Deck 7: Cost-Volume-Profit Analysis

Question 1

Managers can quickly forecast the total contribution margin by dividing the

A)projected sales units by the variable cost ratio.
B)projected sales units by the contribution margin ratio.
C)projected sales revenue by the unit contribution margin.
D)projected sales revenue by the contribution margin ratio.

Answer 1

D

Question 2

The contribution margin per unit is how much profit each unit contributes after fixed costs are considered.

Answer 2

False

Question 3

When using the contribution margin ratio, managers project operating income based upon sales units.

Answer 3

False

Question 4

Contribution margin on an income statement is equal to sales revenue minus fixed expenses.

Question 5

If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per unit is $9.25.

Question 6

By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

A)projected sales units by the contribution margin ratio
B)projected sales revenue by the contribution margin ratio
C)projected sales revenue by the unit contribution margin
D)projected sales units by the variable cost ratio

Question 7

CVP stands for Company-Volume-Profit.

Question 8

Gross margin is another term for net income.

Question 9

CVP analysis assumes all of the following except

A)the mix of products will not change.
B)revenues are linear throughout the relevant range.
C)inventory levels will increase.
D)a change in volume is the only factor that affect costs.

Question 10

CVP analysis assumes that the only factor that affects costs is a change in sale price.

Question 11

A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.

Question 12

Total contribution margin less total fixed expenses equals

A)contribution margin ratio.
B)operating income.
C)gross profit.
D)sales revenue.

Question 13

Contribution margin ratio is computed by

A)dividing contribution margin by operating income.
B)dividing contribution margin by sales revenue.
C)dividing sales revenue by contribution margin.
D)dividing operating income by contribution margin.

Question 14

The contribution margin ratio is the unit contribution margin divided by the variable cost per unit.

Question 15

CVP assumes that inventory levels will not change.

Question 16

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

A)Gross margin
B)Operating income
C)Net income
D)Unit contribution margin

Question 17

________ should be subtracted from the sales price per unit to compute the unit contribution margin.

A)All variable costs
B)Only variable inventoriable product costs
C)Only variable period costs
D)All fixed costs

Question 18

The unit contribution margin is computed by

A)subtracting the variable cost per unit from the sales price per unit.
B)dividing the sales revenue by variable cost per unit.
C)dividing the variable cost per unit by the sales revenue.
D)subtracting the sales price per unit from the variable cost per unit.

Question 19

The contribution margin ratio explains the percentage of each sales dollar that

A)contributes towards variable costs.
B)contributes towards sales revenue.
C)contributes towards period expenses.
D)contributes towards fixed costs and generating a profit.

Question 20

The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products.

Question 21

LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the contribution margin ratio?

A)65%
B)35%
C)14%
D)286%

Question 22

Hickory Point Amusement Park sells admission tickets for $50 per person for one visit. Variable costs are $15 per visitor and fixed costs are $60,000,000 per month. The company's relevant range extends to 2,000,000 visitors per month. What is Hickory Point's projected operating income if 1,750,000 visitors come to the park during the month?

A)$1,250,000
B)$61,250,000
C)$87,500,000
D)$27,500,000

Question 23

Mom and Pop's Ice Cream Shoppe sells ice cream cones for $5.00 per customer. Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the company's contribution margin ratio?

A)182%
B)45%
C)3%
D)55%

Question 24

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $55 per 6 hours. The variable costs are $33 per 6 hours rental, and its fixed costs are $80,000 each month. What is the contribution margin ratio?

A)40%
B)60%
C)250%
D)22%

Question 25

Mom and Pop's Ice Cream Shoppe sells ice cream cones for $5.00 per customer. Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the company's contribution margin per ice cream cone?

A)$2.25
B)$2.75
C)$0.55
D)$1.82

Question 26

LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the contribution margin per patron?

A)$2.86
B)$14.00
C)$0.35
D)$26.00

Question 27

Fave Motion Pictures sells movie tickets for $10 per movie patron. Variable costs are $7.50 per movie patron and fixed costs are $50,000 per month. The company's relevant range extends to 35,000 movie patrons per month. What is Fave Motion Pictures' projected operating income if 25,000 movie patrons see movies during a month?

A)$62,500
B)$12,500
C)$250,000
D)$200,000

Question 28

Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin per ice cream cone?

A)$1.00
B)$3.00
C)$0.25
D)$4.00

Question 29

The Halpert Group produces a single product selling for $70 per unit. Variable costs are $7 per unit and total fixed costs are $5,000. What is the contribution margin ratio?

A)0)10
B)0)63
C)0)90
D)1)11

Question 30

Bernard Corporation gathered the following information for the year just ended: During the year, Bernard produced and sold 50,000 units of product at a selling price of $9.00 per unit. There was no beginning inventory of product at the start of the year.
What is the contribution margin for the year?

