Question 1

Projected Profit
A company can determine its projected profit by using the following equation:
profit = total income - (total fixed costs + total variable costs)
Based on market research, CSO Corporation feels its product will sell for $200 / unit. At that price, CSO can sell 150 units per month. Currently, CSO incurs the following costs on a per unit basis: direct material, $10; direct labour, $60; variable overhead, $20. Its total fixed costs per month are $3 300.

Accepted Answer

(a) $3300 / ($200 - ($10 + $60 + $20)) = $3300 / $110 = 30 units
(b) ($3300 / 600) + $10 + $60 + $20 = $95.50

Question 2

A break-even point occurs when:

Accepted Answer

A)   variable costs equal fixed costs.
B)   sales revenue equals the total of variable and fixed costs of production.
C)   assets equal liabilities.
D)   contribution margin equals all variable costs. B

Question 3

If the break-even point is 300 units and the contribution margin is $30 per unit, then every unit sold above 300 will contribute $30 to profit.

Accepted Answer

A) True 
 B)False  True

Question 4

To calculate the break-even point, that is, where neither a profit nor a loss is made, the formula
Sx = VCx + FC + P can be used, but only if P is equal to zero.

Accepted Answer

A) True 
 B)False

Question 5

Sweet Things, Inc. had the following results for the year ended 31 December. Volume was 60 000 units this year.  What is Sweet Things, Inc.'s break-even sales volume in dollars?

Accepted Answer

A)   $80 000
B)   $90 000
C)   $100 000
D)   $120 000

Question 6

If a company's sales price for its product is $40, its variable cost percentage is 30%, its sales are $200 000, and its fixed costs are $100 000, what will be its contribution margin per unit?

Accepted Answer

A)   $10
B)   $12
C)   $28
D)   $30

Question 7

Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45 000. What is Able's break-even point?

Accepted Answer

A)   900 units
B)   1286 units
C)   3000 units
D)   6000 units

Question 8

Winter Sales, Inc. sells many kinds of winter sports equipment, primarily through telemarketing. Its sales staff are paid 15% of all sales dollars generated. In order to decrease the uncertainty of this arrangement for its staff and increase loyalty, the company is considering a change in the method of payment. The company would like to pay its 100 employees $1000 per month plus 10% of sales. Using cost-volume-profit analysis, what volume of sales dollars does the company need to exceed per month to make this new method more profitable for the company than the old method?

Accepted Answer

A)   $100 000
B)   $1 000 000
C)   $2 000 000
D)   Answer cannot be determined from the information given.

Question 9

On a break-even graph, the break-even point is the point on the graph where the:

Accepted Answer

A)   revenue line crosses the fixed-cost line.
B)   revenue line crosses the line that represents fixed costs plus variable costs.
C)   revenue line crosses the contribution margin line.
D)   total cost line crosses the contribution margin line.

Question 10

Discuss the concept of the 'relevant range' as it applies to cost-volume-profit analysis.

Accepted Answer

The answer of Discuss the concept of the 'relevant range'...

Question 11

Breakeven point analysis is one of the most common uses of cost-volume-profit analysis. What is the breakeven point and why is it useful for managers to know what it is for their company?

Accepted Answer

The answer of Breakeven point analysis is one of the...

Question 12

A firm sells a product for $250. Variable costs are $100 per unit and total fixed costs are $120 000. The break-even point will be 800 units.

Accepted Answer

A) True 
 B)False

Question 13

Cost-volume-profit (CVP) analysis is a technique that examines the interrelationship between cost, volume and profit at constant activity levels.

Accepted Answer

A) True 
 B)False

Question 14

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. What is the break-even point for Heath Ltd?

Accepted Answer

A)   1290 garments
B)   1602 garments
C)   2064 garments
D)   3000 garments

Question 15

If fixed costs for a company are $65 000 and variable costs are 20% of sales, what do total sales need to be to achieve a target net profit of $35 000?

Accepted Answer

A)   $80 000
B)   $100 000
C)   $125 000
D)   $500 000

Question 16

All of the following are assumptions made in cost-volume-profit analysis except:

Accepted Answer

A)   the cost of materials can change at different levels of volume.
B)   fixed costs are constant over the volume of production being considered.
C)   mixed costs can be separated into their variable and fixed components.
D)   the various components of unit variable cost remain constant during the period of analysis.

Question 17

The contribution margin ratio is equal to the contribution margin divided by sales, and shows the proportion of each sales dollar available to cover fixed costs and contribute to profit.

Accepted Answer

A) True 
 B)False

Question 18

Extra Extra Newspaper Company had the following results in this year.  What is Extra Extra's breakeven sales in units?

Accepted Answer

A)   15 000 units
B)   16 150 units
C)   20 000 units
D)   30 000 units

Question 19

A company has net profit of $10 000, sales price per unit of $25 and fixed costs of $40 000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?

Accepted Answer

A)   20%
B)   10%
C)   12.5%
D)   Answer cannot be determined from the information given

Question 20

Which of the following situations would be most likely to violate cost-volume-profit assumptions about variable costs?

Accepted Answer

A)   As volume doubles, direct labour costs also double.
B)   As volume decreases, per-unit material costs remain constant.
C)   The company's raw material supplier typically allows volume discounts when larger amounts of the raw material are purchased.
D)   Fixed costs per unit decrease as volume increases.

Exam 16: Cost-Volume-Profit Analysis

A break-even point occurs when:

If the break-even point is 300 units and the contribution margin is $30 per unit, then every unit sold above 300 will contribute $30 to profit.

To calculate the break-even point, that is, where neither a profit nor a loss is made, the formula Sx = VCx + FC + P can be used, but only if P is equal to zero.

Sweet Things, Inc. had the following results for the year ended 31 December. Volume was 60 000 units this year. What is Sweet Things, Inc.'s break-even sales volume in dollars?

If a company's sales price for its product is $40, its variable cost percentage is 30%, its sales are $200 000, and its fixed costs are $100 000, what will be its contribution margin per unit?

Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45 000. What is Able's break-even point?

On a break-even graph, the break-even point is the point on the graph where the:

Discuss the concept of the 'relevant range' as it applies to cost-volume-profit analysis.

Breakeven point analysis is one of the most common uses of cost-volume-profit analysis. What is the breakeven point and why is it useful for managers to know what it is for their company?

A firm sells a product for $250. Variable costs are $100 per unit and total fixed costs are $120 000. The break-even point will be 800 units.

Cost-volume-profit (CVP) analysis is a technique that examines the interrelationship between cost, volume and profit at constant activity levels.

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. What is the break-even point for Heath Ltd?

If fixed costs for a company are $65 000 and variable costs are 20% of sales, what do total sales need to be to achieve a target net profit of $35 000?

All of the following are assumptions made in cost-volume-profit analysis except:

The contribution margin ratio is equal to the contribution margin divided by sales, and shows the proportion of each sales dollar available to cover fixed costs and contribute to profit.

Extra Extra Newspaper Company had the following results in this year. What is Extra Extra's breakeven sales in units?

A company has net profit of $10 000, sales price per unit of $25 and fixed costs of $40 000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?

Which of the following situations would be most likely to violate cost-volume-profit assumptions about variable costs?