Question 1

Cost-volume-profit analysis, or CVP, helps managers assess the impact of various business decisions on company profits.

Accepted Answer

A) True 
 B)False  True

Question 2

Use the information provided below to answer the following questions:  Required: 
a.How many units would the company need to sell to earn $4,000 in operating income?
b.How many units would the company need to sell to earn $4,000 in net income if the tax rate is 20%?
c.By how much would operating income change from part (b) with a 10% increase in units sold?

Accepted Answer

a.$10,000 ÷ $50 = 200 units; ($10,000 ̶ $6,000) ÷ 200 = $20 Unit CM; ($2,800 + $4,000) ÷ $20 = 340
b.$4,000 ÷ (1 ̶ .20) = $5,000 operating income; ($2,800 + $5,000) ÷ $20 = 390
c.($390 × ($50 ̶ $30)) ÷ ($390 × ($50 ̶ $30) ̶ $2,800) = 1.56 degree of operating leverage; 1.56 × .10 = 15.6%; $5,000 × 0.156 = $780

Question 3

If the sales mix changes, the breakeven point and target units will change as well.

Accepted Answer

A) True 
 B)False  True

Question 4

Assume a sales price per unit of $20, variable cost per unit $16, and total fixed costs of $168,000.What is the breakeven point in units?

Accepted Answer

A)  42,000 units
B)  10,500 units
C)  8,400 units
D)  4,666 units

Question 5

Mountain Spring Inc.wants to produce and sell a new brand of bottled water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected:  The target cost per bottle is

Accepted Answer

A)  $0.44.
B)  $0.60.
C)  $0.16.
D)  $0.40.

Question 6

Ron White Inc.plans to introduce a new product and is using the target cost approach.Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000.What is the desired profit per unit?

Accepted Answer

A)  $0.40
B)  $2.03
C)  $3.65
D)  $1.63

Question 7

Bumper earned net income of $72,000 and has fixed costs of $36,000.Bumper sold 11,000 units for $30 each and has a 40% contribution margin ratio.What were Bumper's operating income and tax rate?

Accepted Answer

A)  $96,000; 25%
B)  $120,000; 40%
C)  $270,000; 27%
D)  $162,000; 45%

Question 8

To adhere to the sales mix ratio, a company should split fixed costs between the multiple products and come up with individual product breakeven points or target income points.

Accepted Answer

A) True 
 B)False

Question 9

When a company sells more than one product, its sales mix is the sales of each product relative to operating income.

Accepted Answer

A) True 
 B)False

Question 10

At the breakeven point, the total contribution margin equals

Accepted Answer

A)  gross margin.
B)  variable costs.
C)  fixed costs.
D)  total costs.

Question 11

The breakeven graph illustrates the relationship between product and period costs, allowing managers to view a range of results at a single glance.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not included in the profit equation?

Accepted Answer

A)  Sales revenue
B)  Variable costs
C)  Cost of goods sold
D)  Fixed costs

Question 13

The formula for operating income is

Accepted Answer

A)  sales revenue - variable costs - fixed costs.
B)  sales revenue - variable costs - fixed costs - profit.
C)  sales revenue - contribution margin - variable costs.
D)  sales revenue - gross margin - fixed costs.

Question 14

Assume a company has a selling price of $20 and a unit cost of $15.What is the company's markup percentage?

Accepted Answer

A)  33.3%
B)  1.33%
C)  25%
D)  1.25%

Question 15

Which of the following is not a step in calculating the breakeven point?

Accepted Answer

A)  Put everything into "constant" form - sales price per unit, variable cost per unit, total fixed cost.
B)  Subtract fixed cost from sales revenue.
C)  Calculate the contribution margin per unit.
D)  Solve by dividing total fixed cost by contribution margin per unit.

Question 16

At the breakeven point, sales revenue is exactly equal to total costs, and there is no profit or loss.

Accepted Answer

A) True 
 B)False

Question 17

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20, variable cost is $8 and fixed costs total $40,000, what must her sales revenue be in order to reach her goal?

Accepted Answer

A)  $33,340
B)  $50,000
C)  $100,000
D)  $150,000

Question 18

Evergreen's most popular product sells for $33.00 and has a variable cost of $26.40.On Evergreen's income statement the cost of goods sold per unit is $24.42.What is Evergreen's markup percentage based on cost of goods and based on variable cost per unit?

Accepted Answer

A)  35%; 35%
B)  35%; 25%
C)  26%; 20%
D)  20%; 26%

Question 19

A company requires $1,360,000 in sales to meet its operating income target.Its contribution margin is 30%, and fixed costs are $240,000.What is the target operating income?

Accepted Answer

A)  $408,000
B)  $312,000
C)  $560,000
D)  $168,000

Question 20

The degree of operating leverage is calculated as the contribution margin divided by the sales revenue.

Accepted Answer

A) True 
 B)False

Exam 3: Costvolumeprofit Analysis and Pricing Decisions

Cost-volume-profit analysis, or CVP, helps managers assess the impact of various business decisions on company profits.

If the sales mix changes, the breakeven point and target units will change as well.

Assume a sales price per unit of $20, variable cost per unit $16, and total fixed costs of $168,000.What is the breakeven point in units?

Mountain Spring Inc.wants to produce and sell a new brand of bottled water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected: The target cost per bottle is

Ron White Inc.plans to introduce a new product and is using the target cost approach.Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000.What is the desired profit per unit?

Bumper earned net income of $72,000 and has fixed costs of $36,000.Bumper sold 11,000 units for $30 each and has a 40% contribution margin ratio.What were Bumper's operating income and tax rate?

To adhere to the sales mix ratio, a company should split fixed costs between the multiple products and come up with individual product breakeven points or target income points.

When a company sells more than one product, its sales mix is the sales of each product relative to operating income.

At the breakeven point, the total contribution margin equals

The breakeven graph illustrates the relationship between product and period costs, allowing managers to view a range of results at a single glance.

Which of the following is not included in the profit equation?

The formula for operating income is

Assume a company has a selling price of $20 and a unit cost of $15.What is the company's markup percentage?

Which of the following is not a step in calculating the breakeven point?

At the breakeven point, sales revenue is exactly equal to total costs, and there is no profit or loss.

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20, variable cost is $8 and fixed costs total $40,000, what must her sales revenue be in order to reach her goal?

Evergreen's most popular product sells for $33.00 and has a variable cost of $26.40.On Evergreen's income statement the cost of goods sold per unit is $24.42.What is Evergreen's markup percentage based on cost of goods and based on variable cost per unit?

A company requires $1,360,000 in sales to meet its operating income target.Its contribution margin is 30%, and fixed costs are $240,000.What is the target operating income?

The degree of operating leverage is calculated as the contribution margin divided by the sales revenue.