A)$126,000
B)$310,000
C)$450,000
D)$266,000

Question 31

The following selected data relates to Ivory Corporation: Assuming 8,500 units are sold, what is the contribution margin?

A)$314,500
B)$84,500
C)$59,500
D)$34,500

Question 32

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $55 for 6 hours. The variable costs are $33 per 6 hour rental, and its fixed costs are $80,000 each month. What is the contribution margin per 6 hour jet ski rental?

A)$33.00
B)$0.40
C)$22.00
D)$2.50

Question 33

Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin ratio?

A)267%
B)25%
C)2%
D)63%

Question 34

The following selected data relates to Ivory Corporation: If sales revenue per unit increases to $27 and 8,500 units are sold, what is the contribution margin?

A)$357,000
B)$77,000
C)$59,500
D)$102,000

Question 35

The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the contribution margin per patron?

A)$1.85
B)$ 0.54
C)$27.00
D)$23.00

Question 36

What is contribution margin equal to on a contribution margin income statement?

A)Fixed expenses plus variable expenses
B)Fixed expenses minus variable expenses
C)Sales revenues minus variable expenses
D)Sales revenues minus fixed expenses

Question 37

The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the contribution margin ratio?

A)46%
B)185%
C)27%
D)54%

Question 38

Bernard Corporation gathered the following information for the year just ended: During the year, Bernard produced and sold 50,000 units of product at a selling price of $9.00 per unit. There was no beginning inventory of product at the start of the year.
What is the operating income (loss)for the year?

A)$266,000
B)$450,000
C)$126,000
D)$310,000

Question 39

LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 12,000 patrons each month. What is the projected monthly income if 10,000 patrons visit the theater each month?

A)$68,000
B)$140,000
C)$240,000
D)$40,000

Question 40

The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the projected monthly income if 5,500 patrons visit the theater each month?

A)$263,500
B)$148,500
C)$249,500
D)$33,500

Question 41

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 30,000 units of product at a selling price of $15.00 per unit. There was no beginning inventory of product at the beginning of the year.
What is the operating income (loss)for the year?

A)$281,000
B)$450,000
C)$262,000
D)$93,000

Question 42

On a CVP graph, total fixed costs are shown as a horizontal line.

Question 43

Neeley Incorporated had the following fixed costs:
The company also had the following variable costs:
Variable manufacturing costs $ 124,000
Variable marketing costs $ 30,000
Variable administrative costs $ 28,000
The company produced and sold 55,000 units of the product during the year at a selling price of $9.00 per unit. The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Question 44

Spice Company has a product which sells for $150 and has a unit contribution margin of $75. It has fixed costs of $35/unit at the current production volume. Spice Company's contribution margin ratio is

A)23%.
B)50%.
C)37%.
D)73%.

Question 45

The breakeven point on a CVP graph is the point where the sales revenue line intersects the total expense line.

Question 46

Only the income statement approach may be used to calculate the breakeven point.

Question 47

Jack's Toys sells kites for $20 each. Variable costs are $8 per refill. Fixed costs are $2,400 per month. What is the contribution margin per kite?

A)$1.67
B)$ 0.60
C)$8.00
D)$12.00

Question 48

The breakeven point can either be calculated in terms of number of units or in terms of sales revenue.

Question 49

The breakeven point is the sales level where operating income is positive.

Question 50

A company that sells one product would be more likely to calculate breakeven in terms of sales units, rather than sales revenue.

Question 51

On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the variable expenses.

Question 52

Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500.

Question 53

Helga's Pretzels sells pretzels for $5. The variable costs for each pizza are $3, while the total fixed costs are $1,500. The contribution margin for 1,500 pretzels is

A)$1,500.
B)$3,000.
C)$7,500.
D)$6,000.

Question 54

When calculating the breakeven point in terms of units, fixed costs should be divided by the contribution per unit.

Question 55

Marie's Magic Shoppe provides the following information about its single product. What is the contribution margin ratio?

A)1)92
B)0)52
C)0)13
D)0)48

Question 56

The breakeven point represents the minimum number of units a company must sell before it earns a profit.

Question 57

William's Steel had the following fixed costs:
The company also had the following variable costs:
Variable manufacturing costs $ 1,980,000
Variable marketing costs $ 60,000
Variable administrative costs $ 95,000
During the year, the company produced and sold 55,000 units of the product at a selling price of $100.00 per unit. The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Question 58

The following information for the past year for the Blaine Corporation has been provided: During the year, the company produced and sold 30,000 units of product at a selling price of $15.00 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin for the year?

A)$ 93,000
B)$450,000
C)$262,000
D)$281,000

Question 59

Jack's Toys sells kites for $20 each. Variable costs are $8 per kite. Fixed costs are $2,400 per month. What is the contribution margin ratio for the kites?

