Question 1

The contribution margin is the amount by which revenue exceeds variable costs.

Accepted Answer

A) True 
 B)False

Question 2

A company's relevant range of production is:

Accepted Answer

A)  The production range from zero to 100% of plant capacity. 
B)  The production range over which CVP assumptions are valid. 
C)  The production range beyond the break-even point. 
D)  The production range that covers fixed but not variable costs. 
A)  The production range from zero to 100% of plant capacity. 
B)  The production range over which CVP assumptions are valid. 
C)  The production range beyond the break-even point. 
D)  The production range that covers fixed but not variable costs.

Question 3

With variable costs, the cost per unit varies with changes in volume.

Accepted Answer

A) True 
 B)False

Question 4

Cost-volume-profit relationships
Spotless, Inc., sells only one product. The sales price per unit is $50, with variable cost per unit of $40. Fixed costs are $60,000 per month. Maximum capacity is 34,000 units per month. Answer the following questions:
(a) To break-even, how many units must Spotless, sell per month? _______________ units
(b) If Spotless, Inc., sold 25,000 units, what would be its operating income for the month? $_________________
(c) At present capacity, what is the maximum operating income Spotless, can expect to earn per month? $_________________
(d) Assuming that direct labor cost can be reduced by $2 per unit, what would the maximum operating income be per month? $________________

Accepted Answer

(a) 6,000

Question 5

Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.

Accepted Answer

A) True 
 B)False

Question 6

Mitchum, Inc. produced different amounts of product X each month as follows:
$$\begin{array} { | l | c | c | } 
\hline & \text { Units } & \text { Costs } \
\hline \text { April } & 370 & \$ 21,300 \
\hline \text { May } & 420 & \$ 22,050 \
\hline \text { June } & 350 & \$ 21,000 \
\hline \text { July } & 550 & \$ 24,000 \
\hline \text { August } & 450 & \$ 22,500 \
\hline
\end{array}$$
Using the high-low method, determine:
(1) The variable expense per unit
(2) The fixed expense
(3) If Mitchum produced 450 units what would total expenses be?

Accepted Answer

(1) $15
(2

Question 7

Using cost-volume-profit formulas
Gary Corporation manufactures a single product. The selling price is $104 per unit, and variable costs amount to $78 per unit. The fixed costs are $36,000 per month.
(a) What is the contribution margin per unit? $________________ per unit
(b) What is the contribution margin ratio? ________________%
(c) What is the monthly sales volume (in dollars) at the break-even point? $_________________
(d) How many units must be sold each month to earn a monthly operating income of $32,000? _______________ units
(e) What is the monthly margin of safety (in dollars) if 3,000 units are sold each month? $________________
(f) What will be the monthly operating income if 3,000 units are sold each month? $________________

Accepted Answer

(a) 26
(b) 25%
(c) 1

Question 8

If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $26,000 what is the contribution ratio per unit?

Accepted Answer

A)  40%. 
B)  50%. 
C)  60%. 
D)  70%. 
A)  40%. 
B)  50%. 
C)  60%. 
D)  70%.

Question 9

Estimating costs and profit
International, Inc. expects total sales of $55 million, a margin of safety of $25 million, and a contribution margin ratio of 25%. Compute the following:
(a) Variable costs: $__________________ (b) Break-even sales volume (in dollars): $__________________ (c) Fixed costs: $__________________ (d) Operating income: $__________________

Accepted Answer

(a) $41,250,000
(b)

Question 10

If a product sells for $8, variable costs are $6 and fixed costs are $150,000, what would total sales have to be in order to break-even?

Accepted Answer

A)  $390,000. 
B)  $399,999. 
C)  $600,000. 
D)  $699,999. 
A)  $390,000. 
B)  $399,999. 
C)  $600,000. 
D)  $699,999.

Question 11

Using the high-low method, compute the fixed element of Universal's monthly repair cost:

Accepted Answer

A)  $150. 
B)  $250. 
C)  $6,300. 
D)  $6,450. 
A)  $150. 
B)  $250. 
C)  $6,300. 
D)  $6,450.

Question 12

Montclair Company earns an average contribution margin ratio of 40% on its sales. The local store manager estimates that he can increase monthly sales volume by $45,000 by spending an additional $7,000 per month for direct mail advertising. Compute the monthly increase in operating income if the manager's estimate about the increased sales volume is accurate.

