Question 1

The extent to which an organization uses fixed costs in its cost structure is measured by:

Accepted Answer

A)  financial leverage. 
B)  operating leverage. 
C)  fixed cost leverage. 
D)  contribution leverage. 
E)  efficiency leverage. 
A)  financial leverage. 
B)  operating leverage. 
C)  fixed cost leverage. 
D)  contribution leverage. 
E)  efficiency leverage.

Question 2

The information that follows was obtained from the accounting records of Gladstone Manufacturing during a period when the company sold 100,000 units. $\begin{array}{lr}
\text { Sales } & \$ 8,800,000 \
\text { Variable costs } & 2,400,000 \
\text { Fixed costs } & 6,016,000
\end{array}$ 
Required: 
A. Compute the company's per-unit contribution margin and break-even point in units.
B. How many units must Gladstone sell to produce a target profit of $550,400?
C. Assume that Gladstone was able to reduce the variable cost per unit by $4. What selling price could management charge if it desired to maintain the current break-even point?
D. Depreciation charges of $640,000 are included in the firm's fixed costs of $6,016,000. If these charges were to increase by 10%, what effect, if any, would this cost increase have on the company's contribution margin?

Accepted Answer

A. @#IMG-DLM& B. Unit sales to earn $550,400: ($6,

Question 3

A recent income statement of Black Corporation reported the following data: $\begin{array}{lr}
\text { Sales revenue } & \$ 8,000,000 \
\text { Variable costs } & 5,000,000 \
\text { Fixed costs } & 2,200,000
\end{array}$ If these data are based on the sale of 20,000 units, the contribution margin per unit would be:

Accepted Answer

A)  $40. 
B)  $150. 
C)  $290. 
D)  $360. 
E)  None of the other answers is correct. 
A)  $40. 
B)  $150. 
C)  $290. 
D)  $360. 
E)  None of the other answers is correct.

Question 4

Grey, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales would be:

Accepted Answer

A)  $160,000. 
B)  $200,000. 
C)  $300,000. 
D)  $480,000. 
E)  None of the other answers is correct. 
A)  $160,000. 
B)  $200,000. 
C)  $300,000. 
D)  $480,000. 
E)  None of the other answers is correct.

Question 5

The unit contribution margin is calculated as the difference between:

Accepted Answer

A)  selling price and fixed cost per unit. 
B)  selling price and variable cost per unit. 
C)  selling price and product cost per unit. 
D)  fixed cost per unit and variable cost per unit. 
E)  fixed cost per unit and product cost per unit. 
A)  selling price and fixed cost per unit. 
B)  selling price and variable cost per unit. 
C)  selling price and product cost per unit. 
D)  fixed cost per unit and variable cost per unit. 
E)  fixed cost per unit and product cost per unit.

Question 6

Jamal & Co. makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows: $$\begin{array} { l c l } 
& \text { Plain } & \text { Fancy } \
\text { Unit selling price } & \$ 20.00 & \$ 35.00 \
\text { Variable cost per unit } & 12.00 & 24.50
\end{array}$$ Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
Assuming that the sales mix remains constant, the number of units of Plain that Jamal must sell to break even is:

Accepted Answer

A)  2,000. 
B)  3,000. 
C)  3,375. 
D)  5,000. 
E)  5,625. 
A)  2,000. 
B)  3,000. 
C)  3,375. 
D)  5,000. 
E)  5,625.

Question 7

A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

Accepted Answer

A)  contribution margin. 
B)  gross margin. 
C)  operating leverage factor. 
D)  safety margin. 
E)  contribution-margin ratio. 
A)  contribution margin. 
B)  gross margin. 
C)  operating leverage factor. 
D)  safety margin. 
E)  contribution-margin ratio.

Question 8

Brice Publications, Inc. produces and sells business books. The results of the company's operations for the year ended December 31, 20x1, are given below. $\begin{array}{lr}
\text { Sales revenue } & \$ 400,000 \
\text { Cost of goods sold (manufacturing costs): } & \
\quad \text { Fixed } & 100,000 \
\quad \text { Variable } & 200,000 \
\text { Selling costs: } & \
\quad \text { Fixed } & 10,000 \
\quad \text { Variable } & 20,000 \
\text { Administrative costs: } & \
\quad \text { Fixed } & 24,000 \
\quad \text { Variable } & 6,000
\end{array}$ 
Required: 
A. Prepare a traditional income statement for the company.
B. Prepare a contribution income statement for the company.
C. Which income statement (traditional or contribution) would an operating manager most likely use to study changes in operating income that are caused by changes in sales? Why?