A)167%
B)60%
C)12%
D)40%

Question 60

Antonio's Flowers sells bouquets for $65 each. The variable costs for each kit are $45. The total contribution margin for 30 kits is

A)$1,950.
B)$3,300.
C)$600.
D)$1,350.

Question 61

Which of the following is not an approach used to calculate the breakeven point?

A)The income statement approach
B)The shortcut approach using the unit contribution margin
C)The balance sheet approach
D)The shortcut approach using the contribution margin ratio

Question 62

On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

A)The breakeven point
B)The level of the variable costs
C)The level of the fixed costs
D)None of the above

Question 63

To find the breakeven point using the shortcut formulas, you use

A)zero for the contribution margin per unit.
B)zero for the fixed expenses.
C)zero for the contribution margin ratio.
D)zero for the operating income.

Question 64

The Muffin House produces and sells a variety of muffins. The selling price per dozen is $15, variable costs are $9 per dozen, and total fixed costs are $4,200. How many dozen muffins must The Muffin House sell to breakeven?

A)10,500
B)700
C)280
D)175

Question 65

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line representing which of the following?

A)Operating loss
B)Operating income
C)Slope of variable costs per unit
D)Slope of fixed costs per unit

Question 66

Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $3.75, variable costs are $1.25 per dozen, and total fixed costs are $750.00. How many dozens of ears of corn must Corny and Sweet sell to breakeven?

A)1,125
B)200
C)300
D)175

Question 67

When calculating the breakeven point in terms of sales revenue, variable costs should be divided by the contribution margin ratio.

Question 68

The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents

A)total costs.
B)total variable costs.
C)total fixed costs.
D)breakeven point.

Question 69

The Muffin House produces and sells a variety of muffins. The selling price per dozen is $15, variable costs are $9 per dozen, and total fixed costs are $4,200. What are breakeven sales in dollars?

A)$10,500
B)$2,625
C)$700
D)$6,300

Question 70

To find the number of units that need to be sold to breakeven, the formula used could be

A)fixed expenses ÷ contribution margin per unit.
B)contribution margin per unit ÷ fixed expenses.
C)fixed expenses ÷ contribution margin ratio.
D)contribution margin ratio ÷ fixed expenses.

Question 71

Which of the following is an underlying assumption of the cost-volume-profit graph?

A)Total fixed expenses will change during the accounting period.
B)The sales mix of products is constantly changing.
C)Volume is the only cost driver.
D)Inventory levels are constantly changing.

Question 72

Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________.

A)loss, loss
B)loss, profit
C)profit, profit
D)profit, loss

Question 73

To find the number of units that need to be sold in order to breakeven or generate a target profit, the formula used is

A)(fixed expenses + operating income)÷ contribution margin per unit.
B)(fixed expenses + operating income)÷ contribution margin ratio.
C)(fixed expenses - operating income)÷ contribution margin ratio.
D)(fixed expenses - operating income)÷ contribution margin per unit.

Question 74

When using the income statement approach to finding breakeven, which of the following is true?

A)(variable expenses × number of units)- fixed expenses = operating income
B)sales revenue - variable expenses - fixed expenses = operating income
C)fixed expenses + variable expenses + sales revenue = operating income
D)fixed expenses + variable expenses - sales revenue = operating income

Question 75

The area to the right of the breakeven point and between the total revenue line and the total expense line represents

A)expected profits.
B)expected losses.
C)variable expenses.
D)fixed expenses.

Question 76

To find the sales revenue (sales in dollars)needed in order to breakeven or generate a target profit, the formula used is

A)(fixed expenses + operating income)÷ contribution margin per unit.
B)(fixed expenses + operating income)÷ contribution margin ratio.
C)(fixed expenses - operating income)÷ contribution margin ratio.
D)(fixed expenses - operating income)÷ contribution margin per unit.

Question 77

To find the sales revenue needed to breakeven, the formula used could be

A)fixed expenses ÷ contribution margin ratio.
B)contribution margin per unit ÷ fixed expenses.
C)contribution margin ratio ÷ fixed expenses.
D)fixed expenses ÷ contribution margin per unit.

Question 78

The line that begins at the origin on a CVP graph represents

A)total fixed expenses.
B)total sales revenues.
C)total expenses.
D)both the total expenses and the total sales revenues.

Question 79

The intersection of the sales revenue line and the variable expense line on a CVP graph is known as

A)the margin of safety point.
B)the unit contribution margin.
C)the breakeven point.
D)none of the above.

Question 80

The breakeven point may be defined as the number of units a company must sell to do which of the following?

A)Generate a net loss
B)Generate a zero profit
C)Earn more net income than the previous accounting period
D)Generate a net income