Deck 3: Cost-Volume-Profit Analysis

Question 1

The only numbers that change from selling different quantities of packages are total revenues.

Answer 1

False
Explanation: The only numbers that change from selling different quantities of packages are total revenues and total variable costs.

Question 2

In the equation method,revenues in each column are calculated as:

A)revenues = Selling price (SP)- Quantity of units sold (Q).
B)revenues = Selling price (SP)/ Quantity of units sold (Q).
C)revenues = Selling price (SP)× Variable cost per unit (VCU).
D)revenues = Selling price (SP)× Quantity of units sold (Q).
E)revenues = Selling price (SP)- Variable cost per unit (VCU).

Answer 2

D

Question 3

The Bluebird Factory reported $1,000,000 in total revenues and $60,000 total variable costs during the previous year.
Required:
Compute the contribution margin.

A)$900,000
B)$920,000
C)$940,000
D)$960,000
E)$980,000

Answer 3

C
Explanation: C)[($1,000,000 - $60,000)] = $940,000

Question 4

The difference between total revenues and total variable costs is:

A)margin of safety.
B)sensitivity analysis.
C)the breakeven point.
D)contribution margin.
E)operating leverage.

Question 5

Which of the following is not an assumption of cost-volume-profit (CVP)analysis?

A)The number of units sold is the only revenue driver and the only cost driver.
B)Total costs can be separated into two components.
C)When represented graphically,the behaviors of total revenues and total costs are linear.
D)Selling price,variable cost per unit,and total fixed costs are known and constant.
E)The total costs are never separated into components in this analysis.

Question 6

The graph method is useful to managers because it helps them visualize the relationships between total revenues and total costs.

Question 7

A company reported a contribution margin per unit of $75 and it reported that the managers sold a total of 40 units.
Required:
Compute the contribution margin.

A)$2,500
B)$2,750
C)$3,000
D)$3,500
E)$4,000

Question 8

A manager at the Food Pantry reported contribution margin of $3,000 and revenues at the store were $8,500.
Required:
Compute the contribution margin percentage.

A)35.29%
B)35.40%
C)37.50%
D)40.50%
E)42.50%

Question 9

Contribution margin indicates why operating income changes as the number of units sold changes.

Question 10

The contribution margin per unit is useful because it provides a second way to calculate the contribution margin.

Question 11

A shelter sells products and it contributes proceeds to needy people in the community.The selling price of a product is $80.00 and the manager at the shelter reported that the variable cost per unit is $25.00.
Required:
Compute the contribution margin per unit.

A)$40 per unit
B)$45 per unit
C)$50 per unit
D)$55 per unit
E)$60 per unit

Question 12

The equation method and the contribution margin method are most useful when managers want to determine operating income at a few specific levels of sales.

Question 13

Just as a cost driver is any factor that affects costs,a ________ ________ is a variable,such as volume,that casually affects revenues.

A)mixed cost
B)fixed cost
C)revenue mover
D)revenue driver
E)cost factor

Question 14

Managers use contribution margin analysis as a quick and handy way to evaluate the effect of changes in ________ on operating income.

A)debits
B)credits
C)margins
D)volume
E)revenues

Question 15

Contribution margin percentage is not a useful tool to calculate the effect of a change in revenues on contribution margin.

Question 16

The Factory Shoppe reported the following:

Review the following contribution income statement for different quantities of packages sold at the Factory Shoppe.Discuss the effect of the contribution margin as operating income increases.

Question 17

The manager at Mary's Floral Service reported the sale of 600 units of a single product that resulted in $75,000 of sales revenue,$15,000 in variable costs,and $8,000 of fixed costs.
Required:
Compute the contribution margin percentage.

A)70%
B)75%
C)80%
D)85%
E)90%

Question 18

The term(s)used to describe the behavior and relationship among elements as changes occur in units sold,selling price,variable cost per unit,or fixed costs of product is:

A)event.
B)revenues.
C)probability.
D)contribution.
E)cost volume profit analysis (CVP).

Question 19

A manager at the Film Shoppe at the mall reported that the company had a contribution margin of $3,000 and total variable costs were $25.00.
Required:
Compute the operating income.

A)$.83
B)$120
C)$2,750
D)$2,780
E)$75,000

Question 20

The tool useful for calculating contribution margin and operating income is:

A)margin of safety.
B)sensitivity analysis.
C)the breakeven point.
D)contribution margin per unit.
E)operating leverage.

Question 21

Managers only use the breakeven point to discover how much product they need to sell to avoid a loss.

Question 22

Management accountants usually calculate the breakeven point directly in terms of revenues using the contribution margin percentages.

Question 23

Write a brief essay and discuss why managers want to know their target operating income.How do they calculate the target operating income?

Question 24

What are the benefits to managers that use CVP analysis?

Question 25

The store has a contribution margin per unit of $90 and the products sells for $225.The manager needs to know the contribution margin percentage.
Required:
Compute the contribution margin percentage.

A)2.5%
B)40%
C)45%
D)245%
E)250%

Question 26

Sunny Pastures reported the following information:

Required:
Compute the quantity of units required to be sold to have an operating income of $5,000.

