Deck 6: Cost-Volume-Profit

Question 1

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:
$\begin{array}{ll}\text { Direct materials } & \$ 27,000 \\\text { Depreciation expense } &11,000\\\text { Sales revenue } & 95,000 \\\text { Direct labour } & 23,000 \\\text { Rent expense } & 25,000\end{array}$

-How much is the net profit, (loss), for September?

A)$45,000
B)$9,000
C)$68,000
D)$20,000

Answer 1

$9,000

Question 2

Which of the following is the correct formula for the contribution margin ratio?

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

Answer 2

B

Question 3

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

A)Sales in units remain constant.
B)All costs are variable.
C)The change in beginning and ending inventories is reflected in the analysis.
D)The behaviour of costs and revenues are linear within the relevant range.

Answer 3

D

Question 4

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

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

Question 5

NEKP Inc.sells two versions of its product: Standard and Deluxe.The Standard model has a 15 percent profit margin and the Deluxe model has a 17 percent profit margin.The Standard model has a 30 percent contribution margin and the Deluxe has a 23 percent contribution margin.If other factors are equal, which product should NEKP emphasize to its customers?

A)the Standard model
B)the Deluxe model
C)Selling either results in the same additional income for the company.
D)Not enough information is given.

Question 6

A CVP income statement

A)shows contribution margin and gross profit.
B)classifies costs into three sections based on behaviour.
C)separates costs based on behaviour.
D)shows revenue less fixed costs as contribution margin.

Question 7

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?

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

Question 8

In CVP analysis,

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 9

In CVP analysis, what does the term "cost" mean?

A)It includes all fixed and variable costs of products.
B)It includes all costs which are part of cost of goods sold.
C)It includes manufacturing costs plus selling and administrative expenses.
D)It includes all manufacturing costs.

Question 10

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

A)Costs and expenses are classified only by function.
B)It is prepared for both internal and external use.
C)It shows contribution margin instead of gross profit.
D)Costs and expenses are classified as product or period.

Question 11

Sarks Company has a contribution margin of $150,000 and a contribution margin ratio of 30%.How much are total variable costs?

A)$45,000
B)$350,000
C)$105,000
D)$500,000

Question 12

To which function of management is CVP analysis most applicable?

A)directing
B)controlling
C)planning
D)organizing

Question 13

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:
$\begin{array}{ll}\text { Direct materials } & \$ 27,000 \\\text { Depreciation expense } &11,000\\\text { Sales revenue } & 95,000 \\\text { Direct labour } & 23,000 \\\text { Rent expense } & 25,000\end{array}$

-How much is total contribution margin for September?

A)$45,000
B)$9,000
C)$68,000
D)$20,000

Question 14

Use the following information for questions
In September, Smith Company had the following financial statement amounts related to producing 500 units:
$\begin{array}{ll}\text { Direct materials } & \$ 27,000 \\\text { Depreciation expense } &11,000\\\text { Sales revenue } & 95,000 \\\text { Direct labour } & 23,000 \\\text { Rent expense } & 25,000\end{array}$

-How much is the contribution margin per unit?

A)$45,000
B)$9,000
C)$90
D)$18

Question 15

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

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 16

Hardage Company has a contribution margin per unit of $15 and a contribution margin ratio of 60%.How much is the selling price of each unit?

A)$25
B)$37.50
C)$9
D)Cannot be determined without more information.

Question 17

Gift Gallery sold 2,000 Zooglars during 2020.Information is provided concerning the Zooglar product: $\begin{array}{ll}\text { Sales } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots & \$ 60,000 \\\text { Variable costs } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 24,000 \\\text { Fixed costs } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \underline{10,000} \\\text { Net income }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots &\underline{ \$ 26.000}\end{array}$
If Gift Gallery sells 30 more units, by how much will its profit increase?

A)$18
B)$540
C)$390
D)$900

Question 18

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

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 19

In which one of the following calculations would CVP analysis be most important?

A)calculating depreciation expense
B)setting selling prices
C)determining how many employees to hire
D)estimating units to be produced at capacity

Question 20

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

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 21

A major benefit of using a contribution ratio format is that

A)it supports management's decision on its sales mix.
B)it assists in determining the effect of sales on operating income.
C)variable costs are isolated and can be easily reduced.
D)it shows the impact of fixed costs on the sales mix.

Question 22

A company has total fixed costs of $180,000 and a contribution margin ratio of 30%.How much sales are necessary to break even?

A)$540,000
B)$600,000
C)$54,000
D)$126,000

Question 23

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.Old Canadian's contribution margin ratio is

A)15%.
B)60%.
C)85%.
D)95%.

