Deck 6: Cost-Volume-Profit Analysis

Question 1

Target units equals fixed costs plus target profit divided by the unit contribution margin

Answer 1

True

Question 2

If production volume does not equal sales volume:

A) we must adjust the CVP formulas for that fact to use CVP.
B) we cannot use CVP, since an assumption is violated.
C) the CVP analysis will always indicate a breakeven point that cannot be reached.
D) the conclusions we draw from a CVP analysis will not be as sound as they would be if we assumed production equaled sales.

Answer 2

D

Question 3

Cost-volume-profit analysis assumes that total costs behave in a ________ fashion.

A) Curvilinear
B) Linear
C) Exponential
D) Regressive

Answer 3

B

Question 4

Degree of operating leverage is calculated by dividing sales by profit

Question 5

Cost-volume-profit analysis assumes that all costs can be accurately described as either fixed or variable

Question 6

On a CVP graph, the break-even point is the point at which the contribution margin line crosses the total cost line

Question 7

In multiproduct cost-volume-profit analysis, a break-even point must be calculated separately for each product

Question 8

Cost-volume-profit analysis can only be performed for companies that sell only one product

Question 9

The degree of operating leverage can be multiplied by a change in sales to determine the change in profit

Question 10

The margin of safety is the difference between actual sales and budgeted sales

Question 11

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage

Question 12

The target sales level equals fixed costs plus variable costs divided by the contribution margin ratio

Question 13

Managers can use cost-volume-profit analysis to evaluate changes in cost structure

Question 14

Which of the following statements is not correct about cost-volume-profit analysis?

A) CVP analysis is a decision-making tool for managers.
B) CVP analysis focuses on the relationship among volume and mix of units sold, prices, variable costs, fixed costs, and profit.
C) CVP analysis works best when all variables are changed concurrently.
D) Managers use CVP analysis to evaluate how changing one key variable will impact profitability, while holding everything else constant.

Question 15

Managers can use cost-volume-profit analysis to help evaluate changes in price

Question 16

Break-even units can be found by dividing fixed costs by the unit contribution margin

Question 17

Contribution margin is equal to fixed costs at the break-even point

Question 18

Profit is indicated on a cost-volume-profit graph by:

A) the vertical difference between zero and the break-even point.
B) the horizontal difference between the revenue line and the cost line.
C) the vertical difference between the revenue line and the cost line.
D) the horizontal distance between zero and the break-even point.

Question 19

To determine the number of units needed to earn a target profit, divide the target contribution margin by the contribution margin per unit

Question 20

Which of the following is not a key assumption of cost-volume-profit?

A) Costs must be fixed.
B) Production and sales are equal.
C) Changes in total cost are strictly due to changes in activity.
D) Total costs and revenues can be depicted with a straight line.

Question 21

The formula for break-even point in terms of sales dollars is:

A) Total variable costs/Contribution margin ratio
B) Total fixed costs/Contribution margin ratio
C) Total fixed costs/Unit contribution margin
D) Total variable costs/Total fixed costs

Question 22

Maggie Corp. has a selling price of $20 per unit, variable costs of $10 per unit, and fixed costs of $140,000. How many units must be sold to break even?

A) 7,000
B) 14,000
C) 3,500
D) 2,334

Question 23

Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Peggy to break even?

A) $166,667
B) $90,000
C) $30,000
D) $280,000

Question 24

Allen, Inc., has a contribution margin of 40% and fixed costs of $250,000. What is the break-even point in sales dollars?

A) $100,000
B) $250,000
C) $375,000
D) $625,000

Question 25

At a level of 20,000 units sold, Gail Corp. has sales of $400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units?

A) 12,000
B) 8,000
C) 20,000
D) 15,000

Question 26

The break-even point is the point at which profit equals:

A) zero.
B) the target.
C) variable costs.
D) less than five percent.

Question 27

Mustang Corp. has a selling price of $15, variable costs of $10 per unit, and fixed costs of $35,000. How many units must be sold to break-even?

A) 7,000
B) 14,000
C) 3,500
D) 2,334

Question 28

Jasper Corp. has a selling price of $30, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $70,000. How many units must be sold to break-even?

A) 19,000
B) 12,000
C) 14,333
D) 5,000

Question 29

The break-even point is:

A) the point where zero contribution margin is earned.
B) the point where zero profit is earned.
C) the point where selling price just equals variable cost.
D) equal to sales revenue less fixed costs.

Question 30

Mira Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $90,000. How many units must be sold to break-even?

A) 1,800
B) 2,250
C) 9,000
D) 2,000

Question 31

Which of the following statements is correct about the break-even point?

A) The break-even point is the point where a company achieves its target profit.
B) The break-even point is the point where all variable costs are covered (but fixed costs are not).
C) The break-even point is the point where all fixed costs are covered (but variable costs are not).
D) The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.

Question 32

The profit equation is:

A) (Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit
B) (Unit price × Q) - (Unit variable costs × Q) + Total fixed costs = Profit
C) (Unit price - Unit variable costs - Total fixed costs) × Q = Profit
D) (Unit price × Q) + (Unit variable costs × Q) + Total fixed costs = Profit

Question 33

Skyline Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $25,000. What sales revenue is needed to break-even?

