Question 1

To determine the effect of income tax on a CVP calculation,managers should consider

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. E

Question 2

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. D

Question 3

What is meant by the term break-even point? Why should a manager be concerned about the break-even point?

Accepted Answer

The break-even point is the level of production and sales at which total revenues equal total costs.Managers should be concerned about the break-even point because it helps determine when a business venture will be profitable.Break-even point shows a company how far sales can decline before a net loss will be incurred.It helps to assess the risk of loss.

Question 4

Schuppener Company sells its only product for $18 per unit;variable production costs are $6 per unit,and variable selling and administrative costs are $3 per unit;fixed costs for 10,000 units are $10,000.The contribution margin is

Accepted Answer

A) $12 per unit. 
B) $9 per unit. 
C) $11 per unit. 
D) $8 per unit. 
E) $18 per unit. 
A) $12 per unit. 
B) $9 per unit. 
C) $11 per unit. 
D) $8 per unit. 
E) $18 per unit.

Question 5

Which of the following statements is TRUE concerning operating leverage?

Accepted Answer

A) It summarizes the risk-return tradeoff across alternate revenue possibilities. 
B) It measures the change in operating income when costs change proportionately with the change in the number of units sold. 
C) The degree of operating leverage increases inversely to the number of units sold. 
D) The degree of operating leverage remains constant (in the relevant range)when there is a change in the number of units sold. 
E) The degree of operating leverage equals contribution margin divided by operating income,at any specific sales level. 
A) It summarizes the risk-return tradeoff across alternate revenue possibilities. 
B) It measures the change in operating income when costs change proportionately with the change in the number of units sold. 
C) The degree of operating leverage increases inversely to the number of units sold. 
D) The degree of operating leverage remains constant (in the relevant range)when there is a change in the number of units sold. 
E) The degree of operating leverage equals contribution margin divided by operating income,at any specific sales level.

Question 6

Symbol Manufacturing Inc.makes component parts for automobile navigation systems.For component A14 direct materials cost $47,and the assembly technicians are paid $42 per hour.A technician can produce two components per hour.Fixed manufacturing costs for A14 are $70,000 per unit based on current production of 12,000 units.Non-manufacturing costs are fixed at $120,000 per period.Each A14 component sells for $195.
Required:
a.Prepare an income statement in gross margin format.
b.Calculate the dollar sales required to generate an operating profit of $1,500,000 and prepare an income statement in contribution margin format.
c.What actions could Symbol Manufacturing Inc.management take to lower the required number of units sold necessary to generate the desired operating profit?

Accepted Answer

a.
 @#IMG-DLM& 
b.CM ratio = ($2,340,000 - $564,00

Question 7

Fan Inc.is a nonprofit organization that supplies fans during the summer for individuals in need.Fixed costs are $500,000.The fans cost $40.00 each.The organization has a budgeted appropriation of $1,200,000.How many people can receive a fan during the summer?

Accepted Answer

A) 15,000 people 
B) 17,500 people 
C) 30,000 people 
D) 42,500 people 
E) 80,000 people 
A) 15,000 people 
B) 17,500 people 
C) 30,000 people 
D) 42,500 people 
E) 80,000 people

Question 8

Use the information below to answer the following question(s).
Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600
-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 9

Cost-volume profit is used to analyze

Accepted Answer

A) the behaviour of some costs and revenues as changes occur in the output level. 
B) the behaviour of total costs,total revenues,and operating income as changes occur in the output level. 
C) a single revenue driver and multiple cost drivers in special case CVP. 
D) multiple revenue drivers and a single cost driver in special case CVP. 
E) the behaviour of variable costs at all levels of output. 
A) the behaviour of some costs and revenues as changes occur in the output level. 
B) the behaviour of total costs,total revenues,and operating income as changes occur in the output level. 
C) a single revenue driver and multiple cost drivers in special case CVP. 
D) multiple revenue drivers and a single cost driver in special case CVP. 
E) the behaviour of variable costs at all levels of output.

Question 10

Which of the following statements about contribution margin and gross margin in CVP analysis is TRUE?

