Deck 11: Cost-Volume-Profit Analysis for Decision Making

Question 1

When fixed costs are $18,000 and the contribution margin is $4,the break-even point is:

A)22,000 units
B)4,500 units
C)17,996 units
D)14,500 units

Answer 1

B

Question 2

Which question can cost-volume-profit analysis not assist in answering?

A)Will the firm have sufficient funds to meet its commitments to creditors?
B)If variable costs,such as labour,are replaced with fixed costs,such as machinery,what will be the impact on profits?
C)What additional sales volume is required to offset an increase in purchase costs?
D)What is the most profitable sales mix?

Answer 2

A

Question 3

Contribution margin can be calculated as:

A)Total revenue - total variable costs
B)Total revenue - total manufacturing costs
C)Total revenue - total fixed costs
D)Profit + total variable costs

Answer 3

A

Question 4

Mailroom clerks at Speedy Mail are paid a salary of $2200 per month.All clerks are full time.A new clerk is hired whenever the volume of mail increases by 40 000 pieces since the last clerk was hired.If volume of mail is the activity base mail-handling costs are:

A)Discretionary fixed costs
B)Committed fixed costs
C)Indirect costs
D)Step-variable costs

Question 5

Contribution margin is:

A)Sales less cost of sales
B)Equivalent to gross profit
C)Sales less fixed costs
D)Sales less variable costs

Question 6

The income statement for ABC Developers is: $$\begin{array} { l r } \text { Sales } & \$ 150000 \\\text { Variable Expense } & \underline { 90000 } \\\text { Contribution Margin } & \$ 60,000 \\\text { Fixed Expenses } & \underline { 40,000 } \\\text { Profit } & \$ 20,000\end{array}$$ What is the break-even point in sales dollars?

A)$33 333
B)$50 000
C)$66 667
D)$100 000

Question 7

Which of these most accurately explains the behaviour of costs?

A)The majority of costs are variable per unit of production
B)There is no norm; costs can be fixed,variable or a combination of both
C)Costs can be fixed or variable but not a combination of both
D)The majority of costs are fixed per unit of production

Question 8

Which of these is not an example of a mixed cost for an internet service provider?

A)Rent of premises
B)Telephone
C)Electricity
D)Water rates

Question 9

Tilba Auto Parts has reported sales of $440,000,a contribution margin of $8 per unit,fixed costs of $114,000 and a profit of $42,000.How many units did they sell?

A)22,000
B)55,000
C)19,500
D)14,250

Question 10

The most serious shortcoming of the high-low method of estimating a mixed cost function is that it:

A)Focuses on fixed costs only and ignores variable costs
B)Usually overestimates the total cost
C)Is based on a very small portion of the available data
D)Can only be used if contribution margin income statements are also being used

Question 11

Suppose the break-even point for revenue for Knitwear Inc.is $1,000,000.Fixed costs are $400,000.Compute the contribution margin percentage.

A)0.60
B)0.40
C)0.25
D)0.65

Question 12

Sheehan Co data are:

Question 13

In a cost-volume-profit graph the break-even point will be found:

A)Where the predetermined overhead rate equals the contribution margin rate
B)At the point where total income equals total fixed costs
C)At the point where total income equals total fixed plus total variable costs
D)Where the total income line crosses the fixed costs line

Question 14

On a per unit basis,a variable cost will:

A)Decrease
B)Increase
C)Be unknown
D)Remain constant

Question 15

Burgerville Co has observed that at an activity level of 5000 units the maintenance cost is $6500,and at 10 000 units the maintenance cost is $9000.Using the high-low method,the cost formula for maintenance is:

Question 16

In terms of cost behaviour,telephone expense and direct materials are classified as:

A)Fixed and variable,respectively
B)Mixed and fixed,respectively
C)Variable and fixed,respectively
D)Mixed and variable,respectively

Question 17

It is not an assumption of cost-volume-profit analysis that:

A)There are no mixed costs
B)Variable costs change proportionately with volume
C)Fixed costs remain constant over the relevant range
D)Efficiency remains unchanged

Question 18

Which statement relating to the visual fit of a scatter diagram technique is not true?

A)It is applied by drawing a straight line through the relationships of the dependent and the independent variables
B)The difference between the points and the straight line is minimal compared to other lines that could be drawn
C)The straight line through the points should have approximately the same number of observations above and below
D)The approach is usually fairly accurate even though it is a simple method to apply

Question 19

Which of these will not result in a change to the contribution margin?

A)Variation of selling price per unit sold
B)Variation in the number of units sold
C)An increase in purchase price per unit
D)An increase in packaging costs

Question 20

Yamhill Marketing purchases novelty gift items from a wholesaler at a cost of $2 each and sells them at retail for $5 each.Yamhill's monthly expenses are as follows: $$\begin{array} { l r } \text { Rent } & \$ 375 + 5 \% \text { of sales } \\\text { Sales commissions } & 10 \% \text { of sales } \\\text { Utilities } & \$ 115 \text { per month } \\\text { Depreciation on equipment } & \$ 200 \text { per month }\end{array}$$ If 400 units are sold during January what is Yamhill's total contribution margin for the month?