A) $100,000
B) $5,000
C) $125,000
D) $50,000

Question 34

Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume?

A) Each method provides a different way to express the CVP relationships, yet answers the same basic question.
B) Choice of method depends, in part, on personal preference.
C) Choice of method depends, in part, on the available information.
D) Each method yields a different final answer to be used in analysis.

Question 35

Thunder Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $35,000. How many units must be sold to break even?

A) 7,000
B) 14,000
C) 3,500
D) 2,334

Question 36

The formula for break-even point in terms of units is:

A) Total variable costs/Unit contribution margin
B) Total fixed costs/Contribution margin ratio
C) Total fixed costs/Unit contribution margin
D) Total variable costs/Total fixed costs

Question 37

What component of the profit equation should be set equal to zero to find the breakeven point?

A) Total sales revenue
B) Total variable costs
C) Total fixed costs
D) Profit

Question 38

Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units are sold, profits equaled $35,000. How many units must be sold to break-even?

A) 32,300
B) 20,400
C) 24,366
D) 8,500

Question 39

Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even?

A) $360,000
B) $420,000
C) $200,000
D) $240,000

Question 40

Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-even point in sales dollars?

A) $52,000
B) $325,000
C) $225,000
D) $78,000

Question 41

Munoz Inc. has a contribution margin ratio of 30% and fixed costs of $90,000. What sales revenue is needed to generate a $60,000 profit?

A) $45,000
B) $200,000
C) $500,000
D) $214,286

Question 42

Pecan, Inc., has a contribution margin of 50% and fixed costs of $220,000. What sales revenue is needed to attain a $60,000 profit?

A) $70,400
B) $440,000
C) $560,000
D) $240,000

Question 43

Martol, Inc. has fixed costs of $200,000 and a contribution margin ratio of 40%. How much sales revenue must be earned for a profit of $80,000?

A) $140,000
B) $560,000
C) $700,000
D) $1,120,000

Question 44

Megan, Inc. has fixed costs of $400,000, sales price of $40, and variable cost of $30 per unit. How many units must be sold to earn profit of $80,000?

A) 2,000
B) 10,000
C) 40,000
D) 48,000

Question 45

The formula for target sales is:

A) (Total fixed costs + Target profit)/Contribution margin ratio
B) (Total variable costs + Total fixed costs)/Contribution margin ratio
C) (Total fixed costs + Target profit)/Unit contribution margin
D) (Total variable costs + Total fixed costs)/Unit contribution margin

Question 46

Fern, Inc. has fixed costs of $400,000 and a contribution margin ratio of 30%. How much sales revenue must be earned for a profit of $80,000?

A) $144,000
B) $336,000
C) $1,600,000
D) $1,920,000

Question 47

Payton Corp. has sales of $200,000, a contribution margin ratio of 35%, and a target profit of $40,000. If 10,000 units were sold, what are total variable costs?

A) $200,000
B) $130,000
C) $240,000
D) $160,000

Question 48

Last month Stagecoach Company had a $60,000 loss on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Stagecoach to break even?

A) $360,000
B) $480,000
C) $600,000
D) $420,000

Question 49

Elk Corp. has sales of $300,000, a contribution margin ratio of 40%, and a target profit of $30,000. If 20,000 units were sold, what is the variable cost per unit?

A) $22.50
B) $9.00
C) $6.00
D) $2.00

Question 50

Chelsea Company has sales of $400,000, variable costs of $10 per unit, fixed costs of $100,000, and a target profit of $60,000. How many units were sold?

A) 12,000
B) 18,000
C) 24,000
D) 30,000

Question 51

Belle Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $100,000. What sales revenue is needed to break-even?

A) $500,000
B) $125,000
C) $5,000,000
D) $1,000,000

Question 52

The formula for target units is:

A) (Total fixed costs + Target profit)/Contribution margin ratio
B) (Total variable costs + Total fixed costs)/Contribution margin ratio
C) (Total fixed costs + Target profit)/Unit contribution margin
D) (Total variable costs + Total fixed costs)/Unit contribution margin

Question 53

Virgil Corp. has a selling price of $30 per unit, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $55,000. How many units must be sold to break-even?

A) 4,000
B) 12,000
C) 6,500
D) 5,500

Question 54

At a sales level of 20,000 units, Pony Corp. has sales of $400,000, a variable cost ratio of 60%, and a profit of $40,000. What is the break-even point in units?

A) 8,000
B) 12,000
C) 15,000
D) 20,000

Question 55

Merlot, Inc. has fixed costs of $200,000, sales price of $50, and variable cost of $30 per unit. How many units must be sold to earn profit of $80,000?

A) 2,800
B) 11,200
C) 14,000
D) 202,400

Question 56

Last month Angus Company had a $30,000 loss on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Angus to break even?

A) $166,667
B) $500,000
C) $280,000
D) $220,000

Question 57

Louise Corp. has a contribution margin ratio of 35%, fixed costs of $60,000, and a profit of $45,000. What are total sales?

