Deck 7: Cost-Volume-Profit Analysis

Question 1

The break-even point is that level of activity where total revenue equals total cost.

Answer 1

True

Question 2

An ABC cost-volume-profit analysis recognizes that some costs that are fixed with respect to sales volume may not be fixed with respect to other important cost drivers.

Answer 2

True

Question 3

On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

Answer 3

True

Question 4

For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.

Question 5

Activity-based costing systems should not be used in conjunction with cost-volume-profit analyses.

Question 6

The management functions of planning, control, and decision making all are facilitated by an understanding of cost-volume-profit relationships.

Question 7

Cost structures differ widely among industries and among firms within an industry.

Question 8

Sensitivity analysis has become relatively easy to perform with the advent of personal computers and spreadsheet software.

Question 9

The difference between budgeted sales revenue and break-even sales revenue is the operating leverage.

Question 10

Total contribution margin is defined as total sales revenue plus total variable expenses.

Question 11

The relevant range is the range of activity in which management of a company expects to operate.

Question 12

The extent to which an organization uses fixed costs in its cost structure is measured by financial leverage.

Question 13

Companies with advanced manufacturing technology tend to have lower fixed costs.

Question 14

The safety margin is another name for the break-even point.

Question 15

Total contribution margin is an important assumption in multiproduct CVP analysis.

Question 16

The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.

Question 17

Cost-volume-profit analysis is based on certain general assumptions.One of these assumptions is that product prices will remain constant as volume varies within the relevant range.

Question 18

Many operating managers find the traditional income-statement format difficult to use, because it does not separate revenues and expenses.

Question 19

The contribution margin ratio can also be expressed as a percentage.

Question 20

Companies with advanced manufacturing technology tend to have higher break-even points.

Question 21

Which of the following would occur if a company increases its variable cost per unit?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 22

Which of the following would produce the largest increase in the contribution margin per unit?

A)A 7% increase in selling price.
B)A 15% decrease in selling price.
C)A 14% increase in variable cost.
D)A 17% decrease in fixed cost.
E)A 23% increase in the number of units sold.

Question 23

The requirement that companies pay income taxes does not affect their cost-volume-profit relationships.

Question 24

A 25% increase in production volume will result in:

A)a 25% increase in the variable cost per unit.
B)a 25% increase in total mixed costs.
C)a 25% increase in total variable costs.
D)a 25% increase in total administration costs.
E)None of these answer choices is correct.

Question 25

Which of the following occurs if a company experiences a decrease in its fixed costs?

A)Income would decrease.
B)The break-even point would decrease.
C)The contribution margin would increase.
D)The contribution margin would decrease.
E)More than one of the answers would occur.

Question 26

A company that desires to lower its break-even point should strive to:

A)decrease selling prices.
B)reduce variable costs.
C)increase fixed costs.
D)sell more units.
E)achieve more than one of the answers listed.

Question 27

Partner Industries sells a single product for $50 that has a variable cost of $30.Fixed costs amount to $5 per unit when anticipated sales targets are met.If the company sells one unit in excess of its break- even volume, profit will be:

A)$15.
B)$20.
C)$25.
D)$50.
E)an amount that cannot be derived based on the information presented.

Question 28

Narchie sells a single product for $50.Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000.Current sales total 16,000 units. In order to produce a target profit of $22,000, Narchie's dollar sales must total:

A)$8,440.
B)$21,100.
C)$1,000,000.
D)$1,055,000.
E)None of the answers is correct.

Question 29

Narchie sells a single product for $50.Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000.Current sales total 16,000 units. Narchie:

A)will break-even by selling 8,000 units.
B)will break-even by selling 13,333 units.
C)will break-even by selling 20,000 units.
D)will break-even by selling 1,000,000 units.
E)cannot break-even because it loses money on every unit sold.

Question 30

Which of the following occurs if a company experiences an increase in its fixed costs?

A)Net income would increase.
B)The break-even point would increase.
C)The contribution margin would increase.
D)The contribution margin would decrease.
E)More than one of the answers would occur.

