Deck 4: Costvolumeprofit Analysis: a Managerial Planning Tool

Question 1

What is total variable cost divided by sales revenue?

A) the variable cost ratio
B) the revenue ratio
C) the contribution ratio
D) the sales ratio

Answer 1

A

Question 2

Refer to the Figure.What is the contribution ratio?

A) 35%
B) 50%
C) 58%
D) 65%

Answer 2

C

Question 3

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the break-even point in sales dollars?

A) $21,670
B) $28,000
C) $58,330
D) $80,000

Answer 3

$80,000

Question 4

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the variable product expense per unit?

A) $1.30
B) $3.60
C) $4.00
D) $4.60

Question 5

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the budgeted operating income?

A) $90,000
B) $168,000
C) $174,000
D) $342,000

Question 6

What is the formula to calculate operating income?

A) (price × units sold)− (unit variable cost × units sold)− fixed cost
B) (price × units sold)+ (unit variable cost × units sold)+ fixed cost
C) (price + units sold)− (unit variable cost + units sold)− fixed cost
D) (price − units sold)+ (unit variable cost − units sold)+ fixed cost

Question 7

What is the purpose of doing a cost-volume-profit (CVP)analysis?

A) CVP analysis provides managers with information used for control only.
B) CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or costs on volume.
C) CVP analysis shows how revenues,expenses,and profits behave as volume changes.
D) CVP analysis is effectively used by single-product firms only.

Question 8

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the contribution margin per unit?

A) $5.00
B) $5.40
C) $6.00
D) $6.30

Question 9

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the variable expense per unit?

A) $1.30
B) $3.70
C) $4.00
D) $4.60

Question 10

Refer to the Figure.What is the budgeted operating income?

A) $92,500
B) $320,000
C) $322,500
D) $457,500

Question 11

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.How many units must be sold to yield a targeted income of $36,000?

A) 5,833
B) 6,000
C) 12,000
D) 14,000

Question 12

Refer to the Figure.What is the variable cost ratio?

A) 19%
B) 42%
C) 50%
D) 54%

Question 13

Refer to the Figure.What is the break-even point in sales dollars?

A) $392,241
B) $420,000
C) $761,905
D) $948,275

Question 14

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the variable expense ratio?

A) 36%
B) 40%
C) 46%
D) 50%

Question 15

What is the break-even point?

A) the point at which total sales are greater than total cost
B) the point at which total sales equal total cost
C) the point at which fixed costs equal variable costs
D) the point at which total sales are less than total cost

Question 16

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the break-even point in units?

A) 2,167
B) 2,800
C) 5,833
D) 8,000

Question 17

Refer to the Figure.What is the contribution margin?

A) $92,500
B) $320,000
C) $322,500
D) $457,500

Question 18

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the contribution margin ratio?

A) 36%
B) 40%
C) 44%
D) 50%

Question 19

What is the break-even point?

A) Total revenue minus total cost.
B) Profit is greater than zero.
C) Total contribution margin equals total fixed cost.
D) Margin of safety is positive.

Question 20

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the contribution margin ratio?

A) 33%
B) 40%
C) 50%
D) 60%

Question 21

Suppose the selling price per unit increases.What will be the effect on the break-even point in units?

A) The units will decrease.
B) The units will increase.
C) The units will remain the same.
D) The units will remain the same; however,contribution per unit will decrease.

Question 22

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the variable cost ratio?

A) 33%
B) 40%
C) 50%
D) 60%

Question 23

Roundstreet Company sells a product for $14.Variable costs are $7 per unit,and total fixed costs are $7,000.What is the break-even point in units?

A) 210
B) 360
C) 504
D) 1,000

Question 24

The income statement for Thompson Manufacturing Company is as follows: $\begin{array}{lr}\text { Sales }(10,000 \text { units) } & \$ 150,000 \\\text { Variable expenses } & 102,000 \\ \text { Contribution margin } & \$ 48,000 \\\text { Fixed expenses } & 36,000 \\\text { Operating income } & \$ 12,000\end{array}$ What is the contribution margin per unit?

A) $1.20
B) $4.80
C) $7.20
D) $120,000.00

Question 25

What is total contribution margin divided by sales revenue?

A) the variable cost ratio
B) the fixed cost ratio
C) the sales ratio
D) the contribution margin ratio

Question 26

What is the ratio of fixed expenses to the contribution margin ratio?

A) the break-even point in sales
B) the break-even point in units
C) the variable cost ratio
D) the margin of safety

Question 27

Suppose the contribution margin per unit decreases.What will be the effect on the break-even point in units?

