Question 1

Which formula calculates operating income?

Accepted Answer

A)  (sales price × units sold) - (unit variable cost × units sold) - fixed cost 
B)  (sales price × units sold) + (unit variable cost × units sold) + fixed cost 
C)  (sales price + units sold) - (unit variable cost + units sold) - fixed cost 
D)  (sales price - units sold) + (unit variable cost - units sold) + fixed cost 
A)  (sales price × units sold) - (unit variable cost × units sold) - fixed cost 
B)  (sales price × units sold) + (unit variable cost × units sold) + fixed cost 
C)  (sales price + units sold) - (unit variable cost + units sold) - fixed cost 
D)  (sales price - units sold) + (unit variable cost - units sold) + fixed cost

Question 2

What relationship is visually portrayed by a profit-volume graph?

Accepted Answer

A)  profits and units sold 
B)  total sales and total cost 
C)  total sales and units sold 
D)  fixed costs and variable costs 
A)  profits and units sold 
B)  total sales and total cost 
C)  total sales and units sold 
D)  fixed costs and variable costs

Question 3

Which of the following can be considered a measure of risk in cost-volume-profit analysis?

Accepted Answer

A)  fixed cost 
B)  margin of safety 
C)  contribution margin 
D)  contribution margin ratio 
A)  fixed cost 
B)  margin of safety 
C)  contribution margin 
D)  contribution margin ratio

Question 4

Which statement is NOT an assumption used to prepare a cost-volume-profit graph?

Accepted Answer

A)  The sales mix is constant. 
B)  The constant cost fluctuates. 
C)  Units produced equals units sold. 
D)  Linear costs are within the relevant range. 
A)  The sales mix is constant. 
B)  The constant cost fluctuates. 
C)  Units produced equals units sold. 
D)  Linear costs are within the relevant range.

Question 5

Hammer Company expects the following results for the next accounting period: $\begin{array}{lr}
\text { Sales } & \$ 240,000 \
\text { Variable costs } & \$ 135,000 \
\text { Fixed costs } & \$ 40,000 \
\text { Expected production and sales in units } & 3,000
\end{array}$ The sales manager believes sales could be increased by 400 units if advertising expenditures are increased by $10,000. Suppose advertising expenditures are increased and sales increase by 400 units. What will be the effect on operating income?

Accepted Answer

A)  a decrease of $4,000 
B)  an increase of $4,000 
C)  an increase of $22,000 
D)  an increase of $30,000 
A)  a decrease of $4,000 
B)  an increase of $4,000 
C)  an increase of $22,000 
D)  an increase of $30,000

Question 6

Baker Company developed the following income statement using a contribution margin approach:
Baker Company
Projected Income Statement
For the Current Year Ending December 31 $\begin{array}{lll}
\text { Sales (12,000 units) } & & \$ 240,000 \
\text { Less variable costs: } & \$ 60,000 & \
\text { Variable manufacturing costs } & \underline{36,000} & \
\text { Variable selling costs } & & \
\text { Total v ariable costs } & &\underline{96,000}\
\text { Contribution margin }&&\$144,000 \
\text { Less fixed costs: }\
\text { Fixed manufacturing costs } & \$ 85,000 \
\text { Fixed selling and administrative } & \
\text { costs } &\underline{3 5 , 0 0 0} \
\text { Total fixed costs } &&\underline{120,000}\
\text { Operating income }&&\underline{\$24,000}
\end{array}$ A. Determine the break-even point in sales dollars.
B. The sales manager believed the company could increase sales by 1,000 units if advertising expenditures were increased by $15,000. By how much will operating income increase or decrease if the advertising is increased as suggested?
C. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?

Accepted Answer

A. $120,000 / ($20 - $8) = 10,

Question 7

Income statements for two different wineries are as follows: $\begin{array}{lcc}&\text { White Wine }&\text { Red Wine }\
&\text { Company }&\text { Company }\
\text { Sales } & \$ 400,000 & \$ 400,000 \
\text { Less: Variable costs } & 300,000 & 200,000 \
\text { Contribution margin } & \$ 100,000 & \$ 200,000 \
\text { Less: Fixed costs } & \$ 0,000 & \$ 150,000 \
\text { Operating income } & \$ 50,000 & \$ 50,000
\end{array}$ A. Calculate the degree of operating leverage for each firm.
B. Calculate the margin of safety in dollars for each firm.
C. Determine the operating income for each firm if sales increase by 20%.

