Deck 7: Cost-Volume-Profit Analysis

Question 1

Which of the following would take place if a company increased its variable cost per unit?

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

Answer 1

C

Question 2

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.

Answer 2

B

Question 3

At a volume of 20,000 units,Dries 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)an amount other than those abovE.

Answer 3

C

Question 4

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

Question 5

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 thesE.

Question 6

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 7

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 8

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

Question 9

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 10

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 11

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

Question 12

A company has fixed costs of $900 and a per-unit contribution margin of $3.Which of the following statement is (are)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 unit.
D)The firm will definitely lose money in this situation.
E)Statements "A" and "C" are truE.

Question 13

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

Question 14

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 above actions

Question 15

Sanderson 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)$50.
D)an amount that cannot be derived based on the information presenteD.
E)an amount other than those in choices "A," "B," and "C",but one that can be derived based on the information presented.

Question 16

Which of the following would take place if a company experienced a decrease in 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 above events would occur.

Question 17

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 18

Which of the following would take place if a company experienced an increase in 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 above events would occur.

Question 19

A recent income statement of Black 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)an amount other than those abovE.

Question 20

At a volume of 20,000 units,Dries 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)an amount other than those abovE.

Question 21

Lawson,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,Lawson'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 those given abovE.

Question 22

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 23

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)an amount other than those abovE.

Question 24

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 25

Strayer 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 those in choices "A," "B," and "C",but one that can be derived based on the information presented.

Question 26

Grey,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,Green's break-even sales would be:

A)$160,000.
B)$200,000.
C)$300,000.
D)$480,000.
E)an amount other than those abovE.

Question 27

A recent income statement of Black 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)an amount other than those abovE.

Question 28

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 29

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 30

Refer to the figure above.The vertical distance between the total cost line and the total revenue line represents:

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

Question 31

Orion 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)an amount other than those abovE.

Question 32

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 33

A recent income statement of Suni 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)an amount other than those abovE.

Question 34

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 35

A recent income statement of Yang 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)an amount other than those abovE.

Question 36

Ribco 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)an amount other than those abovE.

Question 37

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 38

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)in some other area not mentioned abovE.

Question 39

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 40

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 41

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 42

Yellow Dot,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 Yellow Dot 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 43

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 44

Brooklyn 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 Brooklyn'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 45

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)an amount other than those abovE.

Question 46

Brooklyn 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 Brooklyn's unit sales are 200 units less than anticipated,its breakeven 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 47

Wellcom Corporation has the following sales mix for its three products: A,20%;B,35%;and C,45%.Fixed costs total $400,000 and the weighted-average contribution margin is $100.How many units of product A must be sold to break-even?

A)800.
B)4,000.
C)20,000.
D)An amount other than those above.
E)Cannot be determined based on the information presented.

Question 48

If a company desires to increase its safety margin,it should:

A)increase fixed costs.
B)decrease the contribution margin.
C)decrease selling prices,assuming the price change will have no effect on demand.
D)stimulate sales volume.
E)attempt to raise the break-even point.

Question 49

Danielle sells a single product at $20 per unit.The firm's most recent income statement revealed unit sales of 100,000,variable costs of $800,000,and fixed costs of $400,000.If a $4 drop in selling price will boost unit sales volume by 20%,the company will experience:

A)no change in profit because a 20% drop in sales price is balanced by a 20% increase in volume.
B)an $80,000 drop in profit.
C)a $240,000 drop in profit.
D)a $400,000 drop in profit.
E)a change in profit other than those abovE.

Question 50

Grime-X is studying the profitability of a change in operation and has gathered the following information:
Should Grime-X make the change?

A)Yes,the company will be better off by $6,000.
B)No,because sales will drop by 3,000 units.
C)No,because the company will be worse off by $4,000.
D)No,because the company will be worse off by $22,000.
E)It is impossible to judge because additional information is needed.

Question 51

Brooklyn 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.Brooklyn's safety margin in units is:

A)(13,400).
B)0.
C)1,600.
D)13,600.
E)an amount other than those abovE.

Question 52

The weighted-average unit contribution margin is:

A)$4.80.
B)$9.00.
C)$9.25.
D)$17.00.
E)an amount other than those abovE.

Question 53

All other things being equal,a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

A)selling price.
B)variable cost.
C)contribution margin.
D)fixed cost.
E)gross margin.

Question 54

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)an amount other than those abovE.

Question 55

O'Dale sells three products: R,S,and T.Budgeted information for the upcoming accounting period follows.
The company's weighted-average unit contribution margin is:

A)$3.00.
B)$3.55.
C)$4.00.
D)$19.35.
E)an amount other than those abovE.

Question 56

Cleason sells a single product at $14 per unit.The firm's most recent income statement revealed unit sales of 80,000,variable costs of $800,000,and fixed costs of $560,000.Management believes that a $3 drop in selling price will boost unit sales volume by 20%.Which of the following correctly depicts how these two changes will affect the company's break-even point?

