Deck 3: Cost-Volume-Profit Analysis

Question 1

Which of the following is true of CVP analysis?

A)Costs may be separated into separate inventoriable and period components with respect to the level of output.
B)Total revenues and total costs are linear in relation to output units.
C)Unit selling price,unit variable costs,and unit fixed costs are known and remain constant.
D)Proportion of different products will vary according to demand and supply when multiple products are sold.

Answer 1

B

Question 2

Which of the following is true about the assumptions underlying basic CVP analysis?

A)Selling price varies with demand and supply of the product.
B)Only selling price and variable cost per unit are known and constant.
C)Only selling price,variable cost per unit,and total fixed costs are known and constant.
D)Selling price,variable cost per unit,fixed cost per unit,and total fixed costs are known and constant.

Answer 2

C

Question 3

The contribution margin income statement ________.

A)reports gross margin
B)is allowed for external reporting to shareholders
C)categorizes costs as either direct or indirect
D)can be used to predict operating income at different levels of activity

Answer 3

D

Question 4

Fixed costs equal $16,000,unit contribution margin equals $35,and the number of units sold equal 1,300.Operating income is ________.

A)$45,500
B)$29,500
C)$16,000
D)$61,500

Question 5

Which of the following is an assumption of CVP analysis?

A)Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B)When graphed,total costs curve upward.
C)The unit-selling price is variable as it is subject to demand and supply.
D)Total costs can be divided into inventoriable and period costs with respect to the level of output.

Question 6

The contribution margin per unit equals .

A)fixed cost - contribution margin ratio
B)selling price - fixed costs per unit
C)selling price - variable costs per unit
D)selling price - costs of goods sold

Question 7

Tally Corp.sells softwares during the recruiting seasons.During the current year,14,000 software packages were sold resulting in $460,000 of sales revenue,$110,000 of variable costs,and $50,000 of fixed costs.
Contribution margin per software is ________.

A)$32.86
B)$25.00
C)$29.29
D)$7.86

Question 8

Contribution margin equals ________.

A)revenues minus period costs
B)revenues minus product costs
C)revenues minus variable costs
D)revenues minus fixed costs

Question 9

Tally Corp.sells software during the recruiting seasons.During the current year,10,000 software packages were sold resulting in $470,000 of sales revenue,$130,000 of variable costs,and $48,000 of fixed costs.
If sales increase by $80,000,operating income will increase by ________.(Round interim calculations to two decimal places and the final answer to the nearest whole dollar. )

A)$30,588
B)$32,000
C)$48,000
D)$57,872

Question 10

Which of the following is true of cost-volume-profit analysis?

A)The theory assumes that all costs are variable.
B)The theory assumes that units manufactured equal units sold.
C)The theory states that total variable costs remain the same over a relevant range.
D)The theory states that total costs remain the same over the relevant range.

Question 11

In the graph method of CVP analysis,________.

A)The total revenue line starts at the origin and the total costs line starts at the fixed intercept.
B)The operating income line starts at the origin and the total costs line starts at the fixed intercept.
C)The breakeven point is at the fixed intercept where the total revenues line intersects.
D)The operating income area is the section where the total costs line is above the total revenues line.

Question 12

A revenue driver is defined as ________.

A)any factor that affects costs and revenues
B)any factor that affects revenues
C)the only factor that can influence a change in selling price
D)the only factor that can influence a change in demand

Question 13

The selling price per unit less the variable cost per unit is the ________.

A)fixed cost per unit
B)gross margin
C)margin of safety
D)contribution margin per unit

Question 14

Sparkle Jewelry sells 500 units resulting in $10,000 of sales revenue,$4,000 of variable costs,and $1,500 of fixed costs.Calculate the variable cost per unit.(Round the final answer to the nearest cent. )

A)$12.00
B)$6.00
C)$2.00
D)$8.00

Question 15

Sparkle Jewelry sells 800 units resulting in $9,000 of sales revenue,$3,000 of variable costs,and $1,500 of fixed costs.Contribution margin per unit is ________.(Round the final answer to the nearest cent. )

A)$13.75
B)$11.25
C)$7.50
D)$5.00

Question 16

One of the first steps to take when using CVP analysis to help make decisions is ________.

