Question 1

Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double.

Accepted Answer

A) True 
 B)False

Question 2

Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as follows:
$$\begin{array} { | l | r | } 
\hline \text { Pice per unit } & \$ 25.00 \
\hline \text { Variable cost per unit } & \$ 20.00 \
\hline \text { Fixed cost per month } & \$ 8,000 \
\hline \text { Current sales volume (units) } & 3,000 \
\hline
\end{array}$$
-
If Bell wishes to double their current operating income, what volume of sales is needed?

Accepted Answer

A)  3,140 
B)  4,400 
C)  3,500 
D)  3,625

Question 3

Which of the following will lower the breakeven point assuming no other changes?

Accepted Answer

A)  A decrease in the sales price per unit 
B)  An increase in total fixed costs 
C)  An increase in the variable costs per unit 
D)  An increase in the sales price per unit

Question 4

Arturo Company's model A generator sells for $456 and model B sells for $390. The variable cost of model A is $404 and of model B is $320. If Arturo Company's sales incentives reward sales of the goods with highest contribution margin, the sales force will be motivated to push sales of model A more aggressively than model B.

Accepted Answer

A) True 
 B)False

Question 5

Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost was $0.95 per unit and the fixed costs were $32,000 per month. Taizhong currently sells 140,000 units per month. Because of volatility in the precious metals market, the variable cost per unit has just gone up by $0.05, but the company does not believe it can pass the extra cost on to the customer. To offset higher variable costs, the production manager has developed a plan which will reduce fixed costs by 20%. How will these combined changes affect net operating income?

Accepted Answer

A)  It will go up 10%. 
B)  It will go down 20%. 
C)  It will go up 12%. 
D)  It will go down 110%.

Question 6

If production exceeds units sold, which of the following statements is CORRECT?

Accepted Answer

A)  The same operating income will result under both a variable costing and absorption costing income statement. 
B)  A higher operating income will result under a variable costing income statement. 
C)  A lower operating income will result under an absorption costing income statement. 
D)  A higher operating income will result under an absorption costing income statement.

Question 7

Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000 units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed costs by 10%. How will this affect net operating income?

Accepted Answer

A)  It will go up exactly 10%. 
B)  It will go down approximately 40%. 
C)  It will go up approximately 12%. 
D)  It will go up approximately 107%.

Question 8

On a CVP graph, in the area where the revenue line appears below the total cost line, the vertical distance separating the two lines represents what?

Accepted Answer

A)  Contribution margin 
B)  Operating loss 
C)  Operating income 
D)  Variable costs

Question 9

For the next year, Hall Company predicts the sale of 15,000 units of a product with a contribution margin of $6 per unit and 30,000 units of another product with a contribution margin of $9 per unit. The weighted-average contribution margin per unit is $8.

Accepted Answer

A) True 
 B)False

Question 10

Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit, and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. How much is Jarvis's margin of safety expressed in sales revenue?

Accepted Answer

A)  $8,000 
B)  $7,400 
C)  $6,000 
D)  $2,600

Question 11

Breakeven is the point where the sales revenues are exactly equal to the fixed costs.

Accepted Answer

A) True 
 B)False

Question 12

Moylan Company has provided the following contribution margin income statement:
$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 777,000 \
\hline \text { Variable expenses } & \$ 504,000 \
\hline \text { Contribution margin } & \$ 273,000 \
\hline \text { Fixed expenses } & \$ 212,000 \
\hline \text { Operating incame } & \$ 61,000 \
\hline
\end{array}$$
If the sales volume increases 10%, which of the following statements is CORRECT?

Accepted Answer

A)  Operating income will increase $6,100. 
B)  Operating income will increase $27,300. 
C)  Fixed expenses will increase $21,200. 
D)  Contribution margin will increase $77,700.

Question 13

A company sells products in two size packages-regular and long. They sell twice as many regulars as they do the long size. The contribution margin of the regular is $12 and the contribution margin of the long size is $18. The weighted average contribution margin is $15.

Accepted Answer

A) True 
 B)False

Question 14

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l } 
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit.
- If volume and other factors remain constant, how will this affect the company's breakeven point in sales dollars?