A)24.44 units
B)40.22 units
C)64.44 units
D)88.88 units
E)94.44 units

Question 27

The term that is used to identify the quantity of output sold at which total revenues equal total costs and that quantity of output sold that results in $0 operating income is:

A)contribution margin.
B)breakeven point (BEP).
C)contribution margin per unit.
D)contribution margin percentage.
E)contribution income statement.

Question 28

Write a short essay and define the profit-volume (PV)graph.What are the benefits of the PV graph to managers?

Question 29

Managers can use profit volume analysis to understand how profits change with sales volume and to target levels of sales needed to achieve profit goals.

Question 30

Managers use ________ ________ ________ to understand how profits change with sales volume.

A)unit volume analysis
B)credit volume analysis
C)debit volume analysis
D)sales volume analysis
E)profit volume analysis

Question 31

Management accountants calculate the breakeven point directly in terms of revenues using contribution margin percentages.

Question 32

The term that represents operating income plus nonoperating revenues minus nonoperating costs minus income taxes is:

A)net income.
B)projected income.
C)forecasted income.
D)operating income.
E)nonoperating income.

Question 33

The Vitamin Store reported the following information:

Required:
Compute the revenues needed to earn operating income of $1,800.

A)$1,400
B)$2,400
C)$4,800
D)$9,600
E)$10,200

Question 34

List and discuss the steps that managers take when they make profitable decisions in the organization.

Question 35

Which of the following is true about net income?

A)Income targets are expressed in terms of operating income.
B)Income targets are expressed in terms of net income.
C)Income targets are not expressed in terms of net income.
D)Managers always ignore the effect of net income on income taxes.
E)Decisions do not result in large operating incomes and never have favorable tax consequences.

Question 36

Managers must meet target goals to achieve target operating income.Write a brief essay and define the breakeven point (BEP).What information do the managers obtain from this analysis?

Question 37

The Clock Store's manager reported that there were 25 breakeven quantities in units and a selling price of $10 per unit.The manager needs to determine the breakeven revenues.
Required:
Compute the breakeven revenues.

A)$.25
B)$2.50
C)$25.00
D)$200.00
E)$250.00

Question 38

Managers use PV graphs because it shows how changes in the quantity of units sold affect operating income.

Question 39

The store has fixed costs of $25,000 and a contribution margin per unit of $90 per unit.
Compute the breakeven quantity in units.

A)266.55 units.
B)275.77 units.
C)277.77 units.
D)288.88 units.
E)299.99 units.

Question 40

The manager at the store needs to determine the breakeven revenues associated with the new and dynamic power blender.The fixed costs associated with the blender are $3,000 and the contribution margin is 50%.
Required:
Compute the breakeven revenue.

A)$.16
B)$160
C)$6,000
D)$7,500
E)$15,000

Question 41

________ ________ is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.

A)Net income
B)Zero income
C)Income taxes
D)Operating income
E)Nonoperating income

Question 42

Managers never use CVP analysis to guide them in their strategic decisions.

Question 43

CVP analysis helps managers make product decisions by ________ the expected profitability of these choices.

A)analyzing
B)evaluating
C)estimating
D)studying
E)speculating

Question 44

Write a short essay and discuss why the income targets for managers in their strategic plans are expressed in terms of net income.

Question 45

Managers focus on the analysis of target net income instead of target operating income because it changes the breakeven point (BEP).

Question 46

Analyzing differences prevents managers from getting to the heart of CVP analysis.

Question 47

The Freezer Company has operating income of $200,000 and $30,000 of income taxes.
Required:
Compute the Freezer Company's net income after taxes.

A)$.15.
B)$60.
C)$170,000.
D)$230,000.
E)$250,000.

Question 48

Which of the following is not correct about CVP analysis?

A)Managers estimate the predicted profitability of choices.
B)Useful to managers because they calculate units that need to be sold to breakeven.
C)Managers make strategic decisions about selling prices and operating income.
D)Managers make decisions about choosing additional features of an existing product.
E)Managers are unable to make strategic decisions about selling prices and operating income.

Question 49

Which of the following is not true about the manager's strategic plans the effect of income taxes in CVP analysis?

A)Income targets are expressed in terms of net income.
B)Managers focus on the effect of net income in CVP analysis.
C)Income targets are NOT expressed in terms of net income.
D)Managers review their decisions about operating income after income taxes.
E)Managers can seek favorable tax benefits instead of large operating incomes.

Question 50

When managers evaluate net income,CVP calculations for target income must be stated in terms of target operating income.

Question 51

When the operating income at the breakeven point (BEP)is ________,no income taxes are paid.

A)zero
B)one
C)one hundred
D)one thousand
E)ten thousand

Question 52

Cal's Baseball Clothing Corporation sells material to manufacturers to sew the uniforms.How many units of the material must the store sell to earn a net income of $1,000,what is the target operating income,based on an income tax rate of 40%?

A)$560.
B)$600.
C)$650.
D)$700.
E)$1,666.

Question 53

Write a brief essay and define net income and explain how the net income is calculated.Discuss why it is important for managers to focus their analysis on the target income instead of the target operating income.