Accepted Answer

A) Contribution margin equals total revenue minus cost of goods sold. 
B) Contribution margin equals total revenue minus non-variable costs. 
C) Gross margin equals total revenue minus cost of goods sold. 
D) Service companies can compute a gross margin but not a contribution margin. 
E) Gross margin equals total revenue minus non-variable costs. 
A) Contribution margin equals total revenue minus cost of goods sold. 
B) Contribution margin equals total revenue minus non-variable costs. 
C) Gross margin equals total revenue minus cost of goods sold. 
D) Service companies can compute a gross margin but not a contribution margin. 
E) Gross margin equals total revenue minus non-variable costs.

Question 11

Mount Carmel Company sells only two products,Product A and Product B.
   
Mount Carmel sells two units of Product A for each unit it sells of Product B.Mount Carmel faces a tax rate of 30%.
Required:
a.What is the breakeven point in units for each product assuming the sales mix is 2 units of Product A for each unit of Product B?
b.What is the breakeven point if Mount Carmel's tax rate is reduced to 25%,assuming the sales mix is 2 units of Product A for each unit of Product B?
c.How many units of each product would be sold if Mount Carmel desired an after-tax net income of $73,500,facing a tax rate of 30%?

Accepted Answer

a.N = breakeven in product B 2N = breake

Question 12

Snowmobile Inc.manufactures two colours of snowmobiles: White and Black.Marketing believes that it can sell between 12,000 and 18,000 of either product during the upcoming year.Due to the overall economic slowdown,the company is preparing to produce only one model for next year.The following information has been provided by the accounting department:
   
For next year,fixed costs will total $9,450,000 if White is produced and $11,640,000 if Black is produced.Plant capacity allows up to 107,800 direct manufacturing hours.White takes 9.8 hours to produce and Black requires 11 hours.The company is subject to a 30 percent income tax rate.
Required:
Which model should Snowmobile Inc.produce,assuming the marketing manager believes annual demand of either model will exceed production capacity? Why?

Accepted Answer

Although Black has the highest contribut

Question 13

Widget Company sells widgets for $20.00 each.The manufacturing costs,all variable,are $6 each.The company is planning on renting an exhibition booth,for both display and selling purposes,at the annual candy convention.The company's sales manager will earn a vacation bonus if she can earn a target net income of $150,000,for the sales operation at the convention.The convention organizers provide the advertising and guarantee a certain level of traffic,in exchange for 15% of the net income.The 15% surcharge operates like a tax on net income.The company absorbs all of the fixed costs of production for the sales made at the convention.
How many widgets does the sales manager have to sell to earn the vacation bonus?

Accepted Answer

$20Q - $6Q - 0 = [$1

Question 14

Companies with a greater proportion of fixed costs have a greater risk of loss from changes in demand than companies with a greater proportion of variable costs.

Accepted Answer

A) True 
 B)False

Question 15

Heady Company sells headbands to retailers for $5.The variable cost of goods sold per headband is $1,with a selling commission of 10 percent of sales.Fixed manufacturing costs total $25,000 per month,while fixed selling and administrative costs total $10,500.The income tax rate for Heady Company is 30 percent.
Required:
a.What is the break-even point in headbands?
b.What are target sales in headbands to generate a before-tax income of $3,000?
c.What are target sales in headbands to generate an after-tax income of $3,080?
d.What is net income assuming Heady sells total 15,000 headbands?

Accepted Answer

a.N = Break-even
$5N - $1N - $5(0.10)N -

Question 16

An expected value is the weighted-average of the outcomes based on the percentage combinations of the incomes.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Answer the following question(s)using the information below.
The following information is for the Jeffries Corporation:
  
-What is the break-even point,assuming the sales mix consists of three units of Product A and one unit of Product B?

Accepted Answer

A) 10,000 units of A and 5,000 units of B 
B) 3,750 units of A and 3,750 units of B 
C) 12,000 units of A and 4,000 units of B 
D) 18,750 units of A and 6,250 units of B 
E) 11,250 units of A and 3,750 units of B 
A) 10,000 units of A and 5,000 units of B 
B) 3,750 units of A and 3,750 units of B 
C) 12,000 units of A and 4,000 units of B 
D) 18,750 units of A and 6,250 units of B 
E) 11,250 units of A and 3,750 units of B

Question 19

Use the information below to answer the following question(s).
Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600
-What is the break-even point in cases?

