Deck 20: Cost-Volume-Profit Analysis

Question 1

Information regarding a product manufactured and sold by Schiffman is shown below:


-Refer to the above data. The contribution margin ratio for this product is:

A) 20%.
B) 25%.
C) 30%.
D) 40%.

Answer 1

25%.

Question 2

Information regarding a product manufactured and sold by Schiffman is shown below:


-Refer to the above data. The number of units Schiffman must sell to break even is: (rounded)

A) 3,927.
B) 3572.
C) 4,823.
D) 5,140.

Answer 2

3572.

Question 3

Information regarding a product manufactured and sold by Schiffman is shown below:


-Refer to the above data. The dollar sales volume necessary to produce monthly operating income of $12,000 before taxes is:

A) $188,000.
B) $186,000.
C) $288,000.
D) $248,000.

Answer 3

$248,000.

Question 4

The monthly high and low levels of units and total manufacturing overhead for Ratnere Company are shown below:


-Refer to the above data. The cost formula for Ratnere's monthly overhead cost can be expressed as:

A) $2.65 average cost per unit.
B) $1.75 average cost per unit.
C) $24,000 fixed cost plus $1.00 per unit.
D) $72,000 fixed cost + $2.00 per unit.

Question 5

The monthly high and low levels of units and total manufacturing overhead for Ratnere Company are shown below:


-Refer to the above data. In a month in which 30,000 equivalent full units are produced, Ratnere's manufacturing overhead should be approximately:

A) $52,500.
B) $79,500.
C) $ 132,000.
D) $ 90,500.

Question 6

Management predicts total sales for June to be $3,000,000, yielding a margin of safety of $1,000,000 and a contribution margin ratio of 25%. Which of the following amounts is not consistent with this information?

A) Fixed costs, $500,000
B) Variable costs, $750,000
C) Operating income, $250,000
D) Break-even sales volume, $2,000,000

Question 7

The recent high and low levels of hours operated and monthly repair cost for heavy equipment for Universal Mfg. are shown below:


-Refer to the above data. Using the high-low method, compute the variable element of repair cost per hour of operation for Universal's equipment.

A) $7.50
B) $3.33
C) $0.30
D) $0.34

Question 8

The recent high and low levels of hours operated and monthly repair cost for heavy equipment for Universal Mfg. are shown below:


-Refer to the above data. Using the high-low method, compute the fixed element of Universal's monthly repair cost.

A) $150
B) $250
C) $6,300
D) $6,450

Question 9

The recent high and low levels of hours operated and monthly repair cost for heavy equipment for Universal Mfg. are shown below:


-Refer to the above data. The total estimated repair cost for a month in which Universal operates equipment for 19,000 hours is:

A) $5,950.
B) $6,300.
C) $6,450.
D) $5,700.

Question 10

Perkins Corporation manufactures two products; data are shown below:
If Perkins' monthly fixed costs average $425,000, what is its break-even point expressed in sales dollars?

A) $1,320,000.
B) $1,400,000.
C) $1,250,000.
D) $990,000.

Question 11

Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.

-Refer to the above data. At the original selling price of $50 per unit, what is the contribution margin ratio?

Question 12

Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
-Refer to the above data. At the original selling price of $50 per unit, how many units must Paulsen sell to break even?

Question 13

Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
-Refer to the above data. At the original selling price of $50 per unit, what dollar volume of sales per month is required for Paulsen to earn a monthly operating income of $5,000 (round final answer to whole number)?

Question 14

Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
-Refer to the above data. At the increased selling price of $55 per unit, what is the contribution margin ratio (round final answer to 1 decimal place)?

Question 15

Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
-Refer to the above data. At the increased selling price of $55 per unit, what dollar volume of sales per month is required to break-even (use the contribution margin ratio computed in question 4)?

Question 16

Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company's total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold's monthly fixed costs average $609,500.
-What is the company's monthly break-even point expressed in sales dollars? $__________

Question 17

Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company's total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold's monthly fixed costs average $609,500.
-What monthly sales level must be achieved for Rhinefold to earn a monthly operating income of $350,000? $__________

Question 18

Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company's total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold's monthly fixed costs average $609,500.
-If Rhinefold generates $1,400,000 in monthly sales, it will earn a monthly operating income of $__________.

Question 19

Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company's total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold's monthly fixed costs average $609,500.
-Assume Rhinefold's margin of safety was $300,000 in May. What was the company's operating income in May? $__________.

Question 20

Rhinefold brews reduced calorie beer and regular beer. Sales of its reduced calorie beer represent 25% of the company's total revenue. Sales of regular beer represent the remaining 75%. Reduced calorie beer has a contribution margin ratio of 80%, whereas the contribution margin ratio of regular beer is only 60%. Rhinefold's monthly fixed costs average $609,500.
-If Rhinefold's monthly fixed costs increase by $8,500, what level of monthly sales revenue will be required to break-even? $__________.