Accepted Answer

A. White Wine Company: $100,000 / $50,00

Question 8

The profit-volume graph shows the relationship between operating income and the number of units sold.

Accepted Answer

A) True 
 B)False

Question 9

Refer to Desjardin Tools. What is the break-even point in sales dollars?

Accepted Answer

A)  $392,241 
B)  $420,000 
C)  $761,905 
D)  $948,275 
A)  $392,241 
B)  $420,000 
C)  $761,905 
D)  $948,275

Question 10

Assume the following information: Variable cost ratio 80%
Total fixed costs $60,000
What volume of sales dollars is needed to break even?

Accepted Answer

A)  $12,000 
B)  $48,000 
C)  $75,000 
D)  $300,000 
A)  $12,000 
B)  $48,000 
C)  $75,000 
D)  $300,000

Question 11

McKenzie Company expects to produce and sell 1000 units next month. Data on costs follows:
Per unit costs:
Selling sales price $8
Variable manufacturing costs $2.75
Variable selling costs $0.25
Total costs:
Fixed manufacturing costs $1,000
Fixed selling costs $ 125
A. Calculate the break-even point in units.
B. Calculate the break-even point in sales dollars.
C. Calculate the expected operating income for next month.
D. Calculate the margin of safety in dollars.
E. Calculate the break-even point in units if fixed manufacturing costs increase by $500.
F. Calculate the break-even point in units if variable manufacturing costs decrease by $0.75.

Accepted Answer

A. Break-even point in units = $1,125 /

Question 12

Better Bonds
Better Bonds provided the following data: $\begin{array}{lr}
\text { Sales } & \$ 540,000 \
\text { Variable costs } & \$ 378,000 \
\text { Fixed costs } & \$ 120,000 \
\text { Expected production and sales in units } & 40,000
\end{array}$
-Refer to Plastic Gym. The company expects tree house demand to increase from 4,000 to 8,000 units per year. What is the new contribution margin ratio?

Accepted Answer

A)  38% 
B)  40% 
C)  50% 
D)  60% 
A)  38% 
B)  40% 
C)  50% 
D)  60%

Question 13

Refer to Books and Things. What is the break-even point?

Accepted Answer

A)  $13,700 
B)  $22,833 
C)  13,700 units 
D)  22,833 units 
A)  $13,700 
B)  $22,833 
C)  13,700 units 
D)  22,833 units

Question 14

Match each following terms with their correct description from the items listed below.
-The relative combination of products (or services) being sold by an organization

Accepted Answer

A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix 
A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix

Question 15

Common fixed expenses are the fixed costs that are traceable to the segments and would remain even if one of the segments was eliminated.

Accepted Answer

A) True 
 B)False

Question 16

Match each following terms with their correct description from the items listed below.
-The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume

Accepted Answer

A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix 
A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix

Question 17

Acme Company sells two products. Product X has a contribution margin of $6.00 per unit, and Product Y has a contribution margin of $7.50 per unit. Total fixed costs are $400,000. Sales mix and total volume varies from one period to another. Which statement best describes this situation?

Accepted Answer

A)  Selling less than 25,000 units of each product will result in a loss. 
B)  Variable costs are $1.50 higher for Product X than for Product Y. 
C)  The ratio of contribution to total sales always will be larger for Product X than for Product Y. 
D)  The ratio of net profit to total sales for Product Y will be larger than the ratio of net profit to total sales for Product X. 
A)  Selling less than 25,000 units of each product will result in a loss. 
B)  Variable costs are $1.50 higher for Product X than for Product Y. 
C)  The ratio of contribution to total sales always will be larger for Product X than for Product Y. 
D)  The ratio of net profit to total sales for Product Y will be larger than the ratio of net profit to total sales for Product X.