Question 31

Which of the following occurs if a company was able to reduce its variable cost per unit?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 32

The unit contribution margin is calculated as the difference between:

A)selling price and fixed cost per unit.
B)selling price and variable cost per unit.
C)selling price and product cost per unit.
D)fixed cost per unit and variable cost per unit.
E)fixed cost per unit and product cost per unit.

Question 33

Narchie sells a single product for $50.Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000.Current sales total 16,000 units. If Narchie sells 24,000 units, its safety margin will be:

A)$200,000.
B)$400,000.
C)$1,000,000.
D)$1,200,000.
E)None of the answers is correct.

Question 34

A company has fixed costs of $900 and a per-unit contribution margin of $3.Which of the following statements is true?

A)Each unit "contributes" $3 toward covering the fixed costs of $900.
B)The situation described is not possible and there must be an error.
C)Once the break-even point is reached; the company will increase income at the rate of $3 per
D)The firm will definitely lose money in this situation.
E)Each unit "contributes" $3 toward covering the fixed costs of $900 and once the break-even

Question 35

Assuming no change in sales volume, an increase in company's per-unit contribution margin would:

A)increase income.
B)decrease income.
C)have no effect on income.
D)increase fixed costs.
E)decrease fixed costs.

Question 36

The break-even point is that level of activity where:

A)total revenue equals total cost.
B)variable cost equals fixed cost.
C)total contribution margin equals the sum of variable cost plus fixed cost.
D)sales revenue equals total variable cost.
E)profit is greater than zero.

Question 37

CVP analysis can be used to study the effect of:

A)changes in selling prices on a company's profitability.
B)changes in variable costs on a company's profitability.
C)changes in fixed costs on a company's profitability.
D)changes in product sales mix on a company's profitability.
E)All of the answers are correct.

Question 38

The break-even point is that level of activity where:

A)variable cost equals fixed cost.
B)contribution margin equals fixed cost.
C)total contribution margin equals the sum of variable cost plus fixed cost.
D)sales revenue equals total variable cost.
E)sales revenue equals fixed cost.

Question 39

Narchie sells a single product for $50.Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000.Current sales total 16,000 units. Each unit that Narchie sells will:

A)increase profit by $20.
B)increase profit by $30.
C)increase profit by $50.
D)increase profit by some other amount.
E)decrease profit by $5.

Question 40

When a firm is required to pay taxes on income, it is important to distinguish between after-tax (AT) income and before-tax (BT) income.

Question 41

Dane Company has a break-even point of 120,000 units.If the firm's sole product sells for $40 and fixed costs total $480,000, the variable cost per unit must be:

A)$4.
B)$36.
C)$44.
D)an amount that cannot be derived based on the information presented.
E)an amount other than $4, $36, or $44, but one that can be derived based on the information

Question 42

Sarafine, Inc.sells a single product for $20.Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units.Assuming that fixed costs do not change, Sarafine's break-even sales would be:

A)$160,000.
B)$200,000.
C)$300,000.
D)$480,000.
E)None of the answers is correct.

Question 43

Which of the following expressions can be used to calculate break-even sales revenue with the contribution-margin ratio (CMR)?

A)CMR ÷ fixed costs.
B)CMR × fixed costs.
C)Fixed costs ÷ CMR.
D)(Fixed costs + variable costs) × CMR.
E)(Sales revenue − variable costs) ÷ CMR.

Question 44

Bargain Town recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000.If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:

A)$12.
B)$32.
C)$50.
D)$92.
E)None of the answers is correct.

Question 45

Garrison Company provides the following information about its product: What is the contribution-margin ratio?

A)25%.
B)100%.
C)125%.
D)75%.
E)None of these answer choices is correct.

Question 46

At a volume of 20,000 units, Almount Industries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000.The company's contribution margin per unit is:

A)$22.
B)$28.
C)$35.
D)$37.
E)None of the answers is correct.

Question 47

Denise sells silk scarves at a hobby fair.Each scarf sells for $25 and has a variable cost of $15.Denise's booth rental for one day is $30.Based on this information, how many scarves must Denise sell to break- even?