A)calculating the break-even point
B)identifying the variable and fixed costs
C)calculation of the degree of operating leverage for the company
D)estimating the volume of sales to make a good profit

Question 17

The contribution income statement highlights ________.

A)gross margin
B)the segregation of costs into period costs and inventoriable costs
C)different product lines
D)variable and fixed costs

Question 18

Orion Company sells several products.Information of average revenue and costs is as follows:

The company sells 12,000 units at the end of the year.
The contribution margin per unit is ________.

A)$16.50
B)$14.90
C)$18.60
D)$19.00

Question 19

Managers use cost-volume-profit (CVP)analysis to ________.

A)forecast the cost of capital for a given period of time
B)to study the behavior of and relationship among the elements such as total revenues,total costs,and income
C)estimate the risks associated with a given job
D)analyse a firm's profitability and help to decide wealth distribution among its stakeholders

Question 20

Pacific Company sells only one product for $12 per unit,variable production costs are $3 per unit,and selling and administrative costs are $1.70 per unit.Fixed costs for 11,000 units are $6,000.The operating income is ________ when 11,000 units are sold.

A)$8.45 per unit
B)$6.75 per unit
C)$7.30 per unit
D)$4.70 per unit

Question 21

The classification of costs as variable and fixed depends on the relevant range,the length of the time horizon,and the specific decision situation.

Question 22

A revenue driver is a variable,such as volume,that causally affects revenues.

Question 23

In CVP analysis,the graph of total revenues versus total costs is linear in nature relation to units sold within a relevant range and time period.

Question 24

Contribution Margin = Total revenues - Total variable costs

Question 25

Contribution margin = Total revenues - Total manufacturing costs

Question 26

Bell Company sells several products.Information of average revenue and costs is as follows:

The company sells 10,000 units.
The contribution margin per unit is ________.

A)$11.65
B)$22.95
C)$25.20
D)$25.50

Question 27

The difference between total revenues and total variable costs is called profit margin.

Question 28

The shorter the time horizon,the lower the percentage of total costs considered fixed.

Question 29

Contribution margin per unit equals contribution margin divided by number of units sold.

Question 30

Which of the following is the mathematical expression of contribution margin ratio?

A)Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
B)Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars)
C)Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars)
D)Contribution margin ratio = Contribution margin percentage × Operating leverage

Question 31

SaleCo sells 8,400 units resulting in $120,000 of sales revenue,$35,000 of variable costs,and $45,000 of fixed costs.The contribution margin percentage is ________.

A)62.5%
B)70.83%
C)33.33%
D)29.17%

Question 32

Contribution margin = Contribution margin percentage × Revenues (in dollars).

Question 33

The three methods used to study CVP analysis are graph method,contribution method,and equation method.

Question 34

Orion Company sells several products.Information of average revenue and costs is as follows:

The company sells 12,000 units at the end of the year.
If direct labor and direct material costs increase by $1 each,contribution margin ________.

A)increases by $24,000
B)increases by $12,000
C)decreases by $24,000
D)decreases by $12,000

Question 35

Operating income plus total fixed costs equals the contribution margin.

Question 36

Contribution margin percentage = Selling price - Variable cost per unit

Question 37

Bell Company sells several products.Information of average revenue and costs is as follows:
$\begin{array}{ll}\text { Selling price per unit } & \$ 29 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 6 \\\text { Direct manufacturing labor } & \$ 1.75 \\\text { Manufacturing overhead } & \$ 0.25 \\\text { Selling costs } & \$ 2 \\\text { Annual fixed costs } & \$ 111,000\end{array}$
The company sells 13,000 units.
What is the proportion of variable costs to total costs?

A)43.15%
B)41.27%
C)77.25%
D)53.94%

Question 38

Contribution margin percentage equals the unit contribution margin divided by the selling price.