Accepted Answer

@#IMG-DLM& C. The contribution statement would be

Question 9

CVP analysis can be used to study the effect of:

Accepted Answer

A)  changes in selling prices on a company's profitability. 
B)  changes in variable costs on a company's profitability. 
C)  changes in fixed costs on a company's profitability. 
D)  changes in product sales mix on a company's profitability. 
E)  All of the other answers are correct. 
A)  changes in selling prices on a company's profitability. 
B)  changes in variable costs on a company's profitability. 
C)  changes in fixed costs on a company's profitability. 
D)  changes in product sales mix on a company's profitability. 
E)  All of the other answers are correct.

Question 10

If a company desires to increase its safety margin, it should:

Accepted Answer

A)  increase fixed costs. 
B)  decrease the contribution margin. 
C)  decrease selling prices, assuming the price change will have no effect on demand. 
D)  stimulate sales volume. 
E)  attempt to raise the break-even point. 
A)  increase fixed costs. 
B)  decrease the contribution margin. 
C)  decrease selling prices, assuming the price change will have no effect on demand. 
D)  stimulate sales volume. 
E)  attempt to raise the break-even point.

Question 11

A recent income statement of Dragonwood Corporation reported the following data: $\begin{array}{lr}
\text { Units sold } & \$ 9,000 \
\text { Sales revenue } & \$ 9,600,000 \
\text { Variable costs } & 6,000,000 \
\text { Fixed costs } & 2,600,000
\end{array}$ If the company desired to earn a target profit of $1,270,000, it would have to sell:

Accepted Answer

A)  5,778 units. 
B)  8,600 units. 
C)  10,160 units. 
D)  11,908 units. 
E)  None of the other answers is correct. 
A)  5,778 units. 
B)  8,600 units. 
C)  10,160 units. 
D)  11,908 units. 
E)  None of the other answers is correct.

Question 12

Which of the following does not typically appear on a contribution income statement?

Accepted Answer

A)  Net income. 
B)  Gross margin. 
C)  Contribution margin. 
D)  Total variable costs. 
E)  Total fixed costs. 
A)  Net income. 
B)  Gross margin. 
C)  Contribution margin. 
D)  Total variable costs. 
E)  Total fixed costs.

Question 13

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units.
In order to produce a target profit of $22,000, Narchie's dollar sales must total:

Accepted Answer

A)  $8,440. 
B)  $21,100. 
C)  $1,000,000. 
D)  $1,055,000. 
E)  None of the other answers is correct. 
A)  $8,440. 
B)  $21,100. 
C)  $1,000,000. 
D)  $1,055,000. 
E)  None of the other answers is correct.

Question 14

Jamal & Co. makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows: $$\begin{array} { l c l } 
& \text { Plain } & \text { Fancy } \
\text { Unit selling price } & \$ 20.00 & \$ 35.00 \
\text { Variable cost per unit } & 12.00 & 24.50
\end{array}$$ Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.
Assuming that the sales mix remains constant, the total number of units that Jamal must sell to break even is:

Accepted Answer

A)  2,432. 
B)  2,647. 
C)  4,737. 
D)  5,000. 
E)  None of the other answers is correct. 
A)  2,432. 
B)  2,647. 
C)  4,737. 
D)  5,000. 
E)  None of the other answers is correct.

Question 15

Alphabeta Corporation sells three products: J, K, and L. The following information was taken from a recent budget:   
Total fixed costs are anticipated to be $2,450,000.
Required: 
A. Determine Alphabeta's sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of J, K, and L that must be sold to break even.
D. If Alphabeta desires to increase company profitability, should it attempt to increase or decrease the sales of product K relative to those of J and L? Briefly explain.

Accepted Answer

A. Sales mix: 40,000 + 130,000 + 30,000

Question 16

Maxine's budget for the upcoming year revealed the following figures: $\begin{array}{lr}
\text { Sales revenue } & \$ 840,000 \
\text { Contribution margin } & 504,000 \
\text { Income } & 54,000
\end{array}$ If the company's break-even sales total $750,000, Maxine's safety margin would be:

Accepted Answer

A)  $(90,000). 
B)  $90,000. 
C)  $246,000. 
D)  $336,000. 
E)  $696,000. 
A)  $(90,000). 
B)  $90,000. 
C)  $246,000. 
D)  $336,000. 
E)  $696,000.

Question 17

All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

Accepted Answer

A)  selling price. 
B)  variable cost. 
C)  contribution margin. 
D)  fixed cost. 
E)  gross margin. 
A)  selling price. 
B)  variable cost. 
C)  contribution margin. 
D)  fixed cost. 
E)  gross margin.

Question 18

Barrey, Inc. is subject to a 40% income tax rate. The following data pertain to the period just ended when the company produced and sold 45,000 units: $$\begin{array} { l r } 
\text { Sales revenue } & \$ 1,350,000 \
\text { Variable costs } & 810,000 \
\text { Fixed costs } & 432,000
\end{array}$$ How many units must Barrey sell to earn an after-tax profit of $180,000?