A)2 scarves.
B)3 scarves.
C)4 scarves.
D)5 scarves.
E)None of these answer choices is correct.

Question 48

A recent income statement of Benton Corporation reported the following data: If these data are based on the sale of 20,000 units, the contribution margin per unit would be:

A)$40.
B)$150.
C)$290.
D)$360.
E)None of the answers is correct.

Question 49

A recent income statement of Safety Corporation reported the following data: If these data are based on the sale of 20,000 units, the break-even point would be:

A)7,500 units.
B)11,628 units.
C)12,500 units.
D)33,333 units.
E)None of the answers is correct.

Question 50

The contribution-margin ratio is:

A)the difference between the selling price and the variable cost per unit.
B)fixed cost per unit divided by variable cost per unit.
C)variable cost per unit divided by the selling price.
D)unit contribution margin divided by the selling price.
E)unit contribution margin divided by fixed cost per unit.

Question 51

Thai Two sells hot pots for $40 each.The company incurs monthly fixed costs of $5,000.The contribution-margin ratio is 20%.Based on this information, what is the variable cost per hot pot?

A)$38.
B)$40.
C)$48.
D)$32.
E)None of these answer choices is correct.

Question 52

At a volume of 20,000 units, Almount Industries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000.The company's break-even point in units is:

A)7,027 (rounded).
B)8,667 (rounded).
C)9,286 (rounded).
D)7,429 (rounded).
E)None of the answers is correct.

Question 53

Ripley Co.sold 2,000 units in March at a price of $35 per unit.The variable cost per unit is $20.What is the total contribution margin?

A)$20,000.
B)$70,000.
C)$40,000.
D)$30,000.
E)None of the answers is correct.

Question 54

At a volume level of 500,000 units, Sullivan reported the following information: The company's contribution-margin ratio is closest to:

A)0.33.
B)0.40.
C)0.60.
D)0.67.
E)None of the answers is correct.

Question 55

A recent income statement of Carson Corporation reported the following data: If these data are based on the sale of 5,000 units, the break-even sales would be:

A)$2,000,000.
B)$2,206,000.
C)$2,500,000.
D)$10,000,000.
E)None of the answers is correct.

Question 56

Ripley Co.sold 2,000 units in March at a price of $35 per unit.The variable cost per unit is $20.The monthly fixed costs are $10,000.What is the operating income earned in March?

A)$20,000.
B)$70,000.
C)$40,000.
D)$30,000.
E)None of the answers is correct.

Question 57

Hsu, Inc.sells a single product for $12.Variable costs are $8 per unit and fixed costs total $360,000 at a volume level of 60,000 units.Assuming that fixed costs do not change, Hsu's break-even point would be:

A)30,000 units.
B)45,000 units.
C)90,000 units.
D)negative because the company loses $2 on every unit sold.
E)a positive amount other than the specific amounts given.

Question 58

Starlight Co.makes and sells only one product.The unit contribution margin is $6 and the break-even point in unit sales is 24,000.The company's fixed costs are:

A)$4,000.
B)$14,400.
C)$40,000.
D)$144,000.
E)None of the answers is correct.

Question 59

A recent income statement of Benton Corporation reported the following data: If these data are based on the sale of 20,000 units, the break-even point would be:

A)9,565 units (rounded).
B)11,000 units (rounded).
C)7,586 units (rounded).
D)14,667 units (rounded).
E)None of the answers is correct.

Question 60

Denise sells silk scarves at a hobby fair.Each scarf sells for $25 and has a variable cost of $15.Denise's booth rental for one day is $30.Based on this information, what total revenue amount does Denise need to earn to break-even?

A)$85.
B)$75.
C)$100.
D)$50.
E)None of these answer choices is correct.

Question 61

The difference between budgeted sales revenue and break-even sales revenue is the:

A)contribution margin.
B)contribution-margin ratio.
C)safety margin.
D)target net profit.
E)operating leverage.

Question 62

Refer to the figure above.Line A is the:

A)fixed cost line.
B)variable cost line.
C)total cost line.
D)total revenue line.
E)profit line.