Accepted Answer

A)  It will go up by $5,760 of sales revenue. 
B)  It will go up by $2,400 of sales revenue. 
C)  It will go down by $400 of sales revenue. 
D)  It will go down by $2,720 of sales revenue.

Question 15

Ace Card Company has variable costs of $0.40 per unit of product. The remainder of its production costs are fixed. In May, the volume was 12,000 units and the total production costs were $6,900. How much are the fixed costs?

Accepted Answer

A)  $2,100 
B)  $2,200 
C)  $1,950 
D)  $2,025

Question 16

Runnymeade Products makes a racing bicycle tire. Cost and volume data are below.
$$\begin{array} { | l | r | } 
\hline \text { Pice per unit } & \$ 18.00 \
\hline \text { Variable cost per urit } & \$ 14.50 \
\hline \text { Fixed cost per manth } & \$ 28,000 \
\hline \text { Current sales valume (urits) } & 10,000 \
\hline
\end{array}$$
-
If management wants to earn $9,000 of operating income, how many units must be sold? (Please round to nearest whole number.)

Accepted Answer

A)  11,667 
B)  10,571 
C)  9,667 
D)  10,333

Question 17

Mist Company sells two products-A and B. Mist predicts that it will sell 2,500 units of A and 1,500 units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively. What is the weighted-average unit contribution margin? (Please round to nearest cent.)

Accepted Answer

A)  $3.99 
B)  $4.25 
C)  $4.15 
D)  $3.71

Question 18

Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there were 100,000 units produced and total costs of $550,000. In June, the company produced only 60,000 units. How much was the total cost in June?

Accepted Answer

A)  $378,000 
B)  $430,000 
C)  $330,000 
D)  $414,500

Question 19

Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as follows:
$$\begin{array} { | l | r | } 
\hline \text { Pice per unit } & \$ 25.00 \
\hline \text { Variable cost per unit } & \$ 20.00 \
\hline \text { Fixed cost per month } & \$ 8,000 \
\hline \text { Current sales volume (units) } & 3,000 \
\hline
\end{array}$$
-
If Bell wishes to increase their current operating income by 10%, what volume of sales is needed?

Accepted Answer

A)  3,140 
B)  3,200 
C)  3,500 
D)  3,625

Question 20

The local convenience store sells soft drinks. It sells two large drinks for every small drink. A large drink sells for $1.50, with a variable cost of $0.60. A small drink sells for $1.00, with a variable cost of $0.50. The weighted average contribution margin is $0.70.

Accepted Answer

A) True 
 B)False

Exam 19: Cost-Volume-Profit Analysis

Peterson Company has both fixed and variable costs. If the volume doubles, the total fixed costs will double.

Which of the following will lower the breakeven point assuming no other changes?

If production exceeds units sold, which of the following statements is CORRECT?

On a CVP graph, in the area where the revenue line appears below the total cost line, the vertical distance separating the two lines represents what?

For the next year, Hall Company predicts the sale of 15,000 units of a product with a contribution margin of $6 per unit and 30,000 units of another product with a contribution margin of $9 per unit. The weighted-average contribution margin per unit is $8.

Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit, and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. How much is Jarvis's margin of safety expressed in sales revenue?

Breakeven is the point where the sales revenues are exactly equal to the fixed costs.

A company sells products in two size packages-regular and long. They sell twice as many regulars as they do the long size. The contribution margin of the regular is $12 and the contribution margin of the long size is $18. The weighted average contribution margin is $15.

Ace Card Company has variable costs of $0.40 per unit of product. The remainder of its production costs are fixed. In May, the volume was 12,000 units and the total production costs were $6,900. How much are the fixed costs?

Mist Company sells two products-A and B. Mist predicts that it will sell 2,500 units of A and 1,500 units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively. What is the weighted-average unit contribution margin? (Please round to nearest cent.)

Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there were 100,000 units produced and total costs of $550,000. In June, the company produced only 60,000 units. How much was the total cost in June?

The local convenience store sells soft drinks. It sells two large drinks for every small drink. A large drink sells for $1.50, with a variable cost of $0.60. A small drink sells for $1.00, with a variable cost of $0.50. The weighted average contribution margin is $0.70.