Accepted Answer

A)  42,000. 
B)  45,000. 
C)  51,000. 
D)  61,000. 
E)  None of the other answers is correct. 
A)  42,000. 
B)  45,000. 
C)  51,000. 
D)  61,000. 
E)  None of the other answers is correct.

Question 19

Elmton recently sold 70,000 units, generating sales revenue of $4,900,000. The company's variable cost per unit and total fixed cost amounted to $20 and $2,800,000, respectively. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following independent cases:
Case no. 1: Management wants to lower the firm's break-even point to 52,000 units. If all other costs remain constant, what must happen to fixed costs to achieve this objective?
Case no. 2: The company anticipates a $2 hike in the variable cost per unit. If all other costs remain constant and management desires to maintain the firm's current break-even point, what must happen to Elmton's selling price? If selling price remains constant, what must happen to the firm's total fixed costs?
Required:
A. Answer the two cases raised by management.
B. Determine the impact (increase, decrease, or no effect) of the following operating changes on the items cited:
1. An increase in variable selling costs on income.
2. A decrease in direct material cost on the unit contribution margin.
3. A decrease in the number of units sold on the break-even point.

Accepted Answer

A. Case no. 1:
Selling price per unit: $

Question 20

A company that desires to lower its break-even point should strive to:

Accepted Answer

A)  decrease selling prices. 
B)  reduce variable costs. 
C)  increase fixed costs. 
D)  sell more units. 
E)  achieve more than one of the other answers listed. 
A)  decrease selling prices. 
B)  reduce variable costs. 
C)  increase fixed costs. 
D)  sell more units. 
E)  achieve more than one of the other answers listed.

The extent to which an organization uses fixed costs in its cost structure is measured by:

A recent income statement of Black Corporation reported the following data: Sales revenue \ 8,000,000 Variable costs 5,000,000 Fixed costs 2,200,000 If these data are based on the sale of 20,000 units, the contribution margin per unit would be:

Grey, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales would be:

The unit contribution margin is calculated as the difference between:

A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

CVP analysis can be used to study the effect of:

If a company desires to increase its safety margin, it should:

A recent income statement of Dragonwood Corporation reported the following data: Units sold \ 9,000 Sales revenue \ 9,600,000 Variable costs 6,000,000 Fixed costs 2,600,000 If the company desired to earn a target profit of $1,270,000, it would have to sell:

Which of the following does not typically appear on a contribution income statement?

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units. In order to produce a target profit of $22,000, Narchie's dollar sales must total:

Maxine's budget for the upcoming year revealed the following figures: Sales revenue \ 840,000 Contribution margin 504,000 Income 54,000 If the company's break-even sales total $750,000, Maxine's safety margin would be:

All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

Barrey, Inc. is subject to a 40% income tax rate. The following data pertain to the period just ended when the company produced and sold 45,000 units: Sales revenue \ 1,350,000 Variable costs 810,000 Fixed costs 432,000 How many units must Barrey sell to earn an after-tax profit of $180,000?

A company that desires to lower its break-even point should strive to:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 7: Cost-Volume-Profit Analysis

The extent to which an organization uses fixed costs in its cost structure is measured by:

A recent income statement of Black Corporation reported the following data: Sales revenue \ 8,000,000 Variable costs 5,000,000 Fixed costs 2,200,000 If these data are based on the sale of 20,000 units, the contribution margin per unit would be:

Grey, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Green's break-even sales would be:

The unit contribution margin is calculated as the difference between:

A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

CVP analysis can be used to study the effect of:

If a company desires to increase its safety margin, it should:

A recent income statement of Dragonwood Corporation reported the following data: Units sold \ 9,000 Sales revenue \ 9,600,000 Variable costs 6,000,000 Fixed costs 2,600,000 If the company desired to earn a target profit of $1,270,000, it would have to sell:

Which of the following does not typically appear on a contribution income statement?

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units. In order to produce a target profit of $22,000, Narchie's dollar sales must total:

Maxine's budget for the upcoming year revealed the following figures: Sales revenue \ 840,000 Contribution margin 504,000 Income 54,000 If the company's break-even sales total $750,000, Maxine's safety margin would be:

All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

Barrey, Inc. is subject to a 40% income tax rate. The following data pertain to the period just ended when the company produced and sold 45,000 units: Sales revenue \ 1,350,000 Variable costs 810,000 Fixed costs 432,000 How many units must Barrey sell to earn an after-tax profit of $180,000?

A company that desires to lower its break-even point should strive to:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behavior, and Cost Estimation

Variable Costing and the Costs of Quality and Sustainability

Financial Planning and Analysis: the Master Budget

Standard Costing and Analysis of Direct Costs

Flexible Budgeting and Analysis of Overhead Costs

Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Capital Expenditure Decisions

Allocation of Support Activity Costs and Joint Costs

The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Compound Interest and the Concept of Present Value

Inventory Management

Filters