Deck 7: Cost-Volume-Profit Analysis

Question 1

1-1 CVP stands for Cost-Volume-Profit.

Answer 1

True

Question 2

1-17 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)Unit contribution margin
C)Net income
D)Operating income

Answer 2

B

Question 3

1-20 Akron Laser Wash sells deluxe car washes for $15 per customer.Variable costs are $9 per wash.Fixed costs are $40,000 per month.What is Akron Laser Wash's contribution margin ratio?

A)40%
B)250%
C)6%
D)60%

Answer 3

A

Question 4

1-5 The contribution margin derived from different products is used to motivate the sales force to increase sales of the most profitable products.

Question 5

1-9 Gross margin is another term for net income.

Question 6

1-11 The unit contribution margin is computed by:

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

Question 7

1-14 To compute the unit contribution margin,__________ should be subtracted from the sales price per unit.

A)only variable period costs
B)only variable inventoriable product costs
C)all variable costs
D)all fixed costs

Question 8

1-2 CVP assumes that inventory levels change.

Question 9

1-7 If a unit sells for $11.40 and has a variable cost of $3.80,its contribution margin per unit is $7.60.

Question 10

1-13 CVP analysis assumes all of the following EXCEPT that:

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

Question 11

1-3 When using the contribution margin ratio,managers project operating income based upon sales units.

Question 12

1-19 On a contribution margin income statement,to what is contribution margin equal?

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

Question 13

1-8 Contribution margin on an income statement is equal to sales revenue minus variable expenses.

Question 14

1-10 CVP analysis assumes that the only factor that affects costs is a change in volume.

Question 15

1-18 Contribution margin ratio is computed by dividing:

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

Question 16

1-12 The contribution margin ratio explains the percentage of each sales dollar that contributes towards:

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

Question 17

1-21 Akron Laser Wash sells deluxe car washes for $15 per customer.Variable costs are $9 per wash.Fixed costs are $40,000 per month.What is Akron Laser Wash's contribution margin per car wash?

A)$0.40
B)$9.00
C)$6.00
D)$2.50

Question 18

1-6 The contribution margin ratio is the unit contribution margin divided by the sales price per unit.

Question 19

1-16 Managers can quickly forecast the total contribution margin by multiplying the projected:

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

Question 20

1-4 A product's contribution margin per unit is the excess value of the selling price per unit over the fixed cost of obtaining and selling each unit.

Question 21

The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each.The cost of providing dinner is $30 per ticket,and the fixed cost of operating the theater is $100,000 per month.The company can accommodate 15,000 patrons each month.What is the contribution margin per passenger?

A)$ 0.40
B)$ 2.50
C)$30.00
D)$20.00

Question 22

1-35 Gibbs Company has a product which sells for $100 and has a unit contribution margin of $45.It has fixed costs of $30/unit at the current production volume.Gibbs Company's contribution margin ratio is:

A)45%.
B)30%.
C)85%.
D)75%.

Question 23

1-27 The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each.The cost of providing dinner is $30 per ticket,and the fixed cost of operating the theater is $100,000 per month.The company can accommodate 15,000 patrons each month.What is the projected monthly income if 12,000 patrons visit the theater each month?

A)$200,000
B)$340,000
C)$140,000
D)$240,000

Question 24

1-37 Anthony Office Supplies sells refills on printer ink cartridges for $16 per refill.Variable costs are $4 per refill.Fixed costs are $2,000 per month.What is the contribution margin ratio for the printer ink cartridge refills?

A)133%
B)12%
C)25%
D)75%

Question 25

2-2 The breakeven point represents the minimum number of units a company must sell before it earns a profit.

Question 26

1-30 The Sage Group produces a single product selling for $60 per unit.Variable costs are $12 per unit and total fixed costs are $6,000.What is the contribution margin ratio?

A)0.48
B)0.20
C)0.80
D)1.25

Question 27

1-22 Branson Movies sells movie tickets for $13 per movie patron.Variable costs are $8 per movie patron and fixed costs are $60,000 per month.The company's relevant range extends to 35,000 movie patrons per month.What is Branson's projected operating income if 28,000 movie patrons see movies during a month?