A) $300,000
B) $105,000
C) $36,750
D) $171,429

Question 58

Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. By how much would sales be able to decrease for Empire to still break even?

A) $90,000
B) $83,333
C) $166,667
D) $280,000

Question 59

Ironwood Inc. has a variable cost ratio of 60% and fixed costs of $90,000. What sales revenue is needed to generate a $120,000 profit?

A) $128,572
B) $225,000
C) $375,000
D) $525,000

Question 60

Last month Dexter Company had a $15,000 loss on sales of $150,000. Fixed costs are $60,000 a month. By how much do sales have to increase for Dexter to break even?

A) $60,000
B) $75,000
C) $45,000
D) $50,000

Question 61

Leather Company sold 20,000 units, had variable costs of $12 per unit, fixed costs of $100,000, and profits of $60,000. What is the selling price per unit?

A) $8
B) $17
C) $20
D) $32

Question 62

The margin of safety is the difference between:

A) actual sales and budgeted sales.
B) actual sales and break-even sales.
C) target sales and actual sales.
D) target sales and budgeted sales.

Question 63

Last month Lyle Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for Lyle to earn a $100,000 profit?

A) $66,667
B) $83,333
C) $220,000
D) $400,000

Question 64

Jerome Corp. has fixed costs of $500,000 and a contribution margin ratio of 40%. Currently, sales are $3,000,000. What is Jerome's margin of safety?

A) $1,750,000
B) $3,500,000
C) $5,250,000
D) $7,000,000

Question 65

Rollag Corp. has a selling price of $30 and variable costs of $20 per unit. When 14,000 units are sold, profits equaled $45,000. What is the margin of safety?

A) $420,000
B) $135,000
C) $142,500
D) $75,000

Question 66

Dexter Corp. has fixed costs of $500,000 and a contribution margin ratio of 25%. Currently, margin of safety is $1,000,000. What are Dexter's current sales?

A) $1,000,000
B) $2,000,000
C) $3,000,000
D) $4,000,000

Question 67

Fountain Corp. has a selling price of $15 per unit and variable costs of $10 per unit. When 14,000 units are sold, profits equaled $45,000. What is the margin of safety?

A) $210,000
B) $105,000
C) $135,000
D) $75,000

Question 68

Vesper Company has sales of $200,000, variable costs of $8 per unit, fixed costs of $50,000, and a profit of $30,000. How many units were sold?

A) 10,000
B) 15,000
C) 20,000
D) 25,000

Question 69

Fontaine Corp. has a selling price of $15 and variable costs of $10 per unit. When 10,000 units are sold, profits equaled $25,000. What is the margin of safety?

A) $75,000
B) $25,000
C) $105,000
D) $50,000

Question 70

Paint Corp. has sales of $600,000, a contribution margin ratio of 30%, and a profit of $40,000. If 20,000 units were sold, what is the variable cost per unit?

A) $9.00
B) $30.00
C) $21.00
D) $3.00

Question 71

Harvest Corp. has a contribution margin ratio of 30%, fixed costs of $45,000, and a profit of $60,000. What are total sales?

A) $31,500
B) $105,000
C) $150,000
D) $350,000

Question 72

The margin of safety tells managers:

A) how much sales would have to increase to hit the target profit.
B) how much profit would drop if sales decreased.
C) how much sales could drop before the firm no longer earns profits.
D) how much profit would have to increase to hit target sales.

Question 73

Dragon, Inc. has actual sales of $400,000 and a margin of safety of $150,000. What is Dragon's break-even point in sales?

A) $100,000
B) $250,000
C) $350,000
D) $450,000

Question 74

At the break-even point, the margin of safety will be:

A) positive.
B) negative.
C) zero.
D) equal to fixed costs.

Question 75

Irwin Corp. has fixed costs of $20,000 and a contribution margin ratio of 40%. Currently, margin of safety is $35,000. What are Irwin's current sales?

A) $35,000
B) $37,500
C) $50,000
D) $85,000

Question 76

Nancy Company has sales of $100,000, variable costs of $5 per unit, fixed costs of $25,000, and a profit of $15,000. How many units were sold?

A) 20,000
B) 16,000
C) 12,000
D) 8,000

Question 77

Indigo Corp. has a selling price of $45 and variable costs of $30 per unit. When 10,000 units are sold, profits equaled $25,000. What is the margin of safety?

A) $75,000
B) $25,000
C) $80,000
D) $150,000

Question 78

Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $75,000. What is Idaho's margin of safety?

A) $28,000
B) $35,000
C) $42,000
D) $70,000

Question 79

Bugle Corp. has sales of $400,000, a variable cost ratio of 40%, and a profit of $40,000. If 10,000 units were sold, what is the contribution margin per unit?

A) $60.00
B) $36.00
C) $24.00
D) $18.00

Question 80

Keith Corp. has sales of $200,000, a contribution margin ratio of 35%, and a profit of $40,000. If 10,000 units were sold, what is the variable cost per unit?

A) $13.00
B) $20.00
C) $7.00
D) $3.00