Question 1

At the current selling price of $70 per unit, the contribution margin ratio is:

Accepted Answer

A)  60%. 
B)  40%. 
C)  67%. 
D)  120%. 
A)  60%. 
B)  40%. 
C)  67%. 
D)  120%. A

Question 2

Stan Todd, Inc. wants to manufacture a new cell phone that can be worn on the wrist. Information from doing market research shows that he can sell this phone for $25 each. His fixed costs would be $145,000 a year and variable costs would amount to $10 per phone.
(1) What would the contribution margin ratio be?
(2) What sales volume in units would Stan need to break-even?
(3) What sales volume in units would Stan need to earn $200,000 profit?
(4) What would be the margin of safety if he sold 25,000 units?

Accepted Answer

(1) 60%
(2) 9,667 units
(3) 23,000 units
(4) $383,333

Question 3

Using the high-low method, compute the variable element of repair cost per hour of operation for Universal's equipment:

Accepted Answer

A)  $750. 
B)  $3.33. 
C)  $0.30. 
D)  $0.34. 
A)  $750. 
B)  $3.33. 
C)  $0.30. 
D)  $0.34. C

Question 4

The contribution ratio is computed as:

Accepted Answer

A)  Sales minus variable costs, divided by sales. 
B)  Fixed costs plus variable costs, divided by sales. 
C)  Sales minus fixed costs, divided by sales. 
D)  Sales divided by variable costs. 
A)  Sales minus variable costs, divided by sales. 
B)  Fixed costs plus variable costs, divided by sales. 
C)  Sales minus fixed costs, divided by sales. 
D)  Sales divided by variable costs.

Question 5

Any business which operates at less than capacity will have smaller fixed costs than variable costs.

Accepted Answer

A) True 
 B)False

Question 6

At the original selling price of $50 per unit, what is the contribution margin ratio?

Accepted Answer

The answer of At the original selling price of $50...

Question 7

How many units must be sold each month to earn a monthly operating income of $8,000?

Accepted Answer

A)  971. 
B)  1,442. 
C)  122,500. 
D)  353. 
A)  971. 
B)  1,442. 
C)  122,500. 
D)  353.

Question 8

At the original selling price of $50 per unit, how many units must Paulsen sell to break even?

Accepted Answer

The answer of At the original selling price of $50...

Question 9

What will be the monthly margin of safety (in dollars) if 3,000 units are sold each month?

Accepted Answer

A)  $16,667. 
B)  $100,000. 
C)  $12,000. 
D)  $150,000. 
A)  $16,667. 
B)  $100,000. 
C)  $12,000. 
D)  $150,000.

Question 10

Contribution margin is total revenue less variable costs.

Accepted Answer

A) True 
 B)False

Question 11

Raymond & Sons generates an average contribution margin ratio of 45% on its sales. Management estimates that by spending $3,500 more per month to rent additional facilities, the business will be able to increase operating income by $10,000 per month. Management must feel that the additional facilities will increase monthly sales volume (in dollars) by:

Accepted Answer

A)  $4,725. 
B)  $8,775. 
C)  $13,500. 
D)  $30,000. 
A)  $4,725. 
B)  $8,775. 
C)  $13,500. 
D)  $30,000.

Question 12

Operating income can be calculated by:

Accepted Answer

A)  Dividing fixed costs by the contribution margin ratio. 
B)  Multiplying fixed costs by the contribution margin ratio. 
C)  Multiplying the margin of safety by the contribution margin ratio. 
D)  Dividing the margin of safety by the contribution margin ratio. 
A)  Dividing fixed costs by the contribution margin ratio. 
B)  Multiplying fixed costs by the contribution margin ratio. 
C)  Multiplying the margin of safety by the contribution margin ratio. 
D)  Dividing the margin of safety by the contribution margin ratio.

Question 13

The contribution margin ratio for this product is:

Accepted Answer

A)  20%. 
B)  25%. 
C)  30%. 
D)  40%. 
A)  20%. 
B)  25%. 
C)  30%. 
D)  40%.

Question 14

In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number of units produced.

Accepted Answer

A) True 
 B)False

Question 15

What will be Mitchell's monthly operating income if 1,800 units are sold each month?

Accepted Answer

A)  $153,000. 
B)  $136,500. 
C)  $30,600. 
D)  $14,100. 
A)  $153,000. 
B)  $136,500. 
C)  $30,600. 
D)  $14,100.

Question 16

At the reduced selling price of $65 per unit, the contribution margin ratio is (rounded, if necessary):

Accepted Answer

A)  43.1%. 
B)  56.9%. 
C)  52.8%. 
D)  Some other percentage. 
A)  43.1%. 
B)  56.9%. 
C)  52.8%. 
D)  Some other percentage.

Question 17

Cost-volume-profit analysis and strategy
A manufacturing company experiencing severe financial difficulties has applied for a large government guaranteed loan. As a condition for obtaining the guarantee, the government mandates that the company significantly reduce its annual break-even point. What steps might the company take to achieve the required reduction in its break-even point?

Accepted Answer

The company must 1) increase its contrib

Question 18

A semi-variable cost:

Accepted Answer

A)  Increases and decreases directly and proportionately with changes in volume. 
B)  Changes in response to a change in volume, but not proportionately. 
C)  Increases if volume increases, but remains constant if volume decreases. 
D)  Changes inversely in response to a change in volume. 
A)  Increases and decreases directly and proportionately with changes in volume. 
B)  Changes in response to a change in volume, but not proportionately. 
C)  Increases if volume increases, but remains constant if volume decreases. 
D)  Changes inversely in response to a change in volume.

Question 19

If the monthly sales volume required to break even is $190,000 and monthly fixed costs are $55,900, the contribution margin ratio is:

Accepted Answer

A)  29%. 
B)  71%. 
C)  42.9%. 
D)  333.33%. 
A)  29%. 
B)  71%. 
C)  42.9%. 
D)  333.33%.

Question 20

How many units must be sold each month to earn a monthly operating income of $25,000?

Accepted Answer

A)  833. 
B)  2,300. 
C)  3,500. 
D)  Some other amount. 
A)  833. 
B)  2,300. 
C)  3,500. 
D)  Some other amount.

Exam 20: Cost-Volume-Profit Analysis

At the current selling price of $70 per unit, the contribution margin ratio is:

Using the high-low method, compute the variable element of repair cost per hour of operation for Universal's equipment:

The contribution ratio is computed as:

Any business which operates at less than capacity will have smaller fixed costs than variable costs.

At the original selling price of $50 per unit, what is the contribution margin ratio?

How many units must be sold each month to earn a monthly operating income of $8,000?

At the original selling price of $50 per unit, how many units must Paulsen sell to break even?

What will be the monthly margin of safety (in dollars) if 3,000 units are sold each month?

Contribution margin is total revenue less variable costs.

Operating income can be calculated by:

The contribution margin ratio for this product is:

In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number of units produced.

What will be Mitchell's monthly operating income if 1,800 units are sold each month?

At the reduced selling price of $65 per unit, the contribution margin ratio is (rounded, if necessary):

A semi-variable cost:

If the monthly sales volume required to break even is $190,000 and monthly fixed costs are $55,900, the contribution margin ratio is:

How many units must be sold each month to earn a monthly operating income of $25,000?

Accounting: Information for Decision Making

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The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

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Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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