A)$364,000
B)$140,000
C)$304,000
D)$ 80,000

Question 28

1-24 Express Bus Company operates a bus route that takes passengers from Cleveland to Chicago every day.Assume the bus tickets sell for $50 per rider; the bus line's variable costs are $35 per rider; and its fixed costs are $75,000 each month.What is the contribution margin ratio?

A)70%
B)30%
C)333%
D)15%

Question 29

1-26 The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each.The cost of providing dinner is $30 per ticket,and the fixed cost of operating the theater is $100,000 per month.The company can accommodate 15,000 patrons each month.What is the contribution margin ratio?

A)40%
B)250%
C)60%
D)20%

Question 30

2-1 Only the unit contribution margin approach may be used to calculate the breakeven point.

Question 31

2-4 On a CVP graph,total fixed costs are shown as a vertical line.

Question 32

2-5 The breakeven point on a CVP graph is the point where the fixed expenses line intersects the total expense costs line.

Question 33

The following selected data relates to Lazarus Corporation: $$\begin{array} { | l | r | } \hline \text { Tatal fixed costs } & \$ 22,000 \\\hline \text { Sale price per unit } & \$ 25 \\\hline \text { Variable costs per urit } & \$ 18 \\\hline\end{array}$$

-If sales revenue per unit increases to $27 and 8,000 units are sold,what is the contribution margin?

A)$ 50,000
B)$ 72,000
C)$ 56,000
D)$360,000

Question 34

1-23 Express Bus Company operates a bus route that takes passengers from Cleveland to Chicago every day.Assume the bus tickets sell for $50 per rider; the bus line's variable costs are $35 per rider; and its fixed costs are $75,000 each month.What is the contribution margin per rider?

A)$15.00
B)$ 0.30
C)$35.00
D)$ 3.33

Question 35

2-3 On a CVP graph,the vertical distance between the total expense line and the total fixed cost line equals the operating income or operating loss.

Question 36

1-38 Anthony Office Supplies sells Refills on printer ink cartridges for $16 per refill.Variable costs are $4 per refill.Fixed costs are $2,000 per month.What is the contribution margin per refill?

A)$ 1.33
B)$ 0.75
C)$12.00
D)$ 4.00

Question 37

1-34 First Robotics Company sells basic kits to build robots for $112 each.The variable costs for each kit are $72.The total contribution margin for 20 kits is:

A)$ 2,240.
B)$ 3,680.
C)$ 1,440.
D)$ 800.

Question 38

1-36 Mario's Pizza sells pizzas for $10.The variable costs for each pizza are $4,while the total fixed costs are $1,500.The contribution margin for 1,000 pizzas is:

A)$ 8,500.
B)$ 4,500.
C)$ 6,000.
D)$10,000.

Question 39

The following selected data relates to Lazarus Corporation: $$\begin{array} { | l | r | } \hline \text { Tatal fixed costs } & \$ 22,000 \\\hline \text { Sale price per unit } & \$ 25 \\\hline \text { Variable costs per urit } & \$ 18 \\\hline\end{array}$$

- Assuming 8,000 units are sold,what is the contribution margin?

A)$56,000
B)$78,000
C)$34,000
D)$344,000

Question 40

During the past year,Pettay Enterprises had the following fixed costs:
$$\begin{array} { | l | l | } \hline \text { Fixed manufacturing costs } & \$ 112,000 \\\hline \text { Fixed marketing costs } & \$ 43,000 \\\hline \text { Fixed administrative costs } & \$ 18,000 \\\hline\end{array}$$ The company also had the following variable costs:
$$\begin{array} { l l } \text { Variable manufacturing costs } & \$ 142,000 \\\text { Variable marketing costs } & \$ 37,000 \\\text { Variable adrinistrative costs } & \$ 28,000\end{array}$$ During the year,the company produced and sold 60,000 units of the product at a selling price of $7.00 per unit.The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.

Question 41

2-7 The breakeven point can either be calculated in terms of number of units or in terms of sales revenue.

Question 42

2-18 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 shortcut approach using the contribution margin ratio
D)The balance sheet approach

Question 43

2-20 Sales below the breakeven point indicate a _____________,whereas sales above the breakeven point indicate a ___________.