A) The units will increase.
B) The units will decrease.
C) The units will remain the same.
D) The units cannot be determined from the information given.

Question 28

Suppose variable costs per unit decrease.What will be the effect on sales volume at the break-even point?

A) Sales volume will increase.
B) Sales volume will decrease.
C) Sales volume will remain the same.
D) Sales volume will remain the same; however,contribution margin per unit will decrease.

Question 29

Refer to the Figure.What is Woods's revised expected operating income for the coming year?

A) $62,400
B) $130,000
C) $156,000
D) $222,000

Question 30

Wendall Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales,and fixed expenses are $30,000.Management has decided to decrease the selling price to $6 in hopes of increasing its volume of sales.What is the contribution margin ratio when the selling price is reduced to $6 per unit?

A) 25%
B) 40%
C) 60%
D) 75%

Question 31

What is the equation to calculate contribution margin?

A) contribution margin = sales revenue × variable cost ratio
B) contribution margin ratio = contribution margin / variable costs
C) contribution margin = fixed costs
D) contribution margin ratio = 1 − variable cost ratio

Question 32

What is the contribution margin?

A) the difference between sales and fixed costs
B) the difference between fixed and variable costs
C) the difference between sales and variable costs
D) the difference between sales and total costs

Question 33

Miss She makes dolls.The price of a doll is $15,and the variable expense is $7 per doll.What is the contribution margin ratio?

A) 37.5%
B) 40.0%
C) 53.0%
D) 60.0%

Question 34

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the contribution margin per hour?

A) $6.50
B) $14.00
C) $21.00
D) $35.00

Question 35

Refer to the Figure.What is the percent change in operating income expected by Woods in the coming year?

A) 8.3%
B) 20.0%
C) 30.0%
D) 48.0%

Question 36

What is the result when the contribution margin ratio increases?

A) The variable cost ratio decreases.
B) The break-even point increases.
C) The fixed costs decrease.
D) The price decreases.

Question 37

Suppose fixed costs increase.What will be the effect on the break-even point in units?

A) The break-even point will increase.
B) The break-even point will decrease.
C) The break-even point will remain the same.
D) The break-even point will remain the same; however,contribution per unit will decrease.

Question 38

What formula is used to calculate contribution margin ratio?

A) fixed costs / contribution margin per unit
B) 1 + variable cost ratio
C) contribution margin per unit / variable costs per unit
D) unit contribution margin / total revenues

Question 39

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the break-even point in sales dollars?

A) $130,000
B) $195,000
C) $252,000
D) $342,000

Question 40

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$

-Refer to the Figure.What is the break-even point in hours (rounded to the nearest whole hour)?

A) 1,393
B) 2,229
C) 3,714
D) 5,571

Question 41

Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units per year.How many jungle gyms are sold at break-even?

A) 668
B) 875
C) 1,002
D) 2,625

Question 42

Bonda,Inc.sells its product for $90.It has a variable cost ratio of 50% and total fixed costs of $14,000.What is the break-even point in sales dollars?

A) $3,600
B) $7,000
C) $14,000
D) $28,000

Question 43

Suppose the contribution margin ratio increases.What will be the effect on the break-even point in sales dollars?

A) The dollar value will increase.
B) The dollar value will decrease.
C) The dollar value will remain the same.
D) The dollar value will double.

Question 44

TriTech Company sells a product for $12.Variable costs are $6 per unit,and total fixed costs are $6,000.How many units must Melody sell to earn an operating profit of $240?

A) 62
B) 1,040
C) 1,260
D) 1,480

Question 45

Assume the following information: $\begin{array}{lr}\text { Variable cost ratio } & 80 \% \\\text { Total fixed costs } & \$ 60,000\end{array}$ What volume of sales dollars is needed to break even?

A) $12,000
B) $48,000
C) $75,000
D) $300,000

Question 46

Assume the following information: $\begin{array}{lr}\text { Selling price per unit } & \$ 100 \\\text { Contribution margin ratio } & 50 \% \\\text { Total fixed costs } & \$ 250,000\end{array}$ How many units must be sold to generate a before-tax profit of $45,000?

A) 2,500 units
B) 3,000 units
C) 3,750 units
D) 5,900 units

Question 47

Go For It Company sells go-carts at $1000 each,incurs a variable cost per unit of $600,and has a total fixed expense of $75,000.How many units must be sold to achieve a target operating income of $55,000?

