Question 1

Which of the following is an underlying assumption of CVP analysis?

Accepted Answer

A) Factors other than changes in activity may affect costs. 
B) Cost classifications are reasonably accurate. 
C) Increases in inventories cause increase in total fixed costs. 
D) Unit costs remain the same over the relevant range.

Question 2

Old Canadian Company has sales of $500,000, variable costs of $425,000, and fixed costs of $25,000.New World Company has sales of $500,000, variable costs of $200,000, and fixed costs of $250,000.New World's margin of safety ratio is

Accepted Answer

A) .17. 
B) .33. 
C) .67. 
D) .83.

Question 3

Organizer Company has fixed costs of $200,000 and variable costs are 60% of sales.How much will Organizer Company report as sales when its net income equals $20,000?

Accepted Answer

A) $550,000 
B) $366,667 
C) $520,000 
D) $132,000

Question 4

Hartley, Inc.has one product with a selling price per unit of $250, the unit variable cost is $150, and the total monthly fixed costs are $750,000.How much is Hartley's contribution margin ratio?

Accepted Answer

A) 40% 
B) 60% 
C) 66.7% 
D) 75%

Question 5

Stacker requires sales of $500,000 to cover its fixed costs of $100,000 and to earn net income of $80,000.What percent are variable costs of sales?

Accepted Answer

A) 36% 
B) 2.77% 
C) 20% 
D) 64%

Question 6

Which one of the following is true of the CVP income statement?

Accepted Answer

A) It is part of accounting information provided to all financial statement users. 
B) It is used internally by management. 
C) It provides the amount of gross profit of a company. 
D) It separates manufacturing from non-manufacturing costs.

Question 7

Which one of the following is a consideration of CVP analysis?

Accepted Answer

A) The level of activity must remain constant over the relevant range. 
B) Total fixed costs remain constant over the relevant range. 
C) Total variable costs remain constant over the relevant range. 
D) Cost behaviour can change as long as total costs remain the same at all activity levels.

Question 8

Use the following information for items 
Ed Green Corporation has two divisions; Outdoor Sports and Indoor Sports.The sales mix is 60% for Outdoor Sports and 40% for Indoor Sports.Green incurs $2,420,000 in fixed costs.The contribution margin ratio for the Outdoor Sports Division is 40%, while for the Indoor Sports Division it is 50%.
-What will sales be for the Outdoor Sports Division at the break-even point?

Accepted Answer

A) $2,200,000 
B) $2,750,000 
C) $2,921,739 
D) $3,300,000

Question 9

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 1,000 drives were sold.Fixed costs for April were $4.20 per unit for a total of $4,200 for the month.If variable costs decrease by 10%, what happens to the break-even level of units per month for Sutton Company?

Accepted Answer

A) It is 10% higher than the original break-even point. 
B) It decreases about 12 units. 
C) It decreases about 30 units. 
D) It depends on the number of units the company expects to produce and sell.

Question 10

In CVP analysis,

Accepted Answer

A) an assumption that all costs can be classified as either variable or fixed. 
B) the term 'cost' includes only manufacturing costs. 
C) one assumption is that costs must be classified as either fixed, mixed, or variable. 
D) an assumption is that when one more than one type of product is sold, the sales mix will vary.

Question 11

Needles, Inc.was evaluating its margin of safety.Which one of the following is true?

Accepted Answer

A) The break-even point is not relevant. 
B) The higher the ratio, the greater the margin of safety. 
C) The higher the dollar amount, the lower the margin of safety. 
D) The higher the ratio, the lower the fixed costs.

Question 12

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 1,000 drives were sold.Fixed costs for April were $2 per unit for a total of $2,000 for the month.How much is the contribution margin ratio?

Accepted Answer

A) 30% 
B) 40% 
C) 60% 
D) 70%

Question 13

Which of the following is the correct formula for the contribution margin per unit?

Accepted Answer

A) sales - total variable cost 
B) unit selling price ÷ unit variable cost 
C) (unit selling price - unit variable cost)÷ unit selling price 
D) unit selling price - unit variable cost

Question 14

Sales are $60,000 and variable costs are $45,000.How much is the contribution margin ratio?

Accepted Answer

A) 75% 
B) 50% 
C) 25% 
D) Cannot be determined without more information.

Question 15

Use the following information for items 
Brad Sherwood Corporation sells two types of computers; one is designed for audio applications and the other for video applications.Sherwood incurs $300,125 in fixed costs.
 $\text { Per-unit data on the two products is presented blow: }$
$\begin{array}{llcc}
  \underline{\text { Unit data } } &\underline{\text { Audio computer } }&\underline{ \text { Video computer }}\
 \text {Selling price  } &\$1,500&\$1,750\
 \text {  Variable costs  } &\underline{1,100}&\underline{1,200}\
 \text { Contribution margin }& \underline{\$400}&\underline{\$550}\
 \text { Salses mix } &75\%&25\%\

\end{array}$

-What will be the total contribution margin at the break-even point?

Accepted Answer

A) $225,000 
B) $276,000 
C) $300,125 
D) $372,250

Question 16

Wardley Corporation sells its product for $40.The variable costs are $18 per unit.Fixed costs are $16,000.The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs.Which of the following is true about the break-even point in units?

Accepted Answer

A) It will remain unchanged. 
B) It will decrease. 
C) It will increase. 
D) It cannot be determined from the information provided.

Question 17

Fallow-Hawke is a non-profit organization that captures stray deer from residential communities.Fixed costs are $10,000.The variable cost of capturing deer is $10.00 each.Fallow-Hawke is funded by local philanthropy in the amount of $32,000 for 2020.How many deer can Fallow-Hawke capture during 2020?

Accepted Answer

A) 2,200 
B) 3,200 
C) 4,200 
D) 2,000

Question 18

What does the margin of safety measure?

Accepted Answer

A) how far prices can be changed before the CVP analysis is no longer valid 
B) how much sales can drop before the firm has an operating loss 
C) how far fixed costs can drop before the firm has an operating loss 
D) how far variable costs can rise before the firm has an operating loss

Exam 6: Cost-Volume-Profit