Question 1

Honeysuckle Manufacturing has the following data:
$$\begin{array} { ll } 
\text { Selling Price } & \$ \quad 60 \
\text { Variable manufacturing cost } & \$ \quad 33 \
\text { Fixed manufacturing cost } & \$ 250,000 \text { per month } \
\text { Variable selling \& administrative costs } & \$ \quad 9 \
\text { Fixed selling \& administrative costs } & \$ 120,000 \text { per month }
\end{array}$$

-
If Honeysuckle has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month, what is the margin of safety in sales dollars?

Accepted Answer

A)   $100,000.
B)   $266,667.
C)   $50,000.
D)   $1,130,000.  B

Question 2

Which of the following would not cause the break-even point to change?

Accepted Answer

A)   Variable costs per unit increases.
B)   Fixed costs increases.
C)   Product mix shifts towards the more expensive products.
D)   Sales volume decreases. D

Question 3

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:

Accepted Answer

A)   Lower.
B)   Higher.
C)   Unchanged.
D)   Cannot determine with the information given. D

Question 4

Eastwick produces and sells three products. Last month's results are as follows:
$\begin{array}{llr}
  &\text { P1 } &\text { P2 } &\text { P3 } \
 \text { Revenues } &\$100,000&\$200,000&\$200,000\
 \text {Variable costs  } &40,000&140,000&80,000
\end{array}$
 
-
Fixed costs total $200,000. What is Eastwick's margin of safety? (Assume the current product mix.)

Accepted Answer

A)   $83,333.
B)   $40,000.
C)   $460,000.
D)   $115,385.

Question 5

If Q equals the level of output, P is the selling price per unit, V is the variable cost per unit, and F is the fixed cost, then the break-even point in units is:

Accepted Answer

A)   Q ÷ (P − V) .
B)   F ÷ (P − V) .
C)   V ÷ (P − V) .
D)   F ÷ [Q(P − V) ].

Question 6

Operating leverage refers to the extent to which an organization's cost structure is made up of:

Accepted Answer

A)   differential costs.
B)   opportunity costs.
C)   fixed costs.
D)   relevant costs.

Question 7

Blizzard Corporation's contribution margin ratio is 74% and its fixed monthly costs are $43,000. Assume that the company's sales for October are expected to be $102,000.
Required:
Estimate the company's operating profit for October, assuming that the fixed monthly costs do not change.

Accepted Answer

The answer of Blizzard Corporation's contribution margin ratio is 74%...

Question 8

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)?

Accepted Answer

A)   Sales price increases by 10%.
B)   Sales price decreases by 5%.
C)   Variable costs increase by 10% and fixed costs decrease by 5%.
D)   Variable costs decrease by 5% and fixed costs increase by 10%.

Question 9

The amount by which a company's sales can decline before losses are incurred is called the:

Accepted Answer

A)   contribution margin ratio.
B)   degree of operating leverage.
C)   margin of safety.
D)   profit loss.

Question 10

The average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500. If operating profits of $900 are desired, a sales volume of 2,500 units is necessary.

Accepted Answer

A) True 
 B)False

Question 11

At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?

Accepted Answer

A)   $0.50
B)   $1.00
C)   $1.50
D)   $2.00

Question 12

During 2020, Seth Britain Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Seth had fixed costs of $1,000,000 and a profit before income taxes of $200,000. Due to an adverse legal decision, Seth's 2021 liability insurance increased by $1,200,000 over 2020. Assuming the volume and other costs are unchanged, what should the 2021 price be if Seth is to make the same $200,000 profit before income taxes? (CPA adapted)

Accepted Answer

A)   $122.50.
B)   $135.00.
C)   $152.50.
D)   $240.00.

Question 13

You have been provided with the following information:
$\begin{array}{llr}
&  \text {Per  }\
 & \text { Unit } &  \text { Total }\
 \text {Sales  } &\$15&\$45,000\
 \text { Less variable expenses } &9&27,000\
 \text {  Contribution margin} &6&18,000\
 \text { Less fixed expenses } &&12,000\
 \text {Operating profit  } &&\$6,000\
\end{array}$

If unit sales decrease by 10%, how much will fixed costs have to be reduced by to maintain the current operating profit?