A) 186
B) 215
C) 250
D) 325

Question 48

Hammer Company expects the following results for the next accounting period: $\begin{array}{lr}\text { Sales } & \$ 240,000 \\\text { Variable costs } & \$ 135,000 \\\text { Fixed costs } & \$ 40,000 \\\text { Expected production and sales in units } & 3,000\end{array}$ The sales manager believes sales could be increased by 400 units if advertising expenditures are increased by $10,000.Suppose advertising expenditures are increased and sales increase by 400 units.What will be the effect on operating income?

A) a decrease of $4,000
B) an increase of $22,000
C) an increase of $4,000
D) an increase of $30,000

Question 49

$\begin{array}{lr}\text { Selling price per unit } & \$ 80 \\\text { Variable cost per unit } & \$ 60 \\\text { Total fixed costs } & \$ 400,000\end{array}$

-Refer to the Figure.What is the break-even point in units?

A) 6,667
B) 10,000
C) 13,333
D) 20,000

Question 50

$\begin{array}{lr}\text { Selling price per unit } & \$ 80 \\\text { Variable cost per unit } & \$ 60 \\\text { Total fixed costs } & \$ 400,000\end{array}$

-Refer to the Figure.How many units must Acme sell to earn a profit of $40,000?

A) 2,000
B) 8,500
C) 20,000
D) 22,000

Question 51

East Side Company produces two products,X and Y,which account for 60% and 40%,respectively,of total sales dollars.Contribution margin ratios are 50% for X and 25% for Y.Total fixed costs are $120,000.What is East Side's break-even point in sales dollars?

A) $300,000
B) $328,767
C) $342,856
D) $375,000

Question 52

The following data pertain to the three products produced by Rona Corporation: $$\begin{array} { l r r r } & \mathrm { A } & \mathrm { B } & \mathrm { C } \\ \text { Selling price per unit }& \$ 5.00 & \$ 7.00 & \$ 6.00 \\\text { Variable costs per unit } & 4.00 & 5.00 & 3.00 \\\text { Contribution margin per unit }& \$ 1.00 & \$ 2.00 & \$ 3.00\end{array}$$ Fixed costs are $90,000 per month. Of all units sold,60% are Product A,30% are Product B,and 10% are Product C.
What is the monthly break-even point for total units?

A) 36,000 units
B) 45,000 units
C) 60,000 units
D) 180,000 units

Question 53

Product 1 has a contribution margin of $6.00 per unit,and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which statement is true?

A) At a sales volume in excess of 25,000 units of Product 1 and 25,000 units of Product 2,operations will be profitable.
B) The ratio of net profit to total sales for Product 2 will be larger than the ratio of net profit to total sales for Product 1.
C) Variable costs are $1.50 more for Product 2 than for Product 1.
D) The ratio of contribution to total sales always will be larger for Product 1 than for Product 2.

Question 54

Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units per year.What is the new contribution margin ratio?

A) 38%
B) 40%
C) 50%
D) 60%

Question 55

Diamonds in the Ruff sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales,and fixed expenses are $30,000.Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.How many sales (in dollars)were required to break even at the old price of $7.50 per unit?

A) $12,000
B) $18,000
C) $50,000
D) $75,000

Question 56

What formula is used to calculate the sales dollars needed to earn a desired profit?

A) (fixed costs + contribution margin) / (1 − variable cost ratio)
B) (fixed costs + desired profit) / (1 − variable cost ratio)
C) (fixed costs + variable costs) / (1 − variable cost ratio)
D) (fixed costs + desired profit) / (1 − sales ratio)

Question 57

Firm X and Firm Y compete within the same industry.Firm X manufactures its product using large amounts of direct labour.Firm Y has replaced direct labour with investment in machinery.Projected sales for both firms are 15% less than in the previous year.What will be the projected profits for Firm X compared to Firm Y?

A) Firm X will lose more profit than Firm Y.
B) Firm Y will lose more profit than Firm X.
C) Firm X and Firm Y will lose the same amount of profit.
D) Neither Firm X nor Firm Y will lose profit.

Question 58

Information about the K-9 Salon's two products is as follows: Suppose the sales mix in units is 70% Product X and 30% Product Y.What total monthly sales volume in units is required to break even?

A) 8,333 units
B) 16,667 units
C) 50,000 units
D) 56,667 units

Question 59

What formula is used to calculate the number of units needed to earn a desired profit?