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

Question 57

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 58

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 59

A recent income statement of Dragonwood 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)an amount other than those abovE.

Question 60

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

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

Question 61

When advanced manufacturing systems are installed,what effect does such installation usually have on fixed costs and the break-even point?

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

Question 62

Assuming that the sales mix remains constant,the number of units of Plain that Jamal must sell to break even is:

A)2,000.
B)3,000.
C)3,375.
D)5,000.
E)5,625.

Question 63

If Edmonco's sales revenues increase 15%,what will be the percentage increase in income before income taxes?

A)15%.
B)45%.
C)60%.
D)75%.
E)An amount other than those abovE.

Question 64

You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton.Which one of the following choices correctly depicts (1)the relative use of fixed costs (as opposed to variable costs)for the two companies and (2)the percentage change in income caused by a change in sales?

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

Question 65

Which of the following statements is (are)true regarding a company that has implemented flexible manufacturing systems and activity-based costing?
I)The company has erred,as these two practices used in conjunction with one another will severely limit the firm's ability to analyze costs over the relevant range.
II)Costs formerly viewed as fixed under traditional-costing systems may now be considered variable with respect to changes in cost drivers such as number of setups,number of material moves,and so forth.
III)As compared with the results obtained under a traditional-costing system,the concept of break-even analysis loses meaning.

A)I only.
B)II only.
C)III only.
D)I and II.
E)II and III.

Question 66

Cost-volume-profit analysis is based on certain general assumptions.Which of the following is not one of these assumptions?

A)Product prices will remain constant as volume varies within the relevant range.
B)Costs can be categorized as fixed,variable,or semivariable.
C)The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.
D)Total fixed costs remain constant as activity changes.
E)Unit variable cost remains constant as activity changes.

Question 67

Assuming that the sales mix remains constant,the total number of units that Jamal must sell to break even is:

A)2,432.
B)2,647.
C)4,737.
D)5,000.
E)an amount other than those abovE.

Question 68

A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

A)contribution margin.
B)gross margin.
C)operating leverage factor.
D)safety margin.
E)contribution-margin ratio.

Question 69

Edmonco's operating leverage factor was:

A)4.
B)5.
C)6.
D)7.
E)8.

Question 70

Assuming that the sales mix remains constant,the number of units of Fancy that Jamal must sell to break even is:

A)2,000.
B)3,000.
C)3,375.
D)5,000.
E)5,625.

Question 71

The contribution income statement differs from the traditional income statement in which of the following ways?

A)The traditional income statement separates costs into fixed and variable components.
B)The traditional income statement subtracts all variable costs from sales to obtain the contribution margin.
C)Cost-volume-profit relationships can be analyzed more easily from the contribution income statement.
D)The effect of sales volume changes on profit is readily apparent on the traditional income statement.
E)The contribution income statement separates costs into product and period categories.

Question 72

The following information relates to Paternus Company:
If a manager at Paternus desired to determine the percentage impact on income of a given percentage change in sales,the manager would multiply the percentage increase/decrease in sales revenue by:

A)0.25.
B)0.40.
C)2.50.
D)4.00.
E)10.00.

Question 73

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

A)financial leverage.
B)operating leverage.
C)fixed cost leverage.
D)contribution leverage.
E)efficiency leveragE.

Question 74

Which of the following does not typically appear on an income statement prepared by using a traditional format?

A)Cost of goods sold.
B)Contribution margin.
C)Gross margin.
D)Selling expenses.
E)Administrative expenses.

Question 75

Which of the following does not typically appear on a contribution income statement?

A)Net income.
B)Gross margin.
C)Contribution margin.
D)Total variable costs.
E)Total fixed costs.

Question 76

Which of the following calculations can be used to measure a company's degree of operating leverage?

A)Contribution margin /sales.
B)Contribution margin / income.
C)Sales / contribution margin.
D)Sales / income.
E)Sales / fixed costs.

Question 77

Which of the following underlying assumptions form(s)the basis for cost-volume-profit analysis?

A)Revenues and costs behave in a linear manner.
B)Costs can be categorized as variable,fixed,or semivariable.
C)Worker efficiency and productivity remain constant.
D)In multiproduct organizations,the sales mix remains constant.
E)All of these are assumptions that underlie cost-volume-profit analysis.

Question 78

The following information relates to Dazie Company:
Dazie's operating leverage factor is closest to:

A)0.067.
B)0.167.
C)0.400.
D)2.500.
E)6.000.

Question 79

Miller Company has an operating leverage factor of 5.Thus,an 8% change in ______ should result in a 40% change in ______.The respective amounts that change are:

A)income,sales revenue
B)sales revenue,income
C)variable cost,contribution margin
D)fixed cost,income
E)variable cost,break-even sales

Question 80

The assumptions on which cost-volume-profit analysis is based appear to be most valid for businesses:

A)over the short run.
B)over the long run.
C)over both the short run and the long run.
D)in periods of sustained profits.
E)in periods of increasing sales.