A)$300
B)$900
C)$1000
D)$800

Question 21

The ___________-________ point is the sales volume at which revenues and total costs are equal.

Question 22

The r___________ range is the range of activity within which a firm normally operates.

Question 23

Product X sells for $20 per unit and has a contribution margin rate of 40 percent.Fixed expenses total $120 000 annually.How many units of Product X must be sold to yield a profit of $30 000?

A)12 500
B)18 750
C)75 000
D)250 000

Question 24

If all other factors remain the same a 20% increase in both the selling price and variable costs of a product will:

A)Lower the company's break-even point in units
B)Raise the company's break-even point in units
C)Have no effect on the company's break-even point in units
D)Cannot be determined without more information

Question 25

Which statement relating to margin of safety is not true?

A)It is an important extension of break-even analysis
B)It is the excess of actual sales over expected sales
C)A large margin of safety indicates that a business can absorb a significant decline in sales volume
D)It is the amount by which sales can decrease before a loss occurs

Question 26

An important aspect of CVP analysis is that all cost functions are assumed to be l_____________.

Question 27

The following information is available for Adam Ltd $\begin{array}{|l|r|r|r|}\hline &{\text { Budget }} &{\text { Actual }} &{\text { Variance }} \\\hline \text { Sales units } & 7,500 & 8,000 & 500 \mathrm{~F} \\\hline \text { Sales dollars } & \$ 375,000 & \$ 376,000 & \$ 1000 \mathrm{~F} \\\hline \text { Variable Expenses } & \$ 262,500 & \$ 296,000 & \$ 33,500 \mathrm{U} \\\hline \text { Contribution margin } & \$ 112,500 & \$ 80,000 & \$ 35,000 \mathrm{U} \\\hline\end{array}$ The variable expense variance is:

A)$22,000 U
B)$33,500 U
C)$16,000 U
D)$22,500 F

Question 28

Which of these would cause the break-even point to change?

A)An increase in sales
B)A decrease in total production
C)An increase in fixed costs due to an addition to the physical plant
D)An increase in the amount of inventory held

Question 29

Apex Company has the following cost estimates: variable cost per unit is $9,total fixed costs are $58,000 and the projected sales price is $13 each.The new accountant suggests that fixed costs can be reduced by $8,000.If so,how many units must be sold to produce a profit of $65,000?

A)28,000
B)28,750
C)33,000
D)29,000

Question 30

A m__________ cost contains both fixed and variable components.

Question 31

The horizontal axis of the cost-volume-profit chart represents u_________.

Question 32

Gail Co sells a single product for $40 per unit.Fixed costs are $160 000 and variable costs equal 75% of sales.If fixed costs increase by $10 000,Gail will have to increase sales by how much just to earn profits equal to those earned before costs increased?

A)$100 000
B)$40 000
C)$80 000
D)$20 000

Question 33

AAA Farming can sell 10 000 units of a product for which the variable expenses are $3 per unit.Fixed expenses are $20 000 and the farmer wishes to earn a profit of $20 000.What price must AAA charge?

A)$5 per unit
B)$6 per unit
C)$7 per unit
D)$8 per unit

Question 34

The c________________ m_____________ is equal to sales revenue less variable costs.

Question 35

What will be the effect on the breakeven point if advertising is increased?

A)The break-even point will be lower
B)The break-even point will be higher
C)The break-even point will not change
D)It is not possible to calculate the effect without having more information

Question 36

Beachcomber Ltd produces and sells two models of surf boards: $$\begin{array} { l c c } & \text { Standard } & \text { Super } \\\text { Selling price } & \$ 100 & \$ 280 \\\text { Variable costs } & 80 & 140\end{array}$$ Total fixed costs are $180 000 and the company sells 5 Standards models for every Super model.What quantity of the Super model will be sold at break-even point?

A)750
B)2250
C)3750
D)4500

Question 37

The budgeted sales price multiplied by the difference between the actual and budgeted number of units sold is which variance?

A)Sales price variance
B)Sales volume variance
C)Variable cost variance
D)Fixed cost variance

Question 38

A change in which of these would not affect the break-even point?

A)Number of units sold
B)Variable cost per unit
C)Total fixed costs
D)Sales price per unit

Question 39

The contribution margin approach to the income statement makes a primary classification of expenses according to cost b_________.

Question 40

The difference between actual and planned results is known as a v__________.

Question 41

If variable costs are 60 percent of sales and fixed costs are $100 000,the break-even sales dollars is $__________.

Question 42

An increase in total fixed costs causes the break-even point to increase/decrease .______________.