Question 39

Family Furniture sells a table for $950.Its fixed costs are $2,500,while its variable costs are $500 per table.It currently plans to sell 180 tables this month.
What is the budgeted operating income for the month assuming that Family Furniture sells 180 tables?

A)$168,500
B)$81,000
C)$78,500
D)$171,000

Question 40

Family Furniture sells a table for $900.Its fixed costs are $30,000,while its variable costs are $600 per table.It currently plans to sell 175 tables this month.
What is the budgeted revenue for the month assuming that Family Furniture sells 175 tables?

A)$52,500
B)$157,500
C)$127,500
D)$105,000

Question 41

What is the breakeven point in units,assuming a product's selling price is $300,fixed costs are $18,000,unit variable costs are $20,and operating income is $6,000?

A)22 units
B)86 units
C)60 units
D)65 units

Question 42

Sparkle Jewelry sells 800 units resulting in $85,000 of sales revenue,$32,000 of variable costs,and $26,000 of fixed costs.
The number of units that must be sold to achieve $41,000 of operating income is ________.

A)909 units
B)393 units
C)1,012 units
D)619 units

Question 43

The controller at TellCo is examining her books.She determines that at the breakeven point of 5,000 units,variable costs total $4,000 and fixed costs total $7,000.Therefore,5,001st unit sold will contribute ________ to profits.(Round the final answer to the nearest cent. )

A)$0.80
B)$0.60
C)$1.40
D)$2.20

Question 44

Sky High sells helicopters.During the current year,130 helicopters were sold resulting in $820,000 of sales revenue,$250,000 of variable costs,and $345,000 of fixed costs.Breakeven point in units is ________.

A)95 units
B)58 units
C)79 units
D)55 units

Question 45

Arthur's Plumbing reported the following:

Required:
a.Compute contribution margin.
b.Compute contribution margin percentage.
c.Compute gross margin.
d.Compute gross margin percentage.
e.Compute operating income.

Question 46

The breakeven point is the activity level where ________.

A)revenues equal fixed costs
B)revenues equal variable costs
C)contribution margin equals total costs
D)revenues equal the sum of variable and fixed costs

Question 47

The breakeven point revenues is calculated by dividing ________.

A)fixed costs by total revenues
B)fixed costs by contribution margin percentage
C)total revenues by fixed costs
D)contribution margin percentage by fixed costs

Question 48

Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue,$32,000 of variable costs,and $26,000 of fixed costs.
Breakeven point in units is ________.(Round to the nearest whole unit. )

A)447 units
B)684 units
C)810 units
D)363 units

Question 49

Assume only the specified parameters change in a CVP analysis.The contribution margin percentage increases when ________.

A)total fixed costs increase
B)total fixed costs decrease
C)variable costs per unit increase
D)variable costs per unit decrease

Question 50

SaleCo sells 11,000 units resulting in $110,000 of sales revenue,$50,000 of variable costs,and $45,000 of fixed costs.To achieve $150,000 in operating income,sales must total ________.(Round intermediate calculations to two decimal places and the final answer to the nearest dollar. )

A)$245,000
B)$253,846
C)$160,000
D)$357,500

Question 51

Rosewood company sells wooden carvings for $300 each.The direct materials cost per unit is $160 and the direct labor is 2 hours at a rate of $26 per hour.Manufacturing overhead is applied on the basis of labor hours at a rate of $36 per hour.Rosewood makes and sells 1,000 units per period.How many units must Rosewood sell to breakeven?

A)409 units
B)450 units
C)240 units
D)818 units

Question 52

At breakeven point,________.

A)operating income is equal to zero
B)contribution margin minus fixed costs is equal to profits earned
C)revenues equal fixed costs minus variable costs
D)breakeven revenues equal fixed costs divided by the variable cost per unit

Question 53

Breakeven point in units is ________.