Question 24

The break-even point

A)is the point at which total sales equals total contribution margin.
B)is the point at which total revenue equals total fixed costs plus total variable costs.
C)is the point at which total sales equal total fixed costs.
D)is the point at which total sales equal total variable costs.

Question 25

CopperZ Company has variable costs which are 40% of its unit selling price and fixed costs of $30,000.How many sales will CopperZ report at its break-even point in dollars?

A)$50,000
B)$75,000
C)$12,000
D)$18,000

Question 26

If a firm is currently at the break-even point, and it sells one more unit, what will happen to its operating profit?

A)It will increase by the unit selling price.
B)It will decrease by the unit variable cost.
C)It will increase by the unit contribution margin.
D)It will increase by the fixed cost divided by the unit contribution margin.

Question 27

Croc Catchers calculates its contribution margin to be less than zero.Which statement is true?

A)Its fixed costs are less than the variable cost per unit.
B)Its profits are greater than its total costs.
C)The company should sell more units.
D)Its selling price is less than its variable costs.

Question 28

The following information is available for Chap Company: $\begin{array}{llcc} \text { Sales} \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots\ldots \ldots \ldots &\$350,000\\ \text { Total fixed expenses } \ldots \ldots \ldots \ldots \ldots\ldots \ldots&\$60,000\\ \text { Cost of goods sold} \ldots \ldots \ldots \ldots \ldots\ldots \ldots\ldots &120,000\\ \text { Total variable expenses } \ldots \ldots \ldots \ldots \ldots\ldots&100,000\\\end{array}$
Which amount would you find on Chap's CVP income statement?

A)contribution margin of $250,000
B)contribution margin of $190,000
C)gross profit of $230,000
D)gross profit of $190,000

Question 29

Which one of the following lines is not drawn separately on a CVP graph?

A)total cost line
B)fixed cost line
C)sales line
D)variable cost line

Question 30

Which one of the following describes the break-even point?

A)It is the point where total sales equal total variable plus total fixed costs.
B)It is the point where the contribution margin equals zero.
C)It is the point where total variable costs equal total fixed costs.
D)It is the point where total sales equal total fixed costs.

Question 31

Tykee Company has the following data: Variable costs are $75 \%$ of the unit selling price The contribution margin per unit is $400. The fixed casts are $600000. Which of the following expresses the break-even point in dollars?

A).25 x 600,000 = X
B)600,000 ÷.75 = X
C)($600,000 ÷ $400)x.75 = X
D)$600,000 ÷.25 = X

Question 32

A major reason for using the contribution format income statement is that

A)it separates variable and fixed cost components.
B)it increases information available to management.
C)it allows management to establish what sales level is necessary to cover fixed costs.
D)it indicates the sales mix of the company's products or services.

Question 33

A company sells a product which has a unit sales price of $9, unit variable cost of $6 and total fixed costs of $60,000.How many units must the company sell to break even?

A)180,000
B)20,000
C)6,667
D)10,000

Question 34

Which one of the following is the format of a CVP income statement?

A)sales - variable costs = fixed costs + net income
B)sales - fixed costs - variable costs - operating expenses = net income
C)sales - cost of goods sold - operating expenses = net income
D)sales - variable costs - fixed costs = net income

Question 35

In September, Smith Company had the following financial statement amounts related to producing 500 units: $\begin{array}{lc}\text { Direct materials } & \$ 27,000 \\\text { Depreciation expense } &11,000 \\\text { Sales revenue } & 95,000 \\\text { Direct labour } & 23,000 \\\text { Rent expense } & 25,000\end{array}$ How much is the break-even point, rounded to the nearest whole number?

A)$18 units
B)$50 units
C)$122 units
D)400 units

Question 36

A division sold 280,000 calculators during 2020: $\begin{array}{llcc} \text {Sales } &&\$5,600,000\\ \text {Variable costs: } &\\ \text { Materials} &\$1,400,000\\ \text {Order processing }& 280,000&\\ \text { Billing labour} &1,120,000\\ \text { Delivery costs} &840,000\\ \text {Selling expenses } &\underline{560,000}\\ \text { Total variable costs } &&4,200,000\\ \text { Fixed costs } &&750,000\\\end{array}$
How much is the contribution margin per unit, rounded to the nearest cent?

A)$17.32
B)$15.00
C)$7.00
D)$5.00

Question 37

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

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 38

Fixed costs are $400,000 and the contribution margin per unit is $80.What is the break-even point?

A)$500,000
B)$2,000,000
C)320,000 units
D)5,000 units

Question 39

Using the contribution margin format income statement, which of the following will result from an increase of one unit sold?