Question 54

If the Resort Operating Center plans a targeted operating income of $210,000 and the tax rate is 30%,what is the organization's target net income?

A)$63,000.
B)$89,000.
C)$109,000.
D)$118,000.
E)$147,000.

Question 55

The manager at the Yarn Shoppe needs to determine the price she could sell 50 units of wool yarn and continue to earn an operating income of $1,250.Review the following information.

Required:
Compute the target price of 50 units to earn the operating income of $1,250.

A)$70.
B)$71.
C)$80.
D)$90.
E)$91.

Question 56

Managers can incorporate income taxes into CVP analysis.Write a brief essay and discuss how managers incorporate the income taxes into CVP analysis and discuss the impact of the breakeven point by income taxes.

Question 57

Regarding CVP analysis,experienced managers evaluate decisions based on ________ rather than mechanically working through the contribution income statement.

A)facts
B)statistics
C)similarities
D)differences
E)legalities

Question 58

A key step managers utilize is to take the target net income number and convert it into the corresponding target operating income number.

Question 59

Which of the following is not true when managers determine target prices?

A)Examine the effects of a decision to increase costs.
B)Examine the effects of a decision to lower prices.
C)Compare changes in the contribution margin.
D)Evaluating the risks and other strategic decisions.
E)Ignore the changes in the contribution margin.

Question 60

When managers at an organization have operating income at the breakeven point (BEP)that equal $0,they do not have to pay income taxes because there is no operating income.

Question 61

________ ________ is a simple approach to recognizing uncertainty.

A)Unit costs
B)Fixed costs
C)Mixed costs
D)Eliminate costs
E)Sensitivity analysis

Question 62

Write a brief essay and explain how managers use CVP analysis to make decisions about the target prices they charge to earn profits.

Question 63

To determine the margin of safety,managers compute:

A)budgeted revenues / breakeven sales.
B)budgeted sales + breakeven sales.
C)budgeted revenues + breakeven revenues.
D)budgeted sales - breakeven sales.
E)budgeted revenues - breakeven revenues.

Question 64

________ ________ help managers to conduct CVP-based sensitivity analyses and to examine the effect and interaction of changes in selling price,variable cost per unit,fixed costs,and target operating income.

A)Selling prices
B)Predicted data
C)Change interaction
D)Nonelectric sources
E)Electronic spreadsheets

Question 65

A comprehensive approach to recognizing uncertainty is to compute expected values using ________ ________.

A)risk costs
B)fixed costs
C)mixed costs
D)variable costs
E)probability distributions

Question 66

Managers understand that the margin of safety is the difference between:

A)budgeted expenses and breakeven expenses.
B)budgeted revenues and breakeven revenues.
C)actual operating income and budgeted operating income.
D)actual contribution margin and budgeted contribution margin.
E)None of these are true.

Question 67

A more comprehensive approach to recognizing uncertainty is to compute expected values using probability distributions.

Question 68

Organizations that have a low margin of safety have an increased risk of loss.

Question 69

Write a short essay and discuss why managers make decisions based on differences rather than working through the entire contribution margin statement.

Question 70

The Tree Shoppe reported the following information:

Required:
Compute the margin of safety percentage at the Tree Shoppe.

A)20%
B)30%
C)40%
D)50%
E)60%

Question 71

Sammy's Motorcycle Shoppe reported the following information:

Required:
Compute the number of units required to be sold at $200 to earn a target income of $1,200.

A)20 units.
B)22 units.
C)30 units.
D)35 units.
E)40 units.

Question 72

Sally's Optimist Club promotes optimism to the youth in Virginia.If the club has a degree of operating leverage of 3.0 and the sales increase by 25%,then:

A)total variable costs will increase by 75%.
B)total variable costs will increase by 50%.
C)total variable costs will not change.
D)profit will increase by 30%.
E)profit will increase by 75%.

Question 73

The Magazine Store reported budgeted sales of 35 units,and 15 budgeted breakeven sales in units to achieve their goal.
Required:
Compute the margin of safety in units for the Magazine Store.

A)2.33 units
B)10 units
C)20 units
D)42.85 units
E)525 units

Question 74

Write a brief essay and define sensitivity analysis.Discuss the relationship between sensitivity analysis and the margin of safety.

Question 75

Dr.Hill reported breakeven revenues of $7,000 and budgeted revenues of $5,000.
Required:
Compute the margin of safety.

A)$1,000.
B)$2,000.
C)$3,000.
D)$4,000.
E)$5,000.

Question 76

Write a brief summary and explain how managers use CVP analysis to make decisions and reduce risk in organizations.

Question 77

When there is a high probability that sales will decline in an organization,managers use CVP analysis in their decision making processes to determine whether or not they need to change the cost structure to have more variable costs and fewer fixed costs.

Question 78

Sensitivity analysis broadens the managers' perspectives to possible outcomes that might occur ________ the company commits to funding a project.

A)after
B)during
C)before
D)when
E)parallel

Question 79

________ ________ is a "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes.

A)Electronic Spreadsheet
B)Weighted average
C)Manufacturing option
D)Electronic analysis
E)Sensitivity analysis

Question 80

Strategic decisions never involve risk.