Question 18

Information for Select Team Inc. is as follows:
Sales $700,000
Variable costs $100,000
Fixed costs $200,000
A. Calculate the break-even point in sales dollars.
B. Calculate the sales (in dollars) that are needed to generate an operating income of $100,000.

Accepted Answer

A. ($700,000 - $100,000) / $700,000 = 85

Question 19

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

Accepted Answer

A)  the point at which total sales equal total cost 
B)  the point at which fixed costs equal variable costs 
C)  the point at which total sales are less than total cost 
D)  the point at which total sales are greater than total cost 
A)  the point at which total sales equal total cost 
B)  the point at which fixed costs equal variable costs 
C)  the point at which total sales are less than total cost 
D)  the point at which total sales are greater than total cost

Question 20

Go For It Company sells go-carts at $1,000 each, incurs a variable cost per unit of $600, and has a total fixed cost of $75,000. How many units must be sold to achieve a target operating income of $55,000?

Accepted Answer

A)  215 
B)  250 
C)  325 
D)  600 
A)  215 
B)  250 
C)  325 
D)  600

Which formula calculates operating income?

What relationship is visually portrayed by a profit-volume graph?

Which of the following can be considered a measure of risk in cost-volume-profit analysis?

Which statement is NOT an assumption used to prepare a cost-volume-profit graph?

The profit-volume graph shows the relationship between operating income and the number of units sold.

Refer to Desjardin Tools. What is the break-even point in sales dollars?

Assume the following information: Variable cost ratio 80% Total fixed costs $60,000 What volume of sales dollars is needed to break even?

Refer to Books and Things. What is the break-even point?

Match each following terms with their correct description from the items listed below. -The relative combination of products (or services) being sold by an organization

Common fixed expenses are the fixed costs that are traceable to the segments and would remain even if one of the segments was eliminated.

Match each following terms with their correct description from the items listed below. -The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume

Acme Company sells two products. Product X has a contribution margin of $6.00 per unit, and Product Y has a contribution margin of $7.50 per unit. Total fixed costs are $400,000. Sales mix and total volume varies from one period to another. Which statement best describes this situation?

Information for Select Team Inc. is as follows: Sales $700,000 Variable costs $100,000 Fixed costs $200,000 A. Calculate the break-even point in sales dollars. B. Calculate the sales (in dollars) that are needed to generate an operating income of $100,000.

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

Go For It Company sells go-carts at $1,000 each, incurs a variable cost per unit of $600, and has a total fixed cost of $75,000. How many units must be sold to achieve a target operating income of $55,000?

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Capital Investment Decisions

Filters

Exam 4: Cost-Volume-Profit Analysis: a Managerial Planning Tool

Which formula calculates operating income?

What relationship is visually portrayed by a profit-volume graph?

Which of the following can be considered a measure of risk in cost-volume-profit analysis?

Which statement is NOT an assumption used to prepare a cost-volume-profit graph?

The profit-volume graph shows the relationship between operating income and the number of units sold.

Refer to Desjardin Tools. What is the break-even point in sales dollars?

Assume the following information: Variable cost ratio 80% Total fixed costs $60,000 What volume of sales dollars is needed to break even?

Refer to Books and Things. What is the break-even point?

Match each following terms with their correct description from the items listed below. -The relative combination of products (or services) being sold by an organization

Common fixed expenses are the fixed costs that are traceable to the segments and would remain even if one of the segments was eliminated.

Match each following terms with their correct description from the items listed below. -The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume

Acme Company sells two products. Product X has a contribution margin of $6.00 per unit, and Product Y has a contribution margin of $7.50 per unit. Total fixed costs are $400,000. Sales mix and total volume varies from one period to another. Which statement best describes this situation?

Information for Select Team Inc. is as follows: Sales $700,000 Variable costs $100,000 Fixed costs $200,000 A. Calculate the break-even point in sales dollars. B. Calculate the sales (in dollars) that are needed to generate an operating income of $100,000.

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

Go For It Company sells go-carts at $1,000 each, incurs a variable cost per unit of $600, and has a total fixed cost of $75,000. How many units must be sold to achieve a target operating income of $55,000?

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behaviour

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Budgeting, Production, Cash, and Master Budget

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Capital Investment Decisions

Filters