Accepted Answer

A) 6 cases 
B) 10 cases 
C) 15 cases 
D) 20 cases 
E) 100 cases 
A) 6 cases 
B) 10 cases 
C) 15 cases 
D) 20 cases 
E) 100 cases

Question 20

Which of the following statements about using the equation method to determine the break-even point is TRUE?

Accepted Answer

A) Operating income in the equation is set equal to the target income for the year. 
B) Operating income in the equation assumes that fixed costs are nil. 
C) Revenue in the equation includes only operating revenues plus fixed costs. 
D) The number of units required to reach the break-even point tends to be higher (as it incorporates total costs)using this method than when using the contribution margin method. 
E) Operating income in the equation is set equal to nil. 
A) Operating income in the equation is set equal to the target income for the year. 
B) Operating income in the equation assumes that fixed costs are nil. 
C) Revenue in the equation includes only operating revenues plus fixed costs. 
D) The number of units required to reach the break-even point tends to be higher (as it incorporates total costs)using this method than when using the contribution margin method. 
E) Operating income in the equation is set equal to nil.

To determine the effect of income tax on a CVP calculation,managers should consider

An expected value decision model is used for

What is meant by the term break-even point? Why should a manager be concerned about the break-even point?

Schuppener Company sells its only product for $18 per unit;variable production costs are $6 per unit,and variable selling and administrative costs are $3 per unit;fixed costs for 10,000 units are $10,000.The contribution margin is

Which of the following statements is TRUE concerning operating leverage?

Fan Inc.is a nonprofit organization that supplies fans during the summer for individuals in need.Fixed costs are $500,000.The fans cost $40.00 each.The organization has a budgeted appropriation of $1,200,000.How many people can receive a fan during the summer?

Use the information below to answer the following question(s). Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600 -What is the contribution margin per case?

Cost-volume profit is used to analyze

Which of the following statements about contribution margin and gross margin in CVP analysis is TRUE?

Companies with a greater proportion of fixed costs have a greater risk of loss from changes in demand than companies with a greater proportion of variable costs.

An expected value is the weighted-average of the outcomes based on the percentage combinations of the incomes.

Which of the following is an assumption of CVP analysis?

Answer the following question(s)using the information below. The following information is for the Jeffries Corporation: -What is the break-even point,assuming the sales mix consists of three units of Product A and one unit of Product B?

Use the information below to answer the following question(s). Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600 -What is the break-even point in cases?

Which of the following statements about using the equation method to determine the break-even point is TRUE?

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

Analysis of Cost Behaviour

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

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

Exam 3: Cost-Volume-Profit Analysis

To determine the effect of income tax on a CVP calculation,managers should consider

An expected value decision model is used for

What is meant by the term break-even point? Why should a manager be concerned about the break-even point?

Schuppener Company sells its only product for $18 per unit;variable production costs are $6 per unit,and variable selling and administrative costs are $3 per unit;fixed costs for 10,000 units are $10,000.The contribution margin is

Which of the following statements is TRUE concerning operating leverage?

Fan Inc.is a nonprofit organization that supplies fans during the summer for individuals in need.Fixed costs are $500,000.The fans cost $40.00 each.The organization has a budgeted appropriation of $1,200,000.How many people can receive a fan during the summer?

Use the information below to answer the following question(s). Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600 -What is the contribution margin per case?

Cost-volume profit is used to analyze

Which of the following statements about contribution margin and gross margin in CVP analysis is TRUE?

Companies with a greater proportion of fixed costs have a greater risk of loss from changes in demand than companies with a greater proportion of variable costs.

An expected value is the weighted-average of the outcomes based on the percentage combinations of the incomes.

Which of the following is an assumption of CVP analysis?

Answer the following question(s)using the information below. The following information is for the Jeffries Corporation: -What is the break-even point,assuming the sales mix consists of three units of Product A and one unit of Product B?

Use the information below to answer the following question(s). Jill Bishop makes homemade soap.She sells it for $100 a case.Her variable costs are $40 per case.She has fixed costs of $600 -What is the break-even point in cases?

Which of the following statements about using the equation method to determine the break-even point is TRUE?

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

Analysis of Cost Behaviour

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

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters