Deck 20: Cost-Volume-Profit Analysis

Question 1

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

Answer 1

False

Question 2

The margin of safety sales volume times the contribution margin ratio equals operating income.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Contribution margin is total revenue less variable costs.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

Executive salaries are typically considered variable costs.

Question 10

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

Question 11

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 12

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

Question 13

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

Question 14

As volume increases,total fixed costs remain the same.

Question 15

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

Question 16

As volume increases,per unit variable costs will decrease on a per-unit basis and stay the same in total.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

Variable costs would include:

A)Insurance expense.
B)Amortization expense.
C)Sales commission expense.
D)Executive salaries expense.

Question 23

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 24

A semivariable 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 25

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

Question 26

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

Question 27

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 per unit
B)$26 per unit
C)$22 per unit
D)The information given is insufficient to determine unit contribution margin.

Question 28

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 semivariable cost that is partially dependent upon sales volume.
D)Is generally ignored.

Question 29

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 30

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 31

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

Question 32

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

Question 33

When volume increases,fixed cost per unit:

A)Increases.
B)Decreases.
C)Stays the same.
D)Increases or decreases,depending upon the situation.

Question 34

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 35

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 36

The contribution margin ratio is 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 37

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 38

Within the relevant range,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 39

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)$90,000.
B)$80,000.
C)$70,000.
D)$30,000.

Question 40

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 41

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 42

[The following information applies to the questions displayed below.]
The following data are available for product no.CK74,manufactured and sold by Ruby Corporation:

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

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

Question 43

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 44

How many units must be sold each month to earn a monthly operating income of $8,000? (Round your final answer up to the nearest whole number. )

A)971 units
B)1,442 units
C)122,500 units
D)353 units

Question 45

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 units
B)3,000 units
C)4,000 units
D)3,800 units

Question 46

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 units
B)1,250 units
C)1,500 units
D)2,150 units

Question 47

The contribution margin 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 48

[The following information applies to the questions displayed below.]
Mitchell Corporation manufactures a single product.The selling price is $85 per unit,and variable costs amount to $68 per unit.The fixed costs are $16,500 per month.
What is the contribution margin ratio of Mitchell 's product?

A)65%
B)80%
C)72%
D)20%

Question 49

The dollar sales volume necessary to produce operating income of $245,000 is closest to: (Round the answer to the nearest whole number. )

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

Question 50

What will be Mitchell's monthly operating income if 1,800 units are sold each month?

A)$136,500
B)$70,500
C)$30,600
D)$14,100

Question 51

Millar Company produces a single product that 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 is 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 52

What will be the monthly margin of safety (in dollars)if 1,800 units are sold each month?

A)$82,500
B)$70,500
C)$12,000
D)$16,500

Question 53

[The following information applies to the questions displayed below.]
The following data are available for product no.CK74,manufactured and sold by Ruby Corporation:

The number of units of CK74 that Ruby must sell to break- even is:

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

Question 54

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? (Round the answer up to the next whole number. )

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

Question 55

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

A)29%.
B)71%.
C)23%.
D)340%.

Question 56

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 57

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

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

Question 58

[The following information applies to the questions displayed below.]
Mitchell Corporation manufactures a single product.The selling price is $85 per unit,and variable costs amount to $68 per unit.The fixed costs are $16,500 per month.
What is the monthly sales volume in dollars necessary to break-even?

A)$82,500
B)$66,500
C)$97,059
D)$77,500

Question 59

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 60

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

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

Question 61

[The following information applies to the questions displayed below.]
Grand Gimmicks Company produces a single product with a current selling price of $170.Variable costs are $130 per unit,and fixed costs per month average $6,240.Management is considering increasing the selling price to $190 per unit.Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the current selling price of $170 per unit,closest to what dollar volume of sales per month is required for Grand Gimmicks to break-even? (Round the intermediate percentage to one decimal place,and round the answer up to the next whole unit. )

A)$6,178
B)$8,299
C)$26,554
D)$20,800

Question 62

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 63

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

A)Cover 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 64

[The following information applies to the questions displayed below.]
Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
At the reduced selling price of $65 per unit,the contribution margin ratio is: (Round the answer to one decimal place. )

A)43.1%.
B)56.9%.
C)52.8%.
D)60.0%.

Question 65

[The following information applies to the questions displayed below.]
Grand Gimmicks Company produces a single product with a current selling price of $170.Variable costs are $130 per unit,and fixed costs per month average $6,240.Management is considering increasing the selling price to $190 per unit.Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the proposed increased selling price of $190 per unit,closest to what dollar volume of sales per month is required to break-even? (Round your intermediate percentage to one decimal place. )

A)$19,747
B)$10,400
C)$9,123
D)$18,480

Question 66

[The following information applies to the questions displayed below.]
Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
At the reduced selling price of $65 per unit,what dollar volume of sales per month is required to break-even? (Round your intermediate percentage to one decimal place and final answer to nearest whole dollar. )

A)$27,842
B)$22,727
C)$21,090
D)$29,540

Question 67

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 units
B)6,000 units
C)15,000 units
D)10,000 units

Question 68

[The following information applies to the questions displayed below.]
Sultan Company produces a single product.The selling price is $50 per unit,and variable costs amount to $20 per unit.Sultan's fixed costs per month total $80,000.
What is the contribution margin ratio of Sultan 's product?

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

Question 69

[The following information applies to the questions displayed below.]
Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
At the current selling price of $70 per unit,the contribution margin ratio is:

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

Question 70

[The following information applies to the questions displayed below.]
Grand Gimmicks Company produces a single product with a current selling price of $170.Variable costs are $130 per unit,and fixed costs per month average $6,240.Management is considering increasing the selling price to $190 per unit.Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the proposed increased selling price of $190 per unit,the contribution margin ratio is closest to:

A)60.2%.
B)31.6%.
C)68.4%.
D)50.8%.

Question 71

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 72

[The following information applies to the questions displayed below.]
Grand Gimmicks Company produces a single product with a current selling price of $170.Variable costs are $130 per unit,and fixed costs per month average $6,240.Management is considering increasing the selling price to $190 per unit.Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the current selling price of $170 per unit,closest to what dollar volume of sales per month is necessary for Grand Gimmicks to generate monthly operating income of $12,000? (Round the intermediate percentage to one decimal place. )

A)$24,162
B)$51,063
C)$58,838
D)$77,617

Question 73

[The following information applies to the questions displayed below.]
Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
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 74

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 75

[The following information applies to the questions displayed below.]
Sultan Company produces a single product.The selling price is $50 per unit,and variable costs amount to $20 per unit.Sultan's fixed costs per month total $80,000.
What is the monthly sales volume in dollars necessary to break-even? (Round the answer to the nearest dollar. )

A)$320,000
B)$106,667
C)$200,000
D)$133,333

Question 76

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

A)$40,000
B)$50,000
C)$8,000
D)$10,400

Question 77

[The following information applies to the questions displayed below.]
Grand Gimmicks Company produces a single product with a current selling price of $170.Variable costs are $130 per unit,and fixed costs per month average $6,240.Management is considering increasing the selling price to $190 per unit.Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the current selling price of $170 per unit,the contribution margin ratio is approximately:

A)23.5%.
B)76.4%.
C)34.7%.
D)21.3%.

Question 78

[The following information applies to the questions displayed below.]
Accents Associates sells only one product,with a current selling price of $70 per unit.Variable costs are 40% of this selling price,and fixed costs are $12,000 per month.Management has decided to reduce the selling price to $65 per unit in an effort to increase sales.Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
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 79

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 80

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of: (Round the answer to the nearest whole number. )

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