Question 1

The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses.

Accepted Answer

A) True 
 B)False

Question 2

Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________.

Accepted Answer

A) loss; loss 
B) loss; profit 
C) profit; profit 
D) profit; loss

Question 3

Larry Company makes and sells 2 models of dishwashers, Model ABC and Model XYZ. For every 2 Model ABC sold, 3 Model XYZ are sold. The following information is also provided:  What is the weighted average contribution margin?

Accepted Answer

A) $320 
B) $300 
C) $200 
D) $400

Question 4

Tom's Taxidermy has a monthly target operating income of $29,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is Tom's operating leverage factor at the target level of operating income?

Accepted Answer

A) 0)48 
B) 0)66 
C) 1)52 
D) 2)93

Question 5

Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500.

Accepted Answer

A) True 
 B)False

Question 6

If the selling price per unit is $250, total fixed expenses are $360,000, and the breakeven sales in dollars is $600,000, what is the variable expense per unit?

Accepted Answer

A) $66.67 
B) $400.00 
C) $150.00 
D) $100.00

Question 7

A product is sold at $40 per unit, the variable expense per unit is $20, and total fixed expenses are $200,000, what are the breakeven sales in dollars?

Accepted Answer

A) $5000 
B) $100,000 
C) $105,000 
D) $400,000

Question 8

Perry Corporation produces and sells a single product. Data for that product are:  Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $10,000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,000 units per month.
How many units would the company have to sell to maintain current operating income if these changes are implemented? Round up to the nearest whole unit.

Accepted Answer

A) 12,000 units 
B) 13,077 units 
C) 12,923 units 
D) Cannot be determined from the information given.

Question 9

Oliver Inc. currently has a contribution margin of $25 on its only product. Oliver Inc. is considering spending $8,000 more on advertising this year to generate an increase in sales of 5,000 units. How will this change affect its operating income?

Accepted Answer

A) It will increase operating income by $117,000. 
B) It will increase operating income by $133,000. 
C) It will decrease operating income by $8,000. 
D) It will increase operating income by $125,000.

Question 10

If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true?

Accepted Answer

A) Contribution margin increases. 
B) Contribution margin decreases. 
C) Breakeven point in units increases. 
D) Breakeven point in units decreases.

Question 11

The operating leverage factor indicates the percentage change in operating income that will occur from a 5% change in volume.

Accepted Answer

A) True 
 B)False

Question 12

A product is sold at $12 per unit, the unit contribution margin is $7, and total fixed expenses are $9800, what are the breakeven sales in units?

Accepted Answer

A) 117,600 
B) 1400 
C) 817 
D) 68,600

Question 13

Martin Enterprises has a predicted operating income of $100,000. Its total variable expenses are $45,000 and its total fixed expenses have doubled from $23,000 to $46,000. The unit contribution margin for the company's sole product is $15. The number of units that Martin Enterprises needs to sell to achieve the predicted operating income would be

Accepted Answer

A) 3600. 
B) 6734. 
C) 12,734. 
D) 9734.

Question 14

The following information for the past year for the Blaine Corporation has been provided:  During the year, the company produced and sold 60,000 units of product at a selling price of $10.92 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin for the year?

Accepted Answer

A) $278,200 
B) $655,200 
C) $463,200 
D) $470,200

Question 15

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

Accepted Answer

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

Question 16

Matthew's Fish Fry has a monthly target operating income of $8400. Variable expenses are 70% of sales and monthly fixed expenses are $1470. What is Matthew's operating leverage factor at the target level of operating income?

Accepted Answer

A) 0)83 
B) 1)18 
C) 6)71 
D) 0)85

Question 17

Sophia's Delivery Service charges a $56 service fee. The variable cost per service run is $19. The company's fixed expenses amount to $6000. If the operating income equals fixed expenses, what is the breakeven point in sales revenue for Sophia's Delivery Service?

Accepted Answer

A) $18,162 
B) $3081 
C) $6000 
D) $9128

Question 18

The selling price of a particular product is $9.00 per unit, fixed costs total $16,800, and the breakeven sales in dollars is $24,000. What would be the variable expense per unit?

Accepted Answer

A) 3)86 
B) $6.30 
C) $2.70 
D) $15.30

Question 19

The following information for the past year for the Blaine Corporation has been provided:  During the year, the company produced and sold 10,000 units of product at a selling price of $18.32 per unit. There was no beginning inventory of product at the beginning of the year.
What is the contribution margin ratio for Blaine Corporation (round to 1 decimal)?

Accepted Answer

A) -77.4% 
B) 2)3% 
C) -3376.2% 
D) 79.7%

Question 20

Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $216,000. The monthly target operating income is $24,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal?

Accepted Answer

A) $40,000 
B) $440,000 
C) $400,000 
D) ($240,000)

Exam 7: Cost-Volume-Profit Analysis

The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses.

Sales above the breakeven point indicate a , whereas sales below the breakeven point indicate a .

Larry Company makes and sells 2 models of dishwashers, Model ABC and Model XYZ. For every 2 Model ABC sold, 3 Model XYZ are sold. The following information is also provided: What is the weighted average contribution margin?

Tom's Taxidermy has a monthly target operating income of $29,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is Tom's operating leverage factor at the target level of operating income?

Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500.

If the selling price per unit is $250, total fixed expenses are $360,000, and the breakeven sales in dollars is $600,000, what is the variable expense per unit?

A product is sold at $40 per unit, the variable expense per unit is $20, and total fixed expenses are $200,000, what are the breakeven sales in dollars?

Oliver Inc. currently has a contribution margin of $25 on its only product. Oliver Inc. is considering spending $8,000 more on advertising this year to generate an increase in sales of 5,000 units. How will this change affect its operating income?

If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true?

The operating leverage factor indicates the percentage change in operating income that will occur from a 5% change in volume.

A product is sold at $12 per unit, the unit contribution margin is $7, and total fixed expenses are $9800, what are the breakeven sales in units?

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

Matthew's Fish Fry has a monthly target operating income of $8400. Variable expenses are 70% of sales and monthly fixed expenses are $1470. What is Matthew's operating leverage factor at the target level of operating income?

Sophia's Delivery Service charges a $56 service fee. The variable cost per service run is $19. The company's fixed expenses amount to $6000. If the operating income equals fixed expenses, what is the breakeven point in sales revenue for Sophia's Delivery Service?

The selling price of a particular product is $9.00 per unit, fixed costs total $16,800, and the breakeven sales in dollars is $24,000. What would be the variable expense per unit?

Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $216,000. The monthly target operating income is $24,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal?