Deck 6: Decision-Making: Costvolumeprofit

Question 1

Contribution margin is the amount of profit remaining after deducting cost of goods sold.

Answer 1

False

Question 2

A CVP income statement shows contribution margin and gross profit.

Answer 2

False

Question 3

In CVP analysis, the term 'cost' includes only manufacturing costs.

Answer 3

False

Question 4

Contribution margin equals the total variable costs plus total fixed costs at the break-even point.

Question 5

At the break-even point, total revenue equals total fixed costs plus total variable costs.

Question 6

Max Company's break-even point is 2,000 units, its contribution margin per unit is $2, and its selling price per unit is $12.If the company sell 10 more units, its net income will be $4,000.

Question 7

The margin of safety is the difference between sales at break-even and sales at a determined activity level.

Question 8

The contribution margin per unit is the amount that each unit sold contributes towards covering fixed and variable costs.

Question 9

Using the assumptions of CVP analysis, if a company thought its sales may increase by 50% in the upcoming year over last year, the variable costs in total will change by a similar percentage.

Question 10

One assumption of CVP analysis is that costs must be classified as either fixed, mixed, or variable.

Question 11

If O'Brien Company has a margin of safety ratio of .60, it could sustain a 60 percent decline in sales before it would be operating at a loss.

Question 12

Sales mix is a measure of the percentage increase in sales from period to period.

Question 13

If a company installs an automated factory which increases their fixed costs and lowers their variable costs, you might say they have decreased their operating leverage

Question 14

A CVP income statement classifies costs into two sections based on behaviour.

Question 15

Target net income is the income objective for an individual product line.

Question 16

The break-even point is the point at which total sales equals total contribution margin.

Question 17

The contribution margin ratio is calculated by dividing the unit contribution margin by the unit sales price.

Question 18

An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

Question 19

Sales mix is not important to managers when different products have substantially different contribution margins.

Question 20

A CVP income statement separates costs based on behaviour.

Question 21

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 22

If Conan Corporation sells two products with a sales mix of 75%-25%, and the respective contribution margins are $100 and $300, then weighted-average unit contribution margin is $150.

Question 23

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 24

To which function of management is CVP analysis most applicable?

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

Question 25

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 26

For a company with multiple products, the break-even point in dollars is variable costs divided by the weighted-average contribution margin ratio.

Question 27

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 28

Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs.

Question 29

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 30

Gift Gallery sold 2,000 Zooglars during 2016.Information is provided concerning the Zooglar product: $\begin{array}{cc}\text {Sales.........................} &\$60,000\\ \text {Variable costs............. } &24,000\\ \text {Fixed costs................. } &\underline{10,000}\\ \text {Net income................. } &\underline{\underline{\$26,000}}\\\end{array}$
If Gift Gallery sells 30 more units, by how much will its profit increase?

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

Question 31

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 32

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 33

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 34

Net income can be increased or decreased by changing the sales mix.

Question 35

If fixed costs are $100,000 and weighted-average unit contribution margin is $50, then the break-even point in units is 2,000 units.

Question 36

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.

Question 37

Operating leverage refers to the extent to which a company's net income reacts to a given change in fixed costs.

Question 38

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 39

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

Question 40

The weighted-average contribution margin of all the products is calculated when determining the break-even sales for a multi-product firm.

Question 41

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 42

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 break-even point, rounded to the nearest whole number?

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

Question 43

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

Question 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

A division sold 280,000 calculators during 2016: $\begin{array}{c}\begin{array}{lll}\text {Sales.}\\\text {Variable costs:}\\\text {Materials}\\\text {Order processing}\\\text {Billing labour}\\\text {Delivery costs}\\\text {Selling expenses}\\\text {Total variable costs}\\\text {Fixed costs}\end{array}\begin{array}{lll}&\$5,600,000\\\\\$1,400,000\\280,000\\1,120,000\\840,000\\\underline{560,000}\\&4,200,000\\&\$750,000\end{array}\end{array}$
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 58

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 59

The following information is available for Chap Company: $\begin{array}{ll}\text {Sales }&\$350,000\\\text {Total fixed expenses. }&\$60,000\\\text {Cost of goods sold }&120,000\\\text {Total variable expenses }&100,000\\\end{array}$
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 60

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 61

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 62

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 63

Tykee Company has the following data: Variable costs are 75% of the unit selling price.
The contribution margin per unit is $400.
The fixed costs are $600,000.
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 64

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 65

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 66

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 67

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 68

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 69

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 70

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 71

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 72

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 73

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 74

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 75

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 76

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 77

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 78

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 2016.How many deer can Fallow-Hawke capture during 2016?

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

Question 79

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 80

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