A)total costs divided by profit margin per unit
B)contribution margin per unit divided by total cost per unit
C)fixed costs divided by contribution margin per unit
D)the sum of fixed and variable costs divided by contribution margin per unit

Question 54

Sales total $400,000 when variable costs total $300,000 and fixed costs total $80,000.The breakeven point in sales dollars is ________.(Round interim calculations to two decimal places and the final answer to the nearest dollar. )

A)$320,000
B)$400,000
C)$1,200,000
D)$500,000

Question 55

Firebird Ltd.sells packaged birdseed for $6.00 per package.Variable product costs are $3.00 per package.Fixed costs are $12,000 per period.How many packages must Firebird sell to earn a target operating income of $7,900?

A)4,000 packages
B)2,633 packages
C)6,633 packages
D)3,317 packages

Question 56

If unit outputs exceed the breakeven point ________.

A)there will be an increase in fixed costs
B)total sales revenue will exceed fixed costs
C)total sales revenue will exceed variable costs
D)there will be a profit

Question 57

The difference between total revenues and total variable costs is called contribution margin.

Question 58

Only variable production costs are used when calculating contribution margin.

Question 59

Sky High sells helicopters.During the current year,130 helicopters were sold resulting in $840,000 of sales revenue,$260,000 of variable costs,and $350,000 of fixed costs.The number of helicopters that must be sold to achieve $320,000 of operating income is ________.

A)151 units
B)104 units
C)79 units
D)130 units

Question 60

How many units would have to be sold to yield a target operating income of $26,000,assuming variable costs are $27 per unit,total fixed costs are $2,000,and the unit selling price is $32?

A)400 units
B)1,038 units
C)5,600 units
D)1,273 units

Question 61

Katrina's Bridal Shoppe sells wedding dresses.The average selling price of each dress is $1,200,variable costs are $400,and fixed costs are $110,000.What is Katrina's operating income when 200 dresses are sold?

A)$50,000
B)$240,000
C)$80,000
D)$130,000

Question 62

Zirconia Fantasy sells only necklaces.11,000 units were sold resulting in $270,000 of sales revenue,$80,000 of variable costs,and $40,000 of fixed costs.The breakeven point in total sales dollars is ________.

A)$40,000
B)$56,843
C)$120,000
D)$72,000

Question 63

The following information is for High Corp:

If targeted operating income is $50,000,then targeted sales revenue is ________.(Round the final answer to the nearest dollar. )

A)$540,000
B)$390,000
C)$150,000
D)$180,000

Question 64

Dr.Charles Hunter,MD,performs a certain outpatient procedure for $1,300.His fixed costs are $24,000 per month and his variable costs are $500 per procedure.Dr.Hunter currently plans to perform 400 procedures this month.What is the breakeven point for the month assuming that Dr.Hunter plans to perform the procedure 400 times?

A)30 times
B)19 times
C)28 times
D)10 times

Question 65

Slickware sells porcelain cups.The breakeven point is 5,000 units.The variable cost per unit is $12 and the fixed costs are $20,000.What is the selling price?

A)$16
B)$24
C)$28
D)$20

Question 66

When fixed costs are $70,000 and variable costs are 60% of the selling price,then breakeven sales are ________.(Round the final answer to the nearest dollar. )

A)$116,667
B)$175,000
C)$112,000
D)$98,000

Question 67

The following information is for High Corp:

The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________.(Round up to the nearest unit. )

A)6,750 units
B)8,000 units
C)1,250 units
D)2,667 units

Question 68

Frazer Corp sells several products.Information of average revenue and costs is as follows:
$\begin{array}{ll}\text { Selling price per unit } & \$ 28.5 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 6.00 \\\text { Direct manufacturing labor } & \$ 1.45 \\\quad \text { Manufacturing overhead } & \$ 0.85 \\\quad \text { Selling costs } & \$ 2.60 \\\text { Annual fixed costs } & \$ 125,000\end{array}$
What is the operating income earned if the company sells 20,000 units?