Accepted Answer

A)   $12,000.
B)   $4,500.
C)   $6,000.
D)   $1,800.

Question 14

You have been provided with the following information regarding the Closure Manufacturing Company:
 $\begin{array}{llr}
  \text {Sales price  } &\$50\
 \text { Variable manufacturing cost per unit } &24\
 \text {  Variable marketing cost per unit} &12\
 \text { Fixed manufacturing costs } &6\
 \text {  Fixed administrative costs} &3\
\end{array}$

This information is based on forecasted sales of 33,000 units.
Required:
(a) What is the expected operating profit for the upcoming year?
(b) What is the break-even point in dollars?
(c) How much in sales dollars is required to generate an operating profit of $275,000?

Accepted Answer

The answer of You have been provided with the following...

Question 15

Garrison Inc. produces and sells a single product whose contribution margin ratio is 66%. The company's monthly fixed cost is $667,920 and the company's monthly target profit is $72,600.
Required:
Determine the dollar sales to attain the company's target profit.

Accepted Answer

The answer of Garrison Inc. produces and sells a single...

Question 16

Opal Company manufactures a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,800. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded):

Accepted Answer

A)   1,486 units.
B)   3,467 units.
C)   1,040 units.
D)   2,600 units.

Question 17

Folsom Inc., which produces and sells a single product, has provided the following contribution format income statement for August:
 $$\begin{array} { l r } 
\text { Sales (4,600 units) } & \$ 105,800 \
\text { Variable costs } & 41,400 \
\text { Contribution margin } & 64,400 \
\text { Fixed costs } & 46,000 \
\text { Operating profit } & \$ 18,400
\end{array}$$ 
Required:
Redo the company's contribution format income statement assuming that the company sells 4,500 units.

Accepted Answer

The answer of Folsom Inc., which produces and sells a...

Question 18

You have been provided with the following information regarding the Fremont Manufacturing Company:
 $\begin{array}{llr}
  \text {Sales price  } &\$50\
 \text { Variable manufacturing cost per unit } &24\
 \text { Variable marketing cost per unit } &6\
 \text { Fixed manufacturing costs } &360,000\
 \text { Fixed administrative costs } &80,000\
\end{array}$
 
This information is based on forecasted sales of 33,000 units.
Required:
(a) What is the expected operating profit for the upcoming year?
(b) What is the break-even point in dollars?
(c) How much in sales dollars is required to generate an operating profit of $275,000?

Accepted Answer

The answer of You have been provided with the following...

Question 19

Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. 
-What is Market's break-even sales volume?

Accepted Answer

A)   $800,000.
B)   $1,000,000.
C)   $1,200,000.
D)   $2,000,000.

Question 20

The margin of safety percentage is computed as:

Accepted Answer

A)   Break-even sales ÷ Total sales.
B)   Total sales - Break-even sales.
C)   (Total sales - Break-even sales)  ÷ Break-even sales.
D)   (Total sales - Break-even sales)  ÷ Total sales.

Exam 3: Fundamentals of Cost-Volume-Profit Analysis

Which of the following would not cause the break-even point to change?

If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:

If Q equals the level of output, P is the selling price per unit, V is the variable cost per unit, and F is the fixed cost, then the break-even point in units is:

Operating leverage refers to the extent to which an organization's cost structure is made up of:

Blizzard Corporation's contribution margin ratio is 74% and its fixed monthly costs are $43,000. Assume that the company's sales for October are expected to be $102,000. Required: Estimate the company's operating profit for October, assuming that the fixed monthly costs do not change.

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars) ?

The amount by which a company's sales can decline before losses are incurred is called the:

The average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500. If operating profits of $900 are desired, a sales volume of 2,500 units is necessary.

At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?

Garrison Inc. produces and sells a single product whose contribution margin ratio is 66%. The company's monthly fixed cost is $667,920 and the company's monthly target profit is $72,600. Required: Determine the dollar sales to attain the company's target profit.

Opal Company manufactures a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed costs are $46,800. If Opal desires a monthly target operating profit equal to 15% of sales, sales will have to be (rounded) :

Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. -What is Market's break-even sales volume?

The margin of safety percentage is computed as: