Question 1

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line represents which of the following?

Accepted Answer

A) Operating loss 
B) Operating income 
C) Slope of variable costs per unit 
D) Slope of fixed costs per unit

Question 2

The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products.

Accepted Answer

A) True 
 B)False

Question 3

Matthew's Fish Fry has a monthly target operating income of $8300. Variable expenses are 80% of sales and monthly fixed expenses are $800. What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

A) 10.88% 
B) 20.00% 
C) 91.21% 
D) 8)21%

Question 4

Gwyneth Inc. currently has a contribution margin of $12 on its only product and sells 40,000 units. Gwyneth Inc. is considering cutting its sales price by $2 to generate an increase in sales of 10,000 units. How will this change affect its operating income?

Accepted Answer

A) It will increase operating income by $80,000. 
B) It will decrease operating income by $80,000. 
C) It will decrease operating income by $20,000. 
D) It will increase operating income by $20,000.

Question 5

Mae Company sells its product for $7 per unit and has variable costs of $3 per unit. Total fixed costs are $72,000. Suppose variable costs increase by 20% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

Accepted Answer

A) Increase from 18,000 units to 21,177 units 
B) Decrease from 7200 units to 6793, units 
C) Decrease from 18,000 units to 5295 units 
D) Decrease from 24,000 units to 20,000 units

Question 6

Richard's Framing Company provides the following information about its single product.  What is the contribution margin per unit?

Accepted Answer

A) $65 
B) $0.13 
C) $140 
D) $10

Question 7

All else being equal, a company with a low operating leverage will have

Accepted Answer

A) relatively high fixed costs. 
B) relatively high contribution margin ratio. 
C) relatively high risk. 
D) relatively high variable costs.

Question 8

Highway 55 Studios has budgeted the following amounts for its next fiscal year:  If Highway 55 Studios can reduce fixed expenses by $82,500, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

Accepted Answer

A) $2.75 
B) $30.00 
C) $32.75 
D) $27.25

Question 9

Holding all other factors constant, the breakeven point will always double if fixed expenses increase by 25%.

Accepted Answer

A) True 
 B)False

Question 10

To find the sales revenue (sales in dollars)needed in order to breakeven or generate a target profit, the formula used is

Accepted Answer

A) (fixed expenses + operating income)÷ contribution margin per unit. 
B) (fixed expenses + operating income)÷ contribution margin ratio. 
C) (fixed expenses - operating income)÷ contribution margin ratio. 
D) (fixed expenses - operating income)÷ contribution margin per unit.

Question 11

The manager at Tom's Taxidermy expects to sell 900 units at $80 each unit. In order for the manager to breakeven, the manager must sell 100 units. What is the margin of safety in dollars?

Accepted Answer

A) $64,000 
B) $79,000 
C) $80,000 
D) $72,000

Question 12

Martin Enterprises has a predicted operating income of $110,000. Its total variable expenses are $35,000 and its total fixed expenses are $16,000. The unit contribution margin for the company's sole product is $11. The number of units that Martin Enterprises needs to sell to achieve the predicted operating income would be

Accepted Answer

A) 8545. 
B) 14,636. 
C) 8273. 
D) 11,455.

Question 13

Sweet Treats sells ice cream cones for $4.25 per customer. Variable costs are $1.25 per cone. Fixed costs are $3300 per month. What is the company's contribution margin ratio?

Accepted Answer

A) 29.41% 
B) 3% 
C) 240% 
D) 70.59%

Question 14

Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 60,000 units at $7.00/unit. Below is a listing of estimated expenses:  A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility.
The margin of safety percentage for Garfield Corporation is: (Round any intermediary percentage calculations to the nearest whole percent.)

Accepted Answer

A) 1)67%. 
B) 59.75% 
C) 140.25%. 
D) 14.85%.

Question 15

The Muffin House produces and sells a variety of muffins. The selling price per dozen is $20, variable costs are $7 per dozen, and total fixed costs are $6500. How many dozen muffins must The Muffin House sell to breakeven?

Accepted Answer

A) 10,000 
B) 500 
C) 325 
D) 241

Question 16

If target sales in units is 70,000, total fixed expenses are $11,000, and the unit contribution margin is $0.20, what is the target operating income?

Accepted Answer

A) $25,000 
B) $3000 
C) $14,000 
D) $22

Question 17

Managers can quickly forecast the total contribution margin by multiplying the

Accepted Answer

A) projected sales units by the variable cost ratio. 
B) projected sales units by the contribution margin ratio. 
C) projected sales revenue by the unit contribution margin. 
D) projected sales revenue by the contribution margin ratio.

Question 18

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 39,000 units at $10.00/unit. Below is a listing of estimated expenses:  A European firm was contracted to sell the product and will receive a commission of 45% of the sales price. No U.S. home office expenses will be allocated to the new facility.
How much does the European contractor expect to make in commissions?

Accepted Answer

A) $110,000 
B) $49,500 
C) $280,000 
D) $175,500

Question 19

The selling price of a Road King bicycle is $800, unit variable costs are $450 and total fixed costs are $10,150. What are breakeven sales in dollars?

Accepted Answer

A) $6496 
B) $29 
C) $13,050 
D) $23,200

Question 20

Contessa Corporation has fixed expenses of $200,000, and a unit sales price of $75. Its variable cost per unit is $60. If it sells 33,800 posters, its operating income is a

Accepted Answer

A) gain of $4,363,000. 
B) gain of $307,000. 
C) gain of $707,000. 
D) gain of $1,828,000.

Exam 7: Cost-Volume-Profit Analysis