A)loss; loss
B)loss; profit
C)profit; profit
D)profit; loss

Question 44

2-15 The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is:

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

Question 45

2-26 The Sweet Factory produces and sells specialty fudge.The selling price per pound is $20,variable costs are $12 per pound,and total fixed costs are $6,000.How many pounds of fudge must The Sweet Factory sell to breakeven?

A)15,000
B)300
C)750
D)188

Question 46

2-24 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)Inventory levels are constantly changing.
D)Volume is the only cost driver.

Question 47

2-27 The Sweet Factory produces and sells specialty fudge.The selling price per pound is $20,variable costs are $12 per pound,and total fixed costs are $6,000.What are breakeven sales in dollars?

A)$ 9,000
B)$ 3,750
C)$ 750
D)$15,000

Question 48

2-28 If the sale price per unit is $12,the unit contribution margin is $5,and total fixed expenses are $21,000,what are the breakeven sales in units?

A)105,000
B)252,000
C)4,200
D)1,750

Question 49

2-25 The area to the right of the break-even point and between the total revenue line and total expense line represents:

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

Question 50

2-19 The breakeven point may be defined as the number of units a company must sell to do which of the following?

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

Question 51

2-17 On a CVP graph,the total cost line intersects the total revenue line at which of the following points?

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

Question 52

2-21 On a CVP graph,the horizontal line intersecting the vertical y-axis at the level of total cost represents:

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

Question 53

2-9 When calculating the breakeven point in terms of units,fixed costs should be divided by the contribution margin ratio.

Question 54

2-6 Fixed costs of $10,000 divided by the contribution margin ratio of 40% would yield the dollar amount of breakeven sales as $25,000.

Question 55

2-22 On a CVP graph,the line that begins at the origin represents:

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

Question 56

2-23 On a CVP graph,the intersection of the sales revenue line and the variable expense line is known as:

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

Question 57

2-16 Which of the following is TRUE when using the income statement approach to finding breakeven?

A)Sales revenue - variable expenses - fixed expenses = operating income
B)(Variable expenses x number of units)- fixed expenses = operating income
C)Fixed expenses + variable expenses + sales revenue = operating income
D)Fixed expenses + variable expenses - sales revenue = operating income

Question 58

2-14 The formula used to find the sales revenue (sales in dollars)needed in order to breakeven or generate a target profit is:

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

Question 59

2-10 When calculating the breakeven point in terms of sales revenue,fixed costs should be divided by the contribution margin ratio.

Question 60

2-8 A company that sells thousands of different products would be more likely to calculate breakeven in terms of sales units,rather than sales revenue

Question 61

2-33 If total fixed costs are $120,000,the contribution margin per unit is $16.00,and targeted operating income is $30,000,how many units must be sold to breakeven?

A)1,920,000
B)7,500
C)9,375
D)480,000

Question 62

2-50 The Olson Company has a predicted operating income of $100,000.Their total variable expenses are $36,000 and their total fixed expenses are $24,000.They have a unit contribution margin of $10.Olson's break-even in sales units is:

A)2,400.
B)7,600.
C)8,800.
D)16,000.

Question 63

2-45 Healthy Greetings Corporation produces and sells fruit baskets for special events.The unit selling price is $60,unit variable costs are $45,and total fixed costs are $2,670.How many fruit baskets must Healthy Greetings Corporation sell to breakeven?

A)10,680
B)45
C)178
D)25

Question 64

Assume the following amounts: $$\begin{array} { | l | r | } \hline \text { Tatal fixed costs } & \$ 20,000 \\\hline \text { Sale price per unit } & \$ 24 \\\hline \text { Variable costs per urit } & \$ 15 \\\hline\end{array}$$ If sales revenue per unit decreases to $22 and 10,000 units are sold,what is the operating income?

A)$ 50,000
B)$ 90,000
C)$220,000
D)$ 70,000

Question 65

2-38 Given breakeven sales in units of 56,000 and a unit contribution margin of $6,how many units must be sold to reach a target operating income of $24,000?

A)4,000
B)60,000
C)52,000
D)144,000

Question 66

2-41 If target sales in units is 75,000,total fixed expenses are $12,000,and the unit contribution margin is $0.20,what is the target operating income?