A)Variable costs will increase in direct relation to the contribution margin ratio.
B)Variable costs will decrease in direct relation to the contribution margin ratio.
C)Every unit of product sold will decrease income by the contribution margin.
D)Every unit of product sold will increase income by the contribution margin.

Question 40

Saver Company produces only one product.Monthly fixed expenses are $20,000, monthly unit sales are 3,500, and the unit contribution margin is $7.How much is monthly net profit?

A)$44,500
B)$24,500
C)$0
D)$4,500

Question 41

What does the margin of safety measure?

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

Question 42

In using the contribution margin technique

A)a target profit is added to variable costs.
B)a target profit is added to fixed costs.
C)fixed costs must always be shown separate from other costs and the target.
D)the target profit should be shown after the break-even analysis indicates zero profit or loss.

Question 43

Niagara Winery has fixed costs of $10,000 per year.Its warehouse sells wine with a contribution margin of 20%.How much in sales does Sonoma need to break even per year if wine is its only product?

A)$8,000
B)$2,000
C)$12,500
D)$50,000

Question 44

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.Old Canadian break-even point in dollars is

A)$166,667.
B)$400,000.
C)$450,000.
D)$466,667.

Question 45

Select the correct statement concerning the cost volume-profit graph that follows:

A)The point identified by 'B' is the break-even point.
B)Line F is the break-even line.
C)Line F is the variable cost line.
D)Line E is the total cost line.

Question 46

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?

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

Question 47

Martin Worldwide sells a single product with a contribution margin of $12 per unit and fixed costs of $24,000.How much is Martin's break-even point?

A)2,500 units
B)$12,000
C)$24,000
D)2,000 units

Question 48

Select the correct statement concerning the cost-volume-profit graph that follows:

A)The point identified by 'A' is the break-even point.
B)Line F is the break-even line.
C)Line D is the variable cost line.
D)At point B, profits equal total costs.

Question 49

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000.How much is the selling price per unit?

A)$43.50
B)$11.50
C)$16
D)not enough information

Question 50

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

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 51

Which one of the following calculates the break-even point in units?

A)Divide total fixed costs by the contribution margin per unit.
B)Divide fixed cost per unit by the contribution margin per unit.
C)Divide total contribution margin by the number of units sold.
D)Divide total fixed costs by the contribution margin ratio.

Question 52

Tiny Tots Toys has actual sales of $400,000 and a break-even point of $260,000.How much is its margin of safety ratio?

A)35%
B)65%
C)286%
D)53.8%

Question 53

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?

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 54

ABC Bread sells a box of bagels with a contribution margin of 62.5%.Its fixed costs are $150,000 per year.How many sales dollars does ABC Bread need to break even per year if bagels are its only product?

A)$93,750
B)$150,000
C)$240,000
D)$90,000

Question 55

If M&H Ltd.has a margin of safety of $100,000, which of the following statements is correct?

A)Sales can increase by $100,000 before M&H have an operating loss.
B)Fixed costs can increase by $100,000 before M&H have an operating loss.
C)Sales can decrease by $50,000 and fixed costs can increase by $40,000 before M&H have an operating loss.
D)Sales can increase by $50,000, and fixed costs can decrease by $50,000 before M&H have an operating loss.

Question 56

Where is the break-even point located in a CVP graph?

A)at the intersection of the sales line and the fixed cost line
B)at the intersection of the variable cost line and the fixed cost line
C)at the intersection of the total cost line and the sales line
D)at the intersection of the mixed cost line and the sales line

Question 57

Companies generally set sales targets higher than break-even figures because

A)it indicates the sales needed to attain a certain level of profit.
B)assists in planning for new equipment if sales can be reached.
C)an income objective is set that can be communicated throughout the company.
D)break-even analysis may not be effective in all situations.

Question 58

Sutton Company produces flash drives for computers, which it sells for $20 each.The variable cost to make each flash drive is $6.During April, 700 drives were sold.Fixed costs for April were $2 per unit for a total of $1,400 for the month.How much is the monthly break-even level of sales in dollars for Sutton Company?

A)$100
B)$2,000
C)$7,000
D)$4,200

Question 59

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?

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

Question 60

Forms, Inc.wants to sell a sufficient quantity of products to earn an after-tax profit of $40,000.If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $80,000, how many units must be sold to earn income of $40,000? Forms, Inc.has a tax rate of 40%.

A)73,334 units
B)18,334 units
C)40,000 units
D)90,000 units

Question 61

Proops Company has a weighted-average unit contribution margin of $30 for its two products: Drew and Carey.Expected sales for Proops are 40,000 Drews and 60,000 Careys.Fixed expenses are $1,800,000.At the expected sales level, Proops' net income will be

A)$(300,000).
B)$0.
C)$1,200,000.
D)$3,000,000.

