Question 1

Which of the following statements about net income (NI) is true?

Accepted Answer

A)  NI = operating income - income taxes 
B)  NI = operating income + operating costs 
C)  NI = operating income + non-operating revenues less non-operating costs 
D)  NI = operating income less Cost of Goods Sold 
E)  NI = operating revenue less Cost of Goods Sold 
A)  NI = operating income - income taxes 
B)  NI = operating income + operating costs 
C)  NI = operating income + non-operating revenues less non-operating costs 
D)  NI = operating income less Cost of Goods Sold 
E)  NI = operating revenue less Cost of Goods Sold

Question 2

How many units would have to be sold to yield a target income of $11,000 assuming variable costs are $30 per unit, total fixed costs are $1,000, and the unit selling price is $40?

Accepted Answer

A)  1,200 units 
B)  1,100 units 
C)  1,000 units 
D)  900 units 
E)  300 units 
A)  1,200 units 
B)  1,100 units 
C)  1,000 units 
D)  900 units 
E)  300 units

Question 3

At the break-even point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will contribute ________ to profits.

Accepted Answer

A)  $1 
B)  $2 
C)  $3 
D)  $5 
E)  $6 
A)  $1 
B)  $2 
C)  $3 
D)  $5 
E)  $6

Question 4

Which of the following is an assumption of CVP analysis?

Accepted Answer

A)  Costs must be separated into separate fixed and variable components. 
B)  Total revenues and total costs are curvilinear in relation to output units. 
C)  Given revenue mixed of products is dynamic. 
D)  There will be a change between beginning and ending levels of inventory. 
E)  The time value of money must be taken into account. 
A)  Costs must be separated into separate fixed and variable components. 
B)  Total revenues and total costs are curvilinear in relation to output units. 
C)  Given revenue mixed of products is dynamic. 
D)  There will be a change between beginning and ending levels of inventory. 
E)  The time value of money must be taken into account.

Question 5

If unit sales exceed the break-even point when using the graph method,

Accepted Answer

A)  there is a loss because the total cost line exceeds the total revenue line. 
B)  total sales exceed total costs. 
C)  there is a profit because the total cost line exceeds the total revenue line. 
D)  expenses are extremely high relative to revenues. 
E)  operating income is negative (an operating loss). 
A)  there is a loss because the total cost line exceeds the total revenue line. 
B)  total sales exceed total costs. 
C)  there is a profit because the total cost line exceeds the total revenue line. 
D)  expenses are extremely high relative to revenues. 
E)  operating income is negative (an operating loss).

Question 6

Answer the following question(s) using the information below.
Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:
   Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.
-What is the break-even point in units for each option?

Accepted Answer

A)  96 units and 114 units respectively 
B)  120 units and 187 units respectively 
C)  56 units and 137 units respectively 
D)  200 units and 255 units respectively 
E)  156 units and 219 units respectively 
A)  96 units and 114 units respectively 
B)  120 units and 187 units respectively 
C)  56 units and 137 units respectively 
D)  200 units and 255 units respectively 
E)  156 units and 219 units respectively

Question 7

What is the contribution margin per case?

Accepted Answer

A)  $100.00 
B)  $60.00 
C)  $40.00 
D)  $15.00 
E)  $10.00 
A)  $100.00 
B)  $60.00 
C)  $40.00 
D)  $15.00 
E)  $10.00

Question 8

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

Accepted Answer

A) True 
 B)False

Question 9

Answer the following question(s) using the information below.
Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:
   Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.
-What is the operating income for each option if 600 people attend?

Accepted Answer

A)  $14,400 and $12,400 respectively 
B)  $9,800 and $10,200 respectively 
C)  $8,000 and $8,400 respectively 
D)  $7,900 and $8,000 respectively 
E)  $7,200 and $7,600 respectively 
A)  $14,400 and $12,400 respectively 
B)  $9,800 and $10,200 respectively 
C)  $8,000 and $8,400 respectively 
D)  $7,900 and $8,000 respectively 
E)  $7,200 and $7,600 respectively

Question 10

An expected value decision model is used for

Accepted Answer

A)  determining if a budgeted amount will deviate from an actual amount. 
B)  determining if a budgeted amount will be the same as an actual amount. 
C)  enabling managers to deal with events using a qualitative analysis method. 
D)  enabling managers to deal with uncertainty using quantitative analyses. 
E)  identifying factors that distinguish an action from an event. 
A)  determining if a budgeted amount will deviate from an actual amount. 
B)  determining if a budgeted amount will be the same as an actual amount. 
C)  enabling managers to deal with events using a qualitative analysis method. 
D)  enabling managers to deal with uncertainty using quantitative analyses. 
E)  identifying factors that distinguish an action from an event.

Question 11

When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.

Accepted Answer

A) True 
 B)False

Question 12

To determine the effect of income tax on a decision, managers should evaluate

Accepted Answer

A)  target operating income. 
B)  contribution margin. 
C)  tax as a variable expense in determining contribution margin. 
D)  selling price. 
E)  target net income. 
A)  target operating income. 
B)  contribution margin. 
C)  tax as a variable expense in determining contribution margin. 
D)  selling price. 
E)  target net income.

Question 13

Gates Rubber Company sells cases of hydraulic hoses for $80. The unit variable costs per case are $40 plus a selling commission of 10 percent of sales. Fixed manufacturing costs total $1,000 per month, while fixed selling and administrative costs total $2,000.
Required:
a. What is the contribution margin per case?
b. What is the break-even point in cases?
c. How many cases must be sold to earn pretax income of $6,000?

