Question 1

At the current selling price of $70 per unit, the dollar volume of sales per month necessary for Accents to break-even is:

Accepted Answer

A)  $12,000. 
B)  $20,000. 
C)  $30,000. 
D)  Some other amount. 
A)  $12,000. 
B)  $20,000. 
C)  $30,000. 
D)  Some other amount.

Question 2

What monthly sales level must be achieved for Rhinefold to earn a monthly operating income of $350,000? $___________

Accepted Answer

The answer of What monthly sales level must be achieved...

Question 3

Accounting terminology
Listed below are nine technical accounting terms introduced or emphasized in this chapter:
$$\begin{array} { | l | l | } 
\hline \text { Cost-volume-profit analysis } & \text { Cost driver } \
\hline \text { Contribution margin ratio } & \text { Margin of safety } \
\hline \text { Variable cost } & \text { High-low method } \
\hline \text { Break-even point } & \text { Contribution margin } \
\hline \text { Activity base } & \
\hline
\end{array}$$
Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. ______ (a) The amount by which sales revenue exceeds total variable cost expressed as a percentage of sales. ______ (b) The amount by which sales volume exceeds the break-even point. ______ (c) The study of financial statements by a potential investor or creditor as a means of evaluating the profitability and solvency of a business. ______ (d) A type of activity that has a causal effect in the occurrence of a particular cost. ______ (e) The level of sales at which revenue equals operating expenses. ______ (f) A cost that responds to changes in sales volume by less than a proportionate amount. ______ (g) A mathematical technique used to determine the fixed and variable elements of a mixed or semi-variable cost.

Accepted Answer

(a) Contribution margin ratio (b) Margin

Question 4

Management expects total sales of $40 million, a margin of safety of $10 million, and a contribution margin ratio of 45%. Which of the following estimated amounts is not consistent with this information?

Accepted Answer

A)  Variable costs, $22 million. 
B)  Fixed costs, $13.5 million. 
C)  Operating income, $6 million. 
D)  Break-even sales volume, $30 million. 
A)  Variable costs, $22 million. 
B)  Fixed costs, $13.5 million. 
C)  Operating income, $6 million. 
D)  Break-even sales volume, $30 million.

Question 5

In order to calculate break-even sales units, fixed costs are divided by the:

Accepted Answer

A)  Contribution margin per unit. 
B)  Contribution margin percentage. 
C)  Target operating income. 
D)  Sales volume. 
A)  Contribution margin per unit. 
B)  Contribution margin percentage. 
C)  Target operating income. 
D)  Sales volume.

Question 6

At the reduced selling price of $65 per unit, what dollar volume of sales per month is required to break-even? (Rounded)

Accepted Answer

A)  $27,842. 
B)  $22,727. 
C)  $21,090. 
D)  $28,427. 
A)  $27,842. 
B)  $22,727. 
C)  $21,090. 
D)  $28,427.

Question 7

The break-even point is the level of activity at which operating income is equal to cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 8

Stupper Corporation manufactures two products; data are shown below: If Stupper's monthly fixed costs average $200,000, what is its break-even point expressed in sales dollars?

Accepted Answer

A)  $320,000. 
B)  $250,000. 
C)  $370,370. 
D)  $152,632. 
A)  $320,000. 
B)  $250,000. 
C)  $370,370. 
D)  $152,632.

Question 9

At the increased selling price of $55 per unit, what dollar volume of sales per month is required to break-even?

Accepted Answer

The answer of At the increased selling price of $55...

Question 10

Cost-volume-profit relationships
The following data are available for a product manufactured and sold by Logan Company:
 
Compute the following:
(a) Contribution margin per unit: $________________
(b) Number of units that must be sold to break-even: _______________ units
(c) Dollar sales volume to produce income of $864,000 before taxes: $________________

Accepted Answer

(a) 84
(b)

Question 11

If the unit sales price is $14, variable costs are $7 per unit and fixed costs are $42,000, how many units must be sold to earn an income of $250,000?

Accepted Answer

A)  52,142. 
B)  41,715. 
C)  34,762. 
D)  29,796. 
A)  52,142. 
B)  41,715. 
C)  34,762. 
D)  29,796.

Question 12

Cost-volume-profit analysis
Diana Company, a sole proprietorship, sells only one product. The regular price is $160. Variable costs are 55% of this selling price, and fixed costs are $8,400 a month.
Management decides to decrease the selling price from $160 to $145 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
(a) At the original selling price of $160 a unit, what is the contribution margin ratio? ________________%
(b) At the original selling price of $160 a unit, what dollar volume of sales per month is required for Diana Company to break-even? $________________
(c) At the original selling price of $160 a unit, what dollar volume of sales per month is required for Diana Company to earn a monthly operating income of $6,500? $_________________
(d) At the reduced selling price of $145 a unit, what is the contribution margin ratio? ________________%
(e) At the reduced selling price of $145 a unit, what dollar volume of sales per month is required to break-even? $________________

Accepted Answer

(a) 45 (b)

Question 13

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of:

Accepted Answer

A)  $40,320. 
B)  $128,571. 
C)  $163,636. 
D)  It is not possible to determine the margin of safety from the information provided. 
A)  $40,320. 
B)  $128,571. 
C)  $163,636. 
D)  It is not possible to determine the margin of safety from the information provided.

