Deck 20: Cost-Volume-Profit Analysis

Question 1

Variable costs are usually transformed into fixed costs when a business operates at less than full capacity.

Answer 1

False

Question 2

With variable costs, the cost per unit varies with changes in volume.

Answer 2

False

Question 3

As volume increases, per unit variable costs stay the same.

Answer 3

True

Question 4

Contribution margin is total revenue less variable costs.

Question 5

The higher the unit contribution margin, the higher the volume of unit sales required to cover a given amount of fixed costs.

Question 6

The contribution margin is the difference between total revenue and fixed costs.

Question 7

When cost-volume-profit analysis is used, the need for a cost accounting system is eliminated.

Question 8

Margin of safety is the dollar amount by which actual sales volume exceeds the break-even sales volume.

Question 9

The range over which output may be expected to vary is called the relevant range.

Question 10

Executive salaries are typically considered variable costs.

Question 11

In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number of units produced.

Question 12

As volume increases, per unit fixed costs stay the same.

Question 13

With fixed costs, the cost per unit varies with changes in volume.

Question 14

In cost-volume-profit analysis, the volume index is always stated in units.

Question 15

One characteristic common to all types of costs is the tendency to rise and fall in direct proportion to changes in the volume of business output.

Question 16

The volume of output which causes fixed costs to be equal in amount to total revenue is called the break-even point.

Question 17

Costs which increase in total amount in direct proportion to an increase in output are called variable costs.

Question 18

In a cost-volume-profit graph, the dollar amount by which actual sales exceed break-even sales volume is called the margin of safety. The margin of safety sales volume times the contribution margin ratio equals operating income.

Question 19

Any business which operates at less than capacity will have smaller fixed costs than variable costs.

Question 20

Economies of scale can be achieved by using facilities more intensively.

Question 21

The break-even point in a cost-volume-profit graph is always found:

A) At 50% of full capacity.
B) At the sales volume resulting in the lowest average unit cost.
C) At the volume at which total revenue equals total variable costs.
D) At the volume at which total revenue equals total fixed costs plus total variable costs.

Question 22

Cost-volume-profit analysis is often complex when applied to a company with different products.

Question 23

A semi-variable cost:

A) Increases and decreases directly and proportionately with changes in volume.
B) Changes in response to a change in volume, but not proportionately.
C) Increases if volume increases, but remains constant if volume decreases.
D) Changes inversely in response to a change in volume.

Question 24

Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.

Question 25

The break-even point is the level of activity at which operating income is equal to cost of goods sold.

Question 26

Which of the following is an example of a fixed cost for an airline?

A) Depreciation on the corporate headquarters.
B) Fuel costs.
C) Income taxes expense.
D) Passengers' meals.

Question 27

All other things held constant, how will an increase in selling price affect the break-even point measured in units?

A) The break-even point will decrease.
B) The break-even point will increase.
C) The break-even point will remain constant.
D) The effect on the break-even point can't be predicted with certainty.

Question 28

A company's relevant range of production is:

A) The production range from zero to 100% of plant capacity.
B) The production range over which CVP assumptions are valid.
C) The production range beyond the break-even point.
D) The production range that covers fixed but not variable costs.

Question 29

In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to:

A) Covering the fixed costs of the business and providing operating income.
B) Fixed expenses and variable expenses.
C) Variable expenses and interest charges.
D) Variable expenses when production is at normal capacity.

Question 30

Operating income can be calculated by:

A) Dividing fixed costs by the contribution margin ratio.
B) Multiplying fixed costs by the contribution margin ratio.
C) Multiplying the margin of safety by the contribution margin ratio.
D) Dividing the margin of safety by the contribution margin ratio.

Question 31

The margin of safety is calculated by:

A) Dividing fixed costs plus target income by the contribution margin.
B) Subtracting break-even income from current income.
C) Subtracting break-even sales from current sales.
D) Subtracting fixed costs from current contribution margin.

Question 32

Sales of products with high contribution margins often are described as quantity sales.

Question 33

The contribution ratio is computed as:

A) Sales minus variable costs, divided by sales.
B) Fixed costs plus variable costs, divided by sales.
C) Sales minus fixed costs, divided by sales.
D) Sales divided by variable costs.

Question 34

The high-low method is the only method to be used when determining semivariable costs.

Question 35

In cost-volume-profit analysis, income tax expense:

A) Is included among the monthly operating expenses as a variable cost.
B) Is considered a fixed cost of doing business.
C) Is treated as a semi-variable cost that is partially dependent upon sales volume.
D) Is generally ignored.

