 8

Curvilinear costs always increase:

Accepted Answer

A)  With decreases in volume. 
B)  In constant proportion to changes in production levels. 
C)  When management performs break-even analysis. 
D)  When volume increases, but not at a constant rate. 
E)  On a per unit basis when volume of activity goes down. 
A)  With decreases in volume. 
B)  In constant proportion to changes in production levels. 
C)  When management performs break-even analysis. 
D)  When volume increases, but not at a constant rate. 
E)  On a per unit basis when volume of activity goes down.

Question 9

Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are:   Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):

Accepted Answer

A)  $20,000. 
B)  $289,000. 
C)  $400,000. 
D)  $629,000. 
E)  $740,000. 
A)  $20,000. 
B)  $289,000. 
C)  $400,000. 
D)  $629,000. 
E)  $740,000.

Question 10

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

Accepted Answer

The answer of A company has a goal of earning...

Question 11

A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000.The contribution margin per unit is:

Accepted Answer

A)  $5.00. 
B)  $7.00. 
C)  $8.17. 
D)  $12.00. 
E)  $17.00. 
A)  $5.00. 
B)  $7.00. 
C)  $8.17. 
D)  $12.00. 
E)  $17.00.

Question 12

The sales mix of Palm Company is 5 units of A, 3 units of B, and 1 unit of
C. Per unit sales prices for each product are $30, $40, and $50, respectively. Variable costs per unit are $14, $24, and $34, respectively. Fixed costs are $597,600. What is the break-even point in composite units and in units of A, B, and C?

Accepted Answer

The answer of The sales mix of Palm Company is...

Question 13

The difference between the unit sales price and the unit variable cost of an item is defined as the ________________________.

Accepted Answer

Unit Contribution Ma

Question 14

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

Accepted Answer

A) True 
 B)False

Question 15

A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?

Accepted Answer

The answer of A company has total fixed costs of...

Question 16

The method most likely to produce the most precise line of cost behavior is the scatter diagram.

Accepted Answer

A) True 
 B)False

Question 17

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

Accepted Answer

A)  6,500. 
B)  6,000. 
C)  500. 
D)  5,000. 
E)  5,500. 
A)  6,500. 
B)  6,000. 
C)  500. 
D)  5,000. 
E)  5,500.

Question 18

Three important assumptions in cost-volume-profit analysis is that (1) _______________ per unit is constant, (2) _____________ per unit is constant, and (3) ______________ are constant in total.

Accepted Answer

Selling Pr

Question 19

A statistical method for deriving an estimated line of cost behavior is the:

Accepted Answer

A)  Scatter diagram method. 
B)  High-low method. 
C)  Composite method. 
D)  CVP charting method. 
E)  Least-squares regression method. 
A)  Scatter diagram method. 
B)  High-low method. 
C)  Composite method. 
D)  CVP charting method. 
E)  Least-squares regression method.

Question 20

A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:

Accepted Answer

A)  Margin of safety line. 
B)  Break-even line. 
C)  Contribution margin line. 
D)  Estimated line of cost behavior. 
E)  Standard cost line. 
A)  Margin of safety line. 
B)  Break-even line. 
C)  Contribution margin line. 
D)  Estimated line of cost behavior. 
E)  Standard cost line.

Exam 22: Cost-Volume-Profit Analysis

Discuss how CVP analysis can be useful in planning.

Break-even analysis is a special case of cost-volume-profit analysis.

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point: (a) In units. (b) In dollar sales.

A step-wise variable cost can be separated into a fixed component and a variable component.

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution margin ratio.

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars for Dunkin Company.

Curvilinear costs always increase:

Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000.The contribution margin per unit is:

The difference between the unit sales price and the unit variable cost of an item is defined as the ________________________.

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?

The method most likely to produce the most precise line of cost behavior is the scatter diagram.

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

Three important assumptions in cost-volume-profit analysis is that (1) _______________ per unit is constant, (2) _____________ per unit is constant, and (3) ______________ are constant in total.

A statistical method for deriving an estimated line of cost behavior is the:

A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

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Three important assumptions in cost-volume-profit analysis is that (1) _________ per unit is constant, (2) _ per unit is constant, and (3) ________ are constant in total.