A)$279,000
B)$296,000
C)$325,000
D)$227,000

Question 69

Quality Stores,Inc. ,sells several products.Information of average revenue and costs is as follows:
$\begin{array}{ll}\text { Selling price per unit } & \$ 20 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 4 \\\text { Direct manufacturing labor } & \$ 1.80 \\\text { Manufacturing overhead } & \$ 0.4 \\\text { Selling costs } & \$ 3 \\\text { Annual fixed costs } & \$ 96,000\end{array}$
What is the contribution margin percentage? (Round your answer to the nearest whole percent. )

A)54%
B)69%
C)43%
D)47%

Question 70

Katrina's Bridal Shoppe sells wedding dresses.The average selling price of each dress is $1,100,variable costs are $500,and fixed costs are $100,000.How many dresses are sold when operating income is zero?

A)200 dresses
B)167 dresses
C)310 dresses
D)91 dresses

Question 71

Ruben is a travel agent.He intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline for $170 each.The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,500 in advertising costs.What is the contribution margin per ticket package?

A)$30
B)$370
C)$170
D)$200

Question 72

If breakeven point is 1,000 units,each unit sells for $31,and fixed costs are $30,000,then on a graph the ________.

A)total revenue line and the total cost line will intersect at $31,000 of revenue
B)total cost line will be zero at zero units sold
C)revenue line will start at $30,000
D)total revenue line and the total cost line will intersect at $61,000 of revenue

Question 73

If the breakeven point is 1,300 units and each unit sells for $50,then ________.

A)selling 1,340 units will result in a loss
B)selling $85,000 will result in a loss
C)selling $65,000 will result in zero profit
D)selling $58,000 will result in profit

Question 74

Frazer Corp sells several products.Information of average revenue and costs is as follows:
$\begin{array}{ll}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 6.00 \\\text { Direct manufacturing labor } & \$ 1.45 \\\quad \text { Manufacturing overhead } & \$ 0.85 \\\quad \text { Selling costs } & \$ 2.50 \\\text { Annual fixed costs } & \$ 135,000\end{array}$
If the company decides to lower its selling price by 14.25%,but continues to sell 16,000 units,the operating income is reduced by ________.

A)$64,960
B)$135,000
C)$13,200
D)$16,000

Question 75

Ruben is a travel agent.He intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline for $140 each.The round-trip tickets will be sold for $230 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,500 in advertising costs.How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?

A)62 packages
B)667 packages
C)285 packages
D)728 packages

Question 76

Ruben is a travel agent.He intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline for $160 each.The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,200 in advertising costs.How many ticket packages will Ruben need to sell to break even?

A)26 packages
B)40 packages
C)130 packages
D)160 packages

Question 77

Burgandy Manufacturing produces a single product that sells for $80.Variable costs per unit equal $35.The company expects total fixed costs to be $90,000 for the next month at the projected sales level of 2,500 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.What is the current breakeven point in terms of number of units?

A)2,000 units
B)1,125 units
C)2,572 units
D)2,046 units

Question 78

Slickware sells porcelain cups.The breakeven point is 5,000 units.The variable cost per unit is $18 and the fixed costs are $20,000.What is the contribution margin at 5,000 units?

A)20,000
B)90,000
C)110,000
D)40,000

Question 79

Ruben intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline carrier for $170 each.The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,140 in advertising costs.For every $27,000 of ticket packages sold,operating income will increase by ________.

A)$4,050
B)$34,000
C)$22,950
D)$27,000

Question 80

Quality Stores,Inc. ,sells several products.Information of average revenue and costs is as follows:
$\begin{array}{ll}\text { Selling price per unit } & \$ 23 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 6 \\\text { Direct manufacturing labor } & \$ 1.90 \\\text { Manufacturing overhead } & \$ 0.40 \\\text { Selling costs } & \$ 2 \\\text { Annual fixed costs } & \$ 96,000\end{array}$
The revenues that the company must earn annually to make a profit of $144,000 are ________.(Round the final answer to the nearest dollar. )

A)$375,510
B)$365,563
C)$434,646
D)$324,706