Question 62

The following monthly data are available for Wackadoos, Inc.which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 4,000 units.How much is the margin of safety for the company for June?

A)$70,000
B)$105,000
C)$63,000
D)$2,500

Question 63

Company A and Company B sell their products for exactly the same sales price.Both have the same annual total costs.Company A's variable and fixed costs at break-even total $60,000 and $30,000 respectively.Company B's variable and fixed costs at break-even total $30,000 and $60,000 respectively.Both companies have the same net income.If both companies experience an increase in sales, which company will have the higher net income?

A)Company A
B)Company B
C)Both companies will report the same profits since total costs are the same.
D)More information is needed to determine the answer.

Question 64

Sulingo, Inc.calculated how many units it needed in order to earn net income totalling $67,750 for the month.What calculation did Sulingo perform?

A)[Variable costs + ($67,750 / 1 - tax rate)] ÷ contribution margin ratio
B)[Fixed costs + ($67,750 / 1 + tax rate)] ÷ contribution margin ratio
C)[Fixed costs + ($67,750 / 1 - tax rate)] ÷ contribution margin per unit
D)[Variable costs + ($67,750 / tax rate)] ÷ contribution margin per unit

Question 65

Goose Bay Sync's management established its target net income for the year.What did the company do?

A)It estimated its break-even income level for the year.
B)It calculated its contribution margin.
C)It determined the behaviour of its costs.
D)It established its desired annual income for its product lines.

Question 66

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

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

Question 67

Phi Kappa is planning to hold a seminar for students at the University Centre.It has two options: $$\text { OPTION 1: Fixed rental cast of } \$ 1,000 \text { and } \$ 12 \text { per person for baoks }$$ or
$\text { OPTION 2: Fixed rental cost of } \$ 3,000 \text { and } \$ 8 \text { per person for books }$
Tickets will be $5 per student.Other items will be donated by recruiters wishing to network with students.Which option will cause the biggest loss if very few students attend?

A)Option 1
B)Option 2
C)Both options provide the same amount of risk.
D)Neither option has risks.

Question 68

The margin of safety ratio

A)is calculated as actual sales divided by break-even sales.
B)indicates what percent decline in sales could be sustained before the company would operate at a loss.
C)measures the ratio of fixed costs to variable costs.
D)is used to determine the break-even point.

Question 69

How many sales are required to earn a target after-tax net income of $80,000 if total fixed costs are $100,000, the contribution margin ratio is 40%, and the tax rate is 25%?

A)$6,000,000
B)$250,000
C)$516,667
D)$1,050,000

Question 70

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?

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

Question 71

Which concept answers the following question: 'If budgeted revenues are above break even and decline, how far can they fall before the break-even point is reached?'

A)contribution margin
B)relevant range of operations
C)operating leverage
D)margin of safety

Question 72

Swashbuckler, Inc.produces buckets.The selling price is $20 per unit and the variable costs are $8 per bucket.Fixed costs per month are $4,800.If Swashbuckler sells 10 more units beyond break even, how much does profit increase as a result?

A)$120
B)$400
C)$600
D)$12,000

Question 73

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?

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

Question 74

A key reason for management to build in a margin of safety in its projections is

A)management can assess if its targets are reasonable in order to cover fixed costs.
B)if sales do not reach the targeted number, management will not suffer the consequences.
C)variable costs may fluctuate and this will affect the break-even calculation.
D)it will show the operating profit if sales are not as expected.

Question 75

NoWeeds, Inc.has variable costs equal to 25% of sales.Its selling price is $95 per unit.If NoWeeds sells one unit more than the number of break-even units, how much will profit increase?

A)$71.25
B)$23.75
C)$32.50
D)$380.00

Question 76

Sample, Inc.determined its unit variable cost increased by 15%.Which one of the following will NOT increase as a direct result?

A)total costs
B)total variable costs
C)contribution margin
D)the break-even point

Question 77

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, 700 drives were sold.Fixed costs for April were $4 per unit for a total of $2,800 for the month.How much does Sutton's operating income increase for each $1,000 increase in revenue per month?

A)$700
B)$500
C)$14,000
D)Not enough information to determine the answer.

Question 78

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?

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

Question 79

T'pol Corporation is considering a plan that will increase total units sold.The plan will cause a shift from high- to low-margin sales.The plan will

A)definitely increase net income.
B)definitely decrease net income.
C)not change net income.
D)either increase, decrease, or not affect net income; more information is needed.

Question 80

A company requires $600,000 in sales to meet its target net income after tax.Its contribution margin is 40%, and fixed costs are $80,000.How much is the target net income, given that its after-tax rate is 70%?

A)$400,000
B)$160,000
C)$48,000
D)$112,000