Question 36

In order to calculate break-even sales units, fixed costs are divided by the:

A) Contribution margin per unit.
B) Contribution margin percentage.
C) Target operating income.
D) Sales volume.

Question 37

The contribution margin is the amount by which revenue exceeds variable costs.

Question 38

When volume increases, fixed costs per unit:

A) Increase.
B) Decrease.
C) Stay the same.
D) Increase or decrease, depending upon the situation.

Question 39

How will a company's contribution margin be affected by an investment in equipment that increases fixed costs in order to achieve a reduction in direct labor cost?

A) Contribution margin will increase.
B) Contribution margin will fall.
C) Contribution margin will either increase or decrease depending on the relative magnitudes of the changes in fixed and variable costs.
D) Contribution margin will remain the same.

Question 40

In comparison to selling a product with a low contribution margin ratio, selling a product with a high contribution margin ratio always:

A) Requires less dollar sales volume to cover a given level of fixed costs.
B) Results in a greater margin of safety.
C) Results in higher operating income.
D) Results in a higher contribution margin per unit sold.

Question 41

Olsen's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.

A) $177,500.
B) $187,500.
C) $197,500.
D) $198,000.

Question 42

Using the high-low method, compute the variable element of manufacturing overhead cost per machine hour.

A) $0.87 per machine hour.
B) $1.50 per machine hour.
C) $1.40 per machine hour.
D) $2.10 per machine hour.

Question 43

A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the selling price can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $300,000?

A) 5,595 units.
B) 7,667 units.
C) 1,278 units.
D) 6,389 units.

Question 44

In June, Duke & Duchess expects to manufacture 18,000 units. Using the high-low method, compute the total estimated manufacturing overhead for June.

A) $65,278.
B) $61,668.
C) $63,948.
D) $18,360.

Question 45

If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $26,000 what is the contribution ratio per unit?

A) 40%.
B) 50%.
C) 60%.
D) 70%.

Question 46

The dollar amount by which sales can decline before an operating loss is incurred is called the:

A) Contribution margin.
B) Contribution margin ratio.
C) Margin of safety.
D) Relevant range.

Question 47

The contribution margin ratio may be expressed as:

A) A percentage of revenue.
B) A total dollar amount for the period.
C) A contribution margin per unit.
D) Total contribution margin amount.

Question 48

A fixed cost may include all of the following except:

A) Rent for the warehouse.
B) Annual salary of the CEO.
C) Depreciation.
D) Sales commission expense.

Question 49

Using the high-low method, compute the fixed element of Olsen's monthly overhead cost.

A) $33,000.
B) $35,000.
C) $37,500.
D) $40,000.

Question 50

A 45% contribution margin ratio means that:

A) The company should contribute 45% of its operating income to qualified charities for maximum tax benefits.
B) 55% of the company's revenue is consumed by fixed and variable costs.
C) The company's revenue has increased by 45% during the current accounting period.
D) 45% of the company's revenue is available to cover fixed costs and to contribute toward operating income.

Question 51

Using the high-low method, compute the variable element of manufacturing overhead per unit of production.

A) $0.83.
B) $1.02.
C) $0.95.
D) $0.08.

Question 52

If unit sales prices are $7 and variable costs are $5 per unit, how many units would have to be sold to break-even if fixed costs equal $8,000?

A) 2,000.
B) 3,000.
C) 4,000.
D) 3,800.

Question 53

If a product sells for $8, variable costs are $6 and fixed costs are $150,000, what would total sales have to be in order to break-even?

A) $390,000.
B) $399,999.
C) $600,000.
D) $699,999.

Question 54

Using the high-low method, Duke & Duchess's monthly overhead cost is closest to which of the following?

A) $59,413.
B) $12,495.
C) $12,250.
D) $46,918.

Question 55

If the unit sales price is $7 and variable costs are $3, how many units have to be sold to earn a profit of $3,600 if fixed costs equal $5,000?

A) 900.
B) 1,250.
C) 1,500.
D) 2,150.

Question 56

If the unit sales price is $14, variable costs are $7 per unit and fixed costs are $42,000, how many units must be sold to earn an income of $250,000?

A) 52,142.
B) 41,715.
C) 34,762.
D) 29,796.

Question 57

Variable costs would include:

A) Rent expense.
B) Depreciation expense.
C) Sales commission expense.
D) Executive salaries expense.

Question 58

A company's most profitable products are often those which:

A) Have the highest contribution margin ratios and the highest sales volumes.
B) Have the highest contribution margin ratios and the lowest sales volumes.
C) Have the lowest contribution margin ratios and the highest sales volumes.
D) Have the lowest contribution margin ratios and the lowest sales volumes.