Question 63

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000.If Santa Fe's unit sales are 300 units more than anticipated, its break-even point will:

A)increase by $12 per unit sold.
B)decrease by $12 per unit sold.
C)increase by $8 per unit sold.
D)decrease by $8 per unit sold.
E)not change.

Question 64

Quigley Glass Industries sells glass vases at a wholesale price of $2.50 per unit.The variable cost is $1.75 per unit.Monthly fixed costs are $7,500.If Quigley's current sales are 25,000 units per month, and Quigley wants to increase operating income by 20%, how many additional units should be sold (to the nearest unit)?

A)145,000 vases.
B)62,500 vases.
C)13,500 vases.
D)3,000 vases.
E)None of these choices is correct.

Question 65

Refer to the figure above.The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

A)fixed cost.
B)variable cost.
C)profit or loss at that volume.
D)semivariable cost.
E)the safety margin.

Question 66

Refer to the figure above.At a given sales volume, the vertical distance between the fixed cost line and the total cost line represents:

A)fixed cost.
B)variable cost.
C)profit or loss at that volume.
D)semivariable cost.
E)the safety margin.

Question 67

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and fixed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in dollars?

A)$6,000.
B)$10,000.
C)$15,000.
D)$16,000.
E)None of these answer choices is correct.

Question 68

Refer to the figure above.Assume that the company whose cost structure is depicted in the figure expects to produce a loss for the upcoming period.The loss would be shown on the graph:

A)by the area immediately above the break-even point.
B)by the area immediately below the total cost line.
C)by the area diagonally to the right of the break-even point.
D)by the area diagonally to the left of the break-even point.
E)none of the answers is correct.

Question 69

A recent income statement of McClennon Corporation reported the following data: If the company desired to earn a target profit of $1,270,000, it would have to sell:

A)5,778 units.
B)8,600 units.
C)10,160 units.
D)11,908 units.
E)None of the answers is correct.

Question 70

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000.Santa Fe's safety margin in units is:

A)(13,400).
B)0.
C)1,600.
D)13,600.
E)None of the answers is correct.

Question 71

Refer to the figure above.Line C represents the level of:

A)fixed cost.
B)variable cost.
C)semivariable cost.
D)total cost.
E)mixed cost.

Question 72

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000.If Santa Fe's unit sales are 200 units less than anticipated, its break-even point will:

A)increase by $12 per unit sold.
B)decrease by $12 per unit sold.
C)increase by $8 per unit sold.
D)decrease by $8 per unit sold.
E)not change.

Question 73

Refer to the figure above.The slope of line A is equal to the:

A)fixed cost per unit.
B)selling price per unit.
C)profit per unit.
D)variable cost per unit.
E)unit contribution margin.

Question 74

Flower Depot, Inc.sells a single product for $10.Variable costs are $4 per unit and fixed costs total $120,000 at a volume level of 10,000 units.What dollar sales level would Flower Depot have to achieve to earn a target profit of $240,000?

A)$400,000.
B)$500,000.
C)$600,000.
D)$750,000.
E)$900,000.

Question 75

Finn's budget for the upcoming year revealed the following figures: If the company's break-even sales total $750,000, Finn's safety margin would be:

A)$(90,000).
B)$90,000.
C)$246,000.
D)$336,000.
E)$696,000.

Question 76

Refer to the figure above.The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

A)fixed cost.
B)variable cost.
C)profit.
D)loss.
E)sales revenue.

Question 77

Refer to the figure above.The slope of line B is equal to the:

A)fixed cost per unit.
B)selling price per unit.
C)variable cost per unit.
D)profit per unit.
E)unit contribution margin.

Question 78

Refer to the figure above.Line A is the:

A)total revenue line.
B)fixed cost line.
C)variable cost line.
D)total cost line.
E)profit line.

Question 79

Refer to the figure above.The triangular area between the horizontal axis and Line A, to the left of 4,000, represents:

A)fixed cost.
B)variable cost.
C)profit.
D)loss.
E)sales revenue.

Question 80

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and fixed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in number of baskets?

A)500.
B)8,000.
C)1,500.
D)1,000.
E)None of these answer choices is correct.