Question 14

Olsen's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.

Accepted Answer

A)  $177,500. 
B)  $187,500. 
C)  $197,500. 
D)  $198,000. 
A)  $177,500. 
B)  $187,500. 
C)  $197,500. 
D)  $198,000.

Question 15

If the unit sales price is $7 and variable costs are $3, how many units have to be sold to earn a profit of $3,600 if fixed costs equal $5,000?

Accepted Answer

A)  900. 
B)  1,250. 
C)  1,500. 
D)  2,150. 
A)  900. 
B)  1,250. 
C)  1,500. 
D)  2,150.

Question 16

A 45% contribution margin ratio means that:

Accepted Answer

A)  The company should contribute 45% of its operating income to qualified charities for maximum tax benefits. 
B)  55% of the company's revenue is consumed by fixed and variable costs. 
C)  The company's revenue has increased by 45% during the current accounting period. 
D)  45% of the company's revenue is available to cover fixed costs and to contribute toward operating income. 
A)  The company should contribute 45% of its operating income to qualified charities for maximum tax benefits. 
B)  55% of the company's revenue is consumed by fixed and variable costs. 
C)  The company's revenue has increased by 45% during the current accounting period. 
D)  45% of the company's revenue is available to cover fixed costs and to contribute toward operating income.

Question 17

Using the high-low method, compute the variable element of manufacturing overhead per unit of production.

Accepted Answer

A)  $0.83. 
B)  $1.02. 
C)  $0.95. 
D)  $0.08. 
A)  $0.83. 
B)  $1.02. 
C)  $0.95. 
D)  $0.08.

Question 18

When volume increases, fixed costs per unit:

Accepted Answer

A)  Increase. 
B)  Decrease. 
C)  Stay the same. 
D)  Increase or decrease, depending upon the situation. 
A)  Increase. 
B)  Decrease. 
C)  Stay the same. 
D)  Increase or decrease, depending upon the situation.

Question 19

The total estimated repair cost for a month in which Universal operates equipment for 19,000 hours is:

Accepted Answer

A)  $5,950. 
B)  $6,300. 
C)  $6,450. 
D)  $5,700. 
A)  $5,950. 
B)  $6,300. 
C)  $6,450. 
D)  $5,700.

Question 20

During the current year, the net sales of Ridgeway, Inc. were 10 percent below last year's level. You should expect Ridgeway's semivariable costs to:

Accepted Answer

A)  Decrease in total, but increase as a percentage of net sales. 
B)  Increase in total, and increase as a percentage of net sales. 
C)  Decrease in total, and decrease as a percentage of net sales. 
D)  Increase in total, but decrease as a percentage of net sales. 
A)  Decrease in total, but increase as a percentage of net sales. 
B)  Increase in total, and increase as a percentage of net sales. 
C)  Decrease in total, and decrease as a percentage of net sales. 
D)  Increase in total, but decrease as a percentage of net sales.

Exam 20: Cost-Volume-Profit Analysis

At the current selling price of $70 per unit, the dollar volume of sales per month necessary for Accents to break-even is:

What monthly sales level must be achieved for Rhinefold to earn a monthly operating income of $350,000? $___________

Management expects total sales of $40 million, a margin of safety of $10 million, and a contribution margin ratio of 45%. Which of the following estimated amounts is not consistent with this information?

In order to calculate break-even sales units, fixed costs are divided by the:

At the reduced selling price of $65 per unit, what dollar volume of sales per month is required to break-even? (Rounded)

The break-even point is the level of activity at which operating income is equal to cost of goods sold.

Stupper Corporation manufactures two products; data are shown below: If Stupper's monthly fixed costs average $200,000, what is its break-even point expressed in sales dollars?

At the increased selling price of $55 per unit, what dollar volume of sales per month is required to break-even?

If the unit sales price is $14, variable costs are $7 per unit and fixed costs are $42,000, how many units must be sold to earn an income of $250,000?

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of:

Olsen's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.

If the unit sales price is $7 and variable costs are $3, how many units have to be sold to earn a profit of $3,600 if fixed costs equal $5,000?

A 45% contribution margin ratio means that:

Using the high-low method, compute the variable element of manufacturing overhead per unit of production.

When volume increases, fixed costs per unit:

The total estimated repair cost for a month in which Universal operates equipment for 19,000 hours is:

During the current year, the net sales of Ridgeway, Inc. were 10 percent below last year's level. You should expect Ridgeway's semivariable costs to:

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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