A)$27,000
B)$15,000
C)$ 2,400
D)$ 3,000

Question 67

Marietta Piping Corporation provides the following information about its single product. $$\begin{array} { | l | r | } \hline \text { Targeted aperating income } & \$ 60,000 \\\hline \text { Selling price per unit } & \$ 120.00 \\\hline \text { Variable cost per unit } & \$ 45.00 \\\hline \text { Total fixed cost } & \$ 90,000 \\\hline\end{array}$$

- What is the contribution margin per unit?

A)$ 75.00
B)$ 0.63
C)$165.00
D)$ 45.00

Question 68

2-29 If the sale price per unit is $30.00,the variable expense per unit is $21,and total fixed expenses are $300,000,what are the breakeven sales in dollars?

A)$ 10,000
B)$1,000,000
C)$ 90,000
D)$ 176,471

Question 69

Marietta Piping Corporation provides the following information about its single product. $$\begin{array} { | l | r | } \hline \text { Targeted aperating income } & \$ 60,000 \\\hline \text { Selling price per unit } & \$ 120.00 \\\hline \text { Variable cost per unit } & \$ 45.00 \\\hline \text { Total fixed cost } & \$ 90,000 \\\hline\end{array}$$

- How many units must be sold to earn the targeted operating income?

A)800
B)1,200
C)2,000
D)909

Question 70

2-42 MaxTech Company has a predicted operating income of $80,000.Their total variable expenses are $24,000 and their total fixed expenses are $36,000.They have a unit contribution margin of $10.MaxTech's break-even sales in units is:

A)9,200.
B)14,000.
C)4,400.
D)3,600.

Question 71

2-40 If the contribution margin ratio is 32%,target operating income is $60,000,and the sales revenue needed to achieve the target operating income is $400,000,what are total fixed expenses?

A)$ 68,000
B)$128,000
C)$ 19,200
D)$188,000

Question 72

2-37 Given breakeven sales in units of 28,000 and a unit contribution margin of $4,how many units must be sold to reach a target operating income of $4,000?

A)29,000
B)1,000
C)16,000
D)27,000

Question 73

2-43 MaxTech Company has a predicted operating income of $80,000.Their variable expenses are $24,000 and their total fixed expenses have doubled from $36,000 to $72,000.Their unit contribution margin is $10.Their break-even sales in units is:

A)7,200.
B)12,800.
C)17,600.
D)800.

Question 74

2-39 If the sale price per unit is $100,variable expenses per unit are $45,target operating income is $35,000,and total fixed expenses are $20,000,how many units must be sold to reach the target operating income?

A)350
B)364
C)1,000
D)636

Question 75

2-46 Healthy Greetings Corporation produces and sells fruit baskets for special events.The unit selling price is $60,unit variable costs are $45,and total fixed costs are $2,670.What are breakeven sales in dollars?

A)$ 8,010
B)$ 1,526
C)$ 178
D)$ 10,680

Question 76

2-44 Palmer Corporation has fixed expenses of $240,000,and a unit sales price of $75.Their variable cost per unit is $40.If they sell 8,000 posters,their operating income is a:

A)gain of $ 40,000.
B)loss of $520,000.
C)gain of $680,000.
D)gain of $ 80,000.

Question 77

2-32 If the sale price per unit is $75,the variable expense per unit is $45,and total fixed expenses are $1,155,000,what will the breakeven sales in units be?

A)15,400
B)25,667
C)38,500
D)9,625

Question 78

2-51 The Olson Company has a predicted operating income of $100,000.Their variable expenses are $36,000 and their total fixed expenses have almost doubled from $24,000 to $40,000.Their unit contribution margin is $10.Their break-even in sales units is:

A)10,400.
B)6,000.
C)17,600.
D)4,000.

Question 79

Schimmel Company provides the following information about its single product. $$\begin{array} { | l | r | } \hline \text { Targeted aperating income } & \$ 35,000 \\\hline \text { Selling price per unit } & \$ 7.85 \\\hline \text { Variable cost per unit } & \$ 6.10 \\\hline \text { Total fixed cost } & \$ 96,250 \\\hline\end{array}$$ What is the contribution margin per unit?

A)$6.10
B)$1.75
C)$0.22
D)$13.95

Question 80

2-31 If the sale price per unit is $38,the unit contribution margin is $17,and total fixed expenses are $56,950,what will the breakeven sales in units be?

A)1,499
B)968,150
C)2,712
D)3,350