A) (fixed costs + variable costs) / sales
B) (fixed costs + desired profit) / sales
C) (fixed costs + desired profit) / contribution margin per unit
D) (fixed costs + variable costs) / contribution margin per unit

Question 60

Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units.What is the sales revenue at break-even?

A) $140,000
B) $253,700
C) $411,250
D) $665,000

Question 61

Which of the following distinguishes a profit-volume graph from a cost-volume-profits graph?

A) Costs are associated with units produced.
B) Operating income is associated with expected sales.
C) Revenues and costs are associated with sales volume.
D) Revenues are expected at targeted sales levels.

Question 62

Which graph depicts the relationships among total variable costs,total fixed costs,number of units,and operating income?

A) cost graph
B) volume graph
C) cost-volume-profit graph
D) break-even graph

Question 63

Refer to the Figure.What is the overall sales revenue at break-even?

A) $387,200
B) $778,800
C) $968,000
D) $1,288,700

Question 64

Refer to the Figure.How many practice models are sold at break-even?

A) 180
B) 220
C) 440
D) 1,320

Question 65

Refer to the Figure.What is the total contribution margin of six practice models,three deluxe models,and one professional model?

A) $450
B) $520
C) $587
D) $850

Question 66

Which of the following is a characteristic of the cost-volume-profit graph?

A) It plots three separate lines.
B) It plots the total revenue line and the total cost line.
C) The vertical axis is measured in units sold,and the horizontal axis is measured in dollars.
D) It is hard to interpret.

Question 67

Which of the following is NOT an assumption used to prepare a cost-volume-profit graph?

A) Linear costs are within the relevant range.
B) Units produced equals units sold.
C) The sales mix is constant.
D) The constant cost fluctuates.

Question 68

What fixed expenses can NOT be directly traced to individual segments?

A) direct fixed expenses
B) common fixed expenses
C) contribution margin
D) overall fixed expenses

Question 69

Where is the break-even point on a cost-volume-profit graph?

A) at the intersection of the revenue line and the profit line
B) at the intersection of the revenue line and the total cost line
C) at the intersection of the fixed cost line and the variable cost line
D) at the intersection of the contribution margin line and the fixed cost line

Question 70

Refer to the Figure.What is the sales mix of jungle gyms and tree houses (rounded down to whole numbers)?

A) 2:3
B) 3:1
C) 3:2
D) 4:1

Question 71

Refer to the Figure.How many professional models are sold at break-even?

A) 220
B) 400
C) 440
D) 850

Question 72

How is the sales mix expressed?

A) in terms of units but not revenues
B) in terms of either revenues or units
C) in terms of revenues but not units
D) in terms of neither units nor revenue

Question 73

What relationship is visually portrayed by a profit-volume graph?

A) total sales and total cost
B) profits and units sold
C) fixed costs and variable costs
D) total sales and units sold

Question 74

Which of the following is a characteristic of the cost-volume-profit graph?

A) It is hard to interpret.
B) It reveals how costs change as sales volume remains the same.
C) It cannot be plotted if the break-even point is known.
D) It shows the relationship among cost,volume,and profits.

Question 75

$\begin{array}{lr}\text { Sales } & \$ 540,000 \\\text { Variable costs } & \$ 378,000 \\\text { Fixed costs } & \$ 120,000 \\\text { Expected production and sales in units } & 40,000\end{array}$

-Refer to the Figure.How many sales in dollars are needed to generate a profit of $30,000?

A) $100,000
B) $150,000
C) $214,286
D) $500,000

Question 76

What items is the sales mix the relative combination of?

A) inputs required to produce a product
B) outputs produced by a firm
C) products sold by a firm
D) distribution channels used by a firm

Question 77

$\begin{array}{lr}\text { Sales } & \$ 540,000 \\\text { Variable costs } & \$ 378,000 \\\text { Fixed costs } & \$ 120,000 \\\text { Expected production and sales in units } & 40,000\end{array}$

-Refer to the Figure.What is the break-even point in sales dollars?

A) $112,500
B) $150,000
C) $171,429
D) $400,000

Question 78

Which of the following is characteristic of the profit-volume graph?

A) It is difficult to interpret.
B) It fails to reveal how costs change as sales volume changes.
C) It can be plotted only if the break-even point is known.
D) It can be plotted only if fixed costs are known.

Question 79

Refer to the Figure.How many deluxe models are sold at break-even?

A) 220
B) 440
C) 660
D) 850

Question 80

Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units per year.How many tree houses are sold at break-even?

A) 668
B) 875
C) 1,002
D) 1,750