Accepted Answer

A)  $11,000. 
B)  $23,000. 
C)  $16,000. 
D)  $18,000. 
A)  $11,000. 
B)  $23,000. 
C)  $16,000. 
D)  $18,000.

Question 13

The number of units Schiffman must sell to break even is: (rounded)

Accepted Answer

A)  3,927. 
B)  3572. 
C)  4,823. 
D)  5,140. 
A)  3,927. 
B)  3572. 
C)  4,823. 
D)  5,140.

Question 14

The volume of output which causes fixed costs to be equal in amount to total revenue is called the break-even point.

Accepted Answer

A) True 
 B)False

Question 15

In comparison to selling a product with a low contribution margin ratio, selling a product with a high contribution margin ratio always:

Accepted Answer

A)  Requires less dollar sales volume to cover a given level of fixed costs. 
B)  Results in a greater margin of safety. 
C)  Results in higher operating income. 
D)  Results in a higher contribution margin per unit sold. 
A)  Requires less dollar sales volume to cover a given level of fixed costs. 
B)  Results in a greater margin of safety. 
C)  Results in higher operating income. 
D)  Results in a higher contribution margin per unit sold.

Question 16

Nanu Corporation manufactures two products; data are shown below: If Nanu's monthly fixed costs average $425,000, what is its break-even point expressed in sales dollars?

Accepted Answer

A)  $1,320,000. 
B)  $1,250,000. 
C)  $1,400,000. 
D)  $990,000. 
A)  $1,320,000. 
B)  $1,250,000. 
C)  $1,400,000. 
D)  $990,000.

Question 17

Cost-volume-profit graph
Describe the important relationships shown on a cost-volume-profit graph.

Accepted Answer

The important relationships shown on a c

Question 18

If Rhinefold's monthly fixed costs increase by $8,500, what level of monthly sales revenue will be required to break-even? $__________.

Accepted Answer

The answer of If Rhinefold's monthly fixed costs increase by...

Question 19

Product X sells for $35 per unit and has related variable costs of $25 per unit. The fixed costs of producing product X are $65,000 per month. How many units of product X must be sold each month to earn a monthly operating income of $85,000?

Accepted Answer

A)  2,833. 
B)  6,000. 
C)  15,000. 
D)  10,000. 
A)  2,833. 
B)  6,000. 
C)  15,000. 
D)  10,000.

Question 20

The Gillett company's breakeven point in units is 25,000. Assuming that variable costs are 50% and fixed costs are $500,000, what is the company's projected operating income if sales are $1,250,000?

Accepted Answer

A)  $750,000. 
B)  $100,000. 
C)  $125,000. 
D)  $400,000. 
A)  $750,000. 
B)  $100,000. 
C)  $125,000. 
D)  $400,000.

Exam 20: Cost-Volume-Profit Analysis

The contribution margin is the amount by which revenue exceeds variable costs.

A company's relevant range of production is:

With variable costs, the cost per unit varies with changes in volume.

Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.

If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $26,000 what is the contribution ratio per unit?

If a product sells for $8, variable costs are $6 and fixed costs are $150,000, what would total sales have to be in order to break-even?

Using the high-low method, compute the fixed element of Universal's monthly repair cost:

The number of units Schiffman must sell to break even is: (rounded)

The volume of output which causes fixed costs to be equal in amount to total revenue is called the break-even point.

In comparison to selling a product with a low contribution margin ratio, selling a product with a high contribution margin ratio always:

Nanu Corporation manufactures two products; data are shown below: If Nanu's monthly fixed costs average $425,000, what is its break-even point expressed in sales dollars?

Cost-volume-profit graph Describe the important relationships shown on a cost-volume-profit graph.

If Rhinefold's monthly fixed costs increase by $8,500, what level of monthly sales revenue will be required to break-even? $__________.

Product X sells for $35 per unit and has related variable costs of $25 per unit. The fixed costs of producing product X are $65,000 per month. How many units of product X must be sold each month to earn a monthly operating income of $85,000?

The Gillett company's breakeven point in units is 25,000. Assuming that variable costs are 50% and fixed costs are $500,000, what is the company's projected operating income if sales are $1,250,000?

Accounting: Information for Decision Making

Basic Financial Statements

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

Liabilities

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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