Question 59

Fixed costs:

A) Fall as sales volume falls.
B) Rise as sales volume rises.
C) Rise as sales volume falls.
D) Remain steady when sales volume changes.

Question 60

If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $36,000 what are the sales in dollars necessary to break-even?

A) $90,000.
B) $72,000.
C) $70,000.
D) $60,000.

Question 61

At the current selling price of $170 per unit, the contribution margin ratio is:

A) 23.5%.
B) 76%.
C) 34%.
D) 21%.

Question 62

Management expects total sales of $40 million, a margin of safety of $10 million, and a contribution margin ratio of 45%. Which of the following estimated amounts is not consistent with this information?

A) Variable costs, $22 million.
B) Fixed costs, $13.5 million.
C) Operating income, $6 million.
D) Break-even sales volume, $30 million.

Question 63

The contribution margin per unit for product no. CK74 is:

A) $26.
B) $80.19.
C) $117.
D) $63.

Question 64

At the current selling price of $70 per unit, the contribution margin ratio is:

A) 60%.
B) 40%.
C) 67%.
D) 120%.

Question 65

The number of units of CK74 that Ruby must sell to break- even is (rounded, if necessary):

A) 30,000.
B) 20,500.
C) 8,200.
D) 12,300.

Question 66

Millar Company produces a single product which it sells for $89 a unit. If the fixed costs of manufacturing and selling the product are $68,400 a month and the variable costs are $57 a unit, which of the below are correct?

A) The fixed costs amount to $32 per unit at any level of output within a relevant volume range.
B) The company will break even with a sales volume of $68,400 a month.
C) An increase in sales volume above $68,400 a month will cause an increase in fixed costs.
D) The contribution margin per unit of product is $32.

Question 67

A company with monthly fixed costs of $170,000 expects to earn monthly operating income of $25,000 by selling 6,500 units per month. What is the company's expected unit contribution margin?

A) $30.
B) $28.
C) $2.
D) The information given is insufficient to determine unit contribution margin.

Question 68

The dollar sales volume necessary to produce operating income of $245,000 is closest to:

A) $2,052,228.
B) $4,124,000.
C) $2,465,842.
D) $3,078,343.

Question 69

At the current selling price of $70 per unit, what dollar volume of sales per month is required for Accents to earn a monthly operating income of $15,000?

A) $25,000.
B) $30,000.
C) $45,000.
D) Some other amount.

Question 70

At the reduced selling price of $65 per unit, what dollar volume of sales per month is required to break-even? (Rounded)

A) $27,842.
B) $22,727.
C) $21,090.
D) $28,427.

Question 71

If the monthly sales volume required to break even is $190,000 and monthly fixed costs are $55,900, the contribution margin ratio is:

A) 29%.
B) 71%.
C) 42.9%.
D) 333.33%.

Question 72

Product X sells for $35 per unit and has related variable costs of $25 per unit. The fixed costs of producing product X are $65,000 per month. How many units of product X must be sold each month to earn a monthly operating income of $85,000?

A) 2,833.
B) 6,000.
C) 15,000.
D) 10,000.

Question 73

On the basis of the above data, the cost formula for Onyx's monthly manufacturing overhead can be expressed as:

A) $18.00 average cost per direct labor hour.
B) $1.80 average cost per direct labor hour.
C) $26,000 fixed cost plus $1.50 per direct labor hour.
D) $18,000 fixed cost plus $2.00 per direct labor hour.

Question 74

A company with monthly revenue of $120,000, variable costs of $50,000, and fixed costs of $40,000 has a contribution margin of:

A) $120,000.
B) $80,000.
C) $70,000.
D) $35,000.

Question 75

The following information is available: What is the operating income?

A) $0.
B) $50,000.
C) $8,000.
D) $10,400.

Question 76

At the current selling price of $70 per unit, the dollar volume of sales per month necessary for Accents to break-even is:

A) $12,000.
B) $20,000.
C) $30,000.
D) Some other amount.

Question 77

If monthly fixed costs are $21,000 and the contribution margin ratio is 42%, the monthly sales volume required to break even is:

A) $8,820.
B) $50,000.
C) $78,000.
D) $39,207.

Question 78

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of:

A) $40,320.
B) $128,571.
C) $163,636.
D) It is not possible to determine the margin of safety from the information provided.

Question 79

At the reduced selling price of $65 per unit, the contribution margin ratio is (rounded, if necessary):

A) 43.1%.
B) 56.9%.
C) 52.8%.
D) Some other percentage.

Question 80

In a month in which 6,500 direct labor hours are worked, Onyx's manufacturing overhead should be approximately:

A) $18,000.
B) $28,000.
C) $31,000.
D) $35,000.