Question 1

The income statement for Thompson Manufacturing Company is as follows: $\begin{array}{lr}
\text { Sales }(10,000 \text { units) } & \$ 150,000 \
\text { Variable expenses } & 102,000 \
 \text { Contribution margin } & \$ 48,000 \
\text { Fixed expenses } & 36,000 \
\text { Operating income } & \$ 12,000
\end{array}$ What is the contribution margin per unit?

Accepted Answer

A)   $1.20
B)   $4.80
C)   $7.20
D)   $120,000.00  B

Question 2

Information for Select Team Inc.is as follows: $\begin{array}{ll}
\text { Sales } & \$ 700,000 \
\text { Variable costs } & \$ 100,000 \
\text { Fixed costs } & \$ 200,000
\end{array}$ 
A. $\quad$What is the break-even point in sales doll ars?
B. $\quad$What sales (in dollars) are needed to generate an operating income of $\$ 100,000$ ?

Accepted Answer

A.	($700,000 − $100,000)/$700,000 = 85.7% (rounded)
 	$200,000/85.7% = $233,372 (rounded)
 	 
B.	($700,000 − $100,000)/$700,000 = 85.7% (rounded)
 	($200,000 + $100,000)/0.857 = $350,058 (rounded)

Question 3

Match each item with the correct statement below.
-The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume

Accepted Answer

A)  Break-even point
B)  Common fixed expenses
C)  Contribution margin
D)  Direct fixed expenses
E)  Margin of safetyF) Operating leverageG) Degree of operating leverageH) Sales mix E

Question 4

The absorption income statement provides a good check to determine if the sale of a certain number of units really results in operating income of the given amount.

Accepted Answer

A) True 
 B)False

Question 5

What is the equation to calculate contribution margin?

Accepted Answer

A)   contribution margin = sales revenue × variable cost ratio
B)   contribution margin ratio = contribution margin / variable costs
C)   contribution margin = fixed costs
D)   contribution margin ratio = 1 − variable cost ratio

Question 6

$\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the variable product expense per unit?

Accepted Answer

A)   $1.30
B)   $3.60
C)   $4.00
D)   $4.60

Question 7

In the equation to determine the number of units that must be sold to earn a target income,targeted income is added to fixed expense in the numerator.

Accepted Answer

A) True 
 B)False

Question 8

The cost-volume-profit graph depicts the relationships among cost,volume,and profits by plotting the total revenue line and the total cost line on the graph.

Accepted Answer

A) True 
 B)False

Question 9

Which is characteristic of operating leverage?

Accepted Answer

A)   concerned with the relative mix of contribution margin and margin of safety
B)   the use of fixed costs to extract higher percentage changes in profits as sales activity changes
C)   likely to be lower in an automated manufacturing system than in a manual system
D)   provides the same information as margin of safety

Question 10

Which of the following distinguishes a profit-volume graph from a cost-volume-profits graph?

Accepted Answer

A)   Costs are associated with units produced.
B)   Operating income is associated with expected sales.
C)   Revenues and costs are associated with sales volume.
D)   Revenues are expected at targeted sales levels.

Question 11

Match each item with the correct statement below.
-The selling price per unit

Accepted Answer

A)  horizontal-axis of CVP graph
B)  vertical-axis of CVP graph
C)  slope of revenue line
D)  slope of cost line
E)  point where the total revenue line and the total cost line intersect

Question 12

Where is the break-even point on a cost-volume-profit graph?

Accepted Answer

A)   at the intersection of the revenue line and the profit line
B)   at the intersection of the revenue line and the total cost line
C)   at the intersection of the fixed cost line and the variable cost line
D)   at the intersection of the contribution margin line and the fixed cost line

Question 13

To determine the number of units that must be sold to earn a target operating income,one can use the equation for operating income and replace the operating income term with the target operating income.

Accepted Answer

A) True 
 B)False

Question 14

Product 1 has a contribution margin of $6.00 per unit,and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which statement is true?

Accepted Answer

A)   At a sales volume in excess of 25,000 units of Product 1 and 25,000 units of Product 2,operations will be profitable.
B)   The ratio of net profit to total sales for Product 2 will be larger than the ratio of net profit to total sales for Product 1.
C)   Variable costs are $1.50 more for Product 2 than for Product 1.
D)   The ratio of contribution to total sales always will be larger for Product 1 than for Product 2.

Question 15

Refer to the Figure.What is the percent change in operating income expected by Woods in the coming year?

Accepted Answer

A)   8.3%
B)   20.0%
C)   30.0%
D)   48.0%

Question 16

Match each item with the correct statement below.
-Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment

Accepted Answer

A)  Break-even point
B)  Common fixed expenses
C)  Contribution margin
D)  Direct fixed expenses
E)  Margin of safetyF) Operating leverageG) Degree of operating leverageH) Sales mix

Question 17

Oldman River Company expects to produce and sell 2,000 units next month.Data on costs follows: $\begin{array}{ll}
\text { Per unit costs: } & \
\text { Selling price } & \$ 40 \
\text { Variable manufacturing costs } & \$ 10 \
\text { Variable selling costs } & \$ 6\\\text { Total costs: }\
\text { Fixed manufacturing costs } & \$ 16,000 \
\text { Fixed selling costs } & \$ 8,000
\end{array}$ 
A.	What is the break-even point in units?
B.	What is the break-even point in sales dollars?
C.	What is the expected operating income for next month?
D.	What is the margin of safety in dollars?

Accepted Answer

The answer of Oldman River Company expects to produce and...

Question 18

Common fixed expenses are the fixed costs that are NOT traceable to the segments and would remain even if one of the segments was eliminated.

Accepted Answer

A) True 
 B)False

Question 19

$\begin{array}{lr}
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & 1.20 \
\text { Variable overhead } & 0.90 \
\text { Variable marketing expense } & 0.40
\end{array}$
-Refer to the Figure.What is the break-even point in sales dollars?

Accepted Answer

A)   $21,670
B)   $28,000
C)   $58,330
D)   $80,000

Question 20

The break-even point in sales dollars is equal to the break-even units multiplied by the variable cost per unit.

Accepted Answer

A) True 
 B)False

Exam 4: Costvolumeprofit Analysis: a Managerial Planning Tool

Match each item with the correct statement below. -The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume

The absorption income statement provides a good check to determine if the sale of a certain number of units really results in operating income of the given amount.

What is the equation to calculate contribution margin?

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$ -Refer to the Figure.What is the variable product expense per unit?

In the equation to determine the number of units that must be sold to earn a target income,targeted income is added to fixed expense in the numerator.

The cost-volume-profit graph depicts the relationships among cost,volume,and profits by plotting the total revenue line and the total cost line on the graph.

Which is characteristic of operating leverage?

Which of the following distinguishes a profit-volume graph from a cost-volume-profits graph?

Match each item with the correct statement below. -The selling price per unit

Where is the break-even point on a cost-volume-profit graph?

To determine the number of units that must be sold to earn a target operating income,one can use the equation for operating income and replace the operating income term with the target operating income.

Product 1 has a contribution margin of $6.00 per unit,and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which statement is true?

Refer to the Figure.What is the percent change in operating income expected by Woods in the coming year?

Match each item with the correct statement below. -Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment

Common fixed expenses are the fixed costs that are NOT traceable to the segments and would remain even if one of the segments was eliminated.

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$ -Refer to the Figure.What is the break-even point in sales dollars?

The break-even point in sales dollars is equal to the break-even units multiplied by the variable cost per unit.