Accepted Answer

a. CM per case = $80

Question 14

CVP analysis requires the time value of money to be factored into formula when comparing revenues and costs.

Accepted Answer

A) True 
 B)False

Question 15

Chris Muss is going to sell Ad-hoc compact disks for $40 a box; one box is considered to be one unit. The disks cost Chris $10 a unit. She is planning to rent a booth at the up-coming Area Computer Show. She has three options for attending the show: 1. paying a fixed fee of $3,000;
2) paying a $1,000 fee plus 10% of her revenue made at the convention, or;
3) paying 25% of her revenue made at the convention.
Which of the following statements is true?

Accepted Answer

A)  CVP analysis can show that the risks are identical in each case. 
B)  The break-even point is the identical in each case. 
C)  One of the options will allow Chris Muss to break-even, even if she doesn't sell any disks, assuming she can return any unsold disks for a full refund. 
D)  Fixed costs are inherent in all of the options. 
E)  Operating income per unit is the same in each case, as both selling price and costs are the same. 
A)  CVP analysis can show that the risks are identical in each case. 
B)  The break-even point is the identical in each case. 
C)  One of the options will allow Chris Muss to break-even, even if she doesn't sell any disks, assuming she can return any unsold disks for a full refund. 
D)  Fixed costs are inherent in all of the options. 
E)  Operating income per unit is the same in each case, as both selling price and costs are the same.

Question 16

Arthur's Plumbing reported the following:
   Required:
a. Compute contribution margin.
b. Compute contribution margin percentage.
c. Compute gross margin.
d. Compute gross margin percentage.
e. Compute operating income.

Accepted Answer

a. Contribution margin $4,500 - $900 - $

Question 17

Which of the following formulae is correct when using the contribution margin method to determine the break-even point?

Accepted Answer

A)  Revenues less operating income equal variable costs plus fixed costs. 
B)  Unit contribution margin times unit variable cost equals the break-even number of units. 
C)  Unit contribution margin times the break-even number of units equals total variable costs. 
D)  Selling price less unit contribution margin equals unit fixed cost for all values below or at the break-even number of units. 
E)  Unit contribution margin times the break-even number of units equals fixed costs. 
A)  Revenues less operating income equal variable costs plus fixed costs. 
B)  Unit contribution margin times unit variable cost equals the break-even number of units. 
C)  Unit contribution margin times the break-even number of units equals total variable costs. 
D)  Selling price less unit contribution margin equals unit fixed cost for all values below or at the break-even number of units. 
E)  Unit contribution margin times the break-even number of units equals fixed costs.

Question 18

What would be the expected monetary value for the following data using the probability method?

Accepted Answer

A)  $535,000 
B)  $250,000 
C)  $121,750 
D)  $200,000 
E)  $30,000 
A)  $535,000 
B)  $250,000 
C)  $121,750 
D)  $200,000 
E)  $30,000

Question 19

In the graph method of CVP analysis, the break-even point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.

Accepted Answer

A) True 
 B)False

Question 20

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog.
Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000.
After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,750 a month and nacho sales will increase to 7,500 units a month.
Required:
a. Determine the monthly break-even sales in dollars before adding nachos.
b. Determine the monthly break-even sales during the first year of nachos sales, assuming a constant sales mix of 1 hotdog and 2 units of nachos.
c. What is the expected monthly operating income for the second year that nachos are sold?

Accepted Answer

The answer of Ballpark Concessions currently sells hot dogs. During...

Which of the following statements about net income (NI) is true?

How many units would have to be sold to yield a target income of $11,000 assuming variable costs are $30 per unit, total fixed costs are $1,000, and the unit selling price is $40?

At the break-even point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will contribute ________ to profits.

Which of the following is an assumption of CVP analysis?

If unit sales exceed the break-even point when using the graph method,

What is the contribution margin per case?

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

An expected value decision model is used for

When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.

To determine the effect of income tax on a decision, managers should evaluate

CVP analysis requires the time value of money to be factored into formula when comparing revenues and costs.

Arthur's Plumbing reported the following: Required: a. Compute contribution margin. b. Compute contribution margin percentage. c. Compute gross margin. d. Compute gross margin percentage. e. Compute operating income.

Which of the following formulae is correct when using the contribution margin method to determine the break-even point?

What would be the expected monetary value for the following data using the probability method?

In the graph method of CVP analysis, the break-even point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

Exam 3: Cost-Volume-Profit Analysis

Which of the following statements about net income (NI) is true?

How many units would have to be sold to yield a target income of $11,000 assuming variable costs are $30 per unit, total fixed costs are $1,000, and the unit selling price is $40?

At the break-even point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will contribute ________ to profits.

Which of the following is an assumption of CVP analysis?

If unit sales exceed the break-even point when using the graph method,

What is the contribution margin per case?

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

An expected value decision model is used for

When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.

To determine the effect of income tax on a decision, managers should evaluate

CVP analysis requires the time value of money to be factored into formula when comparing revenues and costs.

Arthur's Plumbing reported the following: Required: a. Compute contribution margin. b. Compute contribution margin percentage. c. Compute gross margin. d. Compute gross margin percentage. e. Compute operating income.

Which of the following formulae is correct when using the contribution margin method to determine the break-even point?

What would be the expected monetary value for the following data using the probability method?

In the graph method of CVP analysis, the break-even point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters