Question 1

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $50 per 6 hours. The variable costs are $40 per 6 hours rental, and its fixed costs are $85,000 each month. What is the contribution margin ratio?

Accepted Answer

A) 20% 
B) 80% 
C) 500% 
D) 10%

Question 2

Stallard Corporation gathered the following information for the year just ended:  During the year, Stallard produced and sold 30,000 units of product at a selling price of $10.23 per unit. There was no beginning inventory of product at the start of the year.
What is the contribution margin for the year?

Accepted Answer

A) $43,100 
B) $216,100 
C) $306,900 
D) $133,900

Question 3

Hyde's Headphones sells deluxe headphones for $70 each. Unit variable expenses total $60. The breakeven sales in units is 1700 and budgeted sales in units is 4177. What is the margin of safety in dollars?

Accepted Answer

A) $35.3857143 
B) $173,390 
C) $411,390 
D) $2477

Question 4

Poplar Mills Incorporated desires an operating income of $73,000. Its variable expenses are $25,000 and its total fixed expenses have increased from $52,500 to $56,000. Its unit contribution margin is $15. Its sales in units to achieve the target profit is

Accepted Answer

A) 10,267. 
B) 1133. 
C) 8600. 
D) 6933.

Question 5

Pittsboro Corporation produces and sells a single product. Data for that product are:  Management is discussing increasing the price to $525 to cover an increase in fixed expenses of $80,000. Management believes they might lose 2% of sales per month.
What should be the overall effect on the company's monthly operating income if this change is implemented?

Accepted Answer

A) Increase of $3,600 
B) Increase of $80,000 
C) Decrease of $3,600 
D) Decrease of $80,000

Question 6

Tom's Taxidermy expects to sell 1200 units of its specialty preservation product. The managerial accountant reported that manager must sell 700 units of specialty product to breakeven. Compute the margin of safety in units.

Accepted Answer

A) 1900 units 
B) 600 units 
C) 700 units 
D) 500 units

Question 7

To calculate the weighted average contribution margin, divide the sum of the individual product contribution margins by the sales mix in units.

Accepted Answer

A) True 
 B)False

Question 8

Scott Incorporated has been in business for several months. Because of increased competition in the region for part adapters, the managers at Scott Incorporated is considering cutting sales price from $30 per adapter to $26 per adapter.  If the variable expenses remain at $20 per adapter and the fixed expenses remain at $6200, how many adapters will the managers need to sell to break even? Compute the breakeven sales in units.

Accepted Answer

A) 1008 units 
B) 1014 units 
C) 1034 units 
D) 1088 units

Question 9

The following information pertains to the Flying Fig Corporation:  How many units need to be sold in order to reach the target profit?

Accepted Answer

A) 2333 units 
B) 3333 units 
C) 1000 units 
D) 6667 units

Question 10

J&A Corporation has a monthly target operating income of $41,400. Variable expenses are 10% of sales and monthly fixed expenses are $12,600. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Accepted Answer

A) $60,000 
B) $46,000 
C) $74,000 
D) $7400

Question 11

Green Beans Corporation currently has a sales price of $2.00 per can of organic green beans with a variable cost of $0.75 per can. The company currently sells 50,000 cans a month and hopes that increased advertising of $3,000 will increase its sales by 5,000 cans. The company currently has $20,000 in fixed costs per month. How will this change affect its breakeven point in terms of cans?

Accepted Answer

A) The company will have to sell 5,000 more cans to breakeven. 
B) The company will have to sell 2,400 more cans to breakeven. 
C) The company will have to sell 2,600 more cans to breakeven. 
D) The company will have to sell 18,400 more cans to breakeven.

Question 12

I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 17,000 gallons last year. For every five gallons of ice cream sold, one gallon is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $7500 and additional information follows:  The breakeven sales volume in gallons for I Scream For Ice Cream is

Accepted Answer

A) 1500. 
B) 22,667. 
C) 3000. 
D) 10,000.

Question 13

The higher the operating leverage factor, the

Accepted Answer

A) lessen the impact of volume on operating income. 
B) greater the impact of volume on operating income. 
C) more likely operating income is to stay constant. 
D) none of the above.

Question 14

LPS Corporation's management has budgeted the following amounts for its next fiscal year:  If LPS Corporation spends an additional $21,000 on advertising, sales volume should increase by 5000 units. What effect will this have on operating income?

Accepted Answer

A) Increase of $175,000 
B) Increase of $154,000 
C) Decrease of $154,000 
D) Decrease of $175,000

Question 15

If unit sales prices, unit variable costs and total fixed costs all remain the same, but the sales mix changes, there is an effect on the breakeven point.

Accepted Answer

A) True 
 B)False

Question 16

When calculating the breakeven point in terms of sales revenue, variable costs should be divided by the contribution margin ratio.

Accepted Answer

A) True 
 B)False

Question 17

By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

Accepted Answer

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

Question 18

J&A Corporation has a monthly target operating income of $26,100. Variable expenses are 10% of sales and monthly fixed expenses are $9900. What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

A) 137.93% 
B) 72.50% 
C) 90.00% 
D) 263.64%

Question 19

Medoc Company provides the following information about its single product.  What is the contribution margin per unit?

Accepted Answer

A) $0.35 
B) $11.50 
C) $2.40 
D) $4.55

Question 20

To find the number of units that need to be sold 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.

Exam 7: Cost-Volume-Profit Analysis

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $50 per 6 hours. The variable costs are $40 per 6 hours rental, and its fixed costs are $85,000 each month. What is the contribution margin ratio?

Hyde's Headphones sells deluxe headphones for $70 each. Unit variable expenses total $60. The breakeven sales in units is 1700 and budgeted sales in units is 4177. What is the margin of safety in dollars?

Poplar Mills Incorporated desires an operating income of $73,000. Its variable expenses are $25,000 and its total fixed expenses have increased from $52,500 to $56,000. Its unit contribution margin is $15. Its sales in units to achieve the target profit is

Tom's Taxidermy expects to sell 1200 units of its specialty preservation product. The managerial accountant reported that manager must sell 700 units of specialty product to breakeven. Compute the margin of safety in units.

To calculate the weighted average contribution margin, divide the sum of the individual product contribution margins by the sales mix in units.

The following information pertains to the Flying Fig Corporation: How many units need to be sold in order to reach the target profit?

J&A Corporation has a monthly target operating income of $41,400. Variable expenses are 10% of sales and monthly fixed expenses are $12,600. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

The higher the operating leverage factor, the

LPS Corporation's management has budgeted the following amounts for its next fiscal year: If LPS Corporation spends an additional $21,000 on advertising, sales volume should increase by 5000 units. What effect will this have on operating income?

If unit sales prices, unit variable costs and total fixed costs all remain the same, but the sales mix changes, there is an effect on the breakeven point.

When calculating the breakeven point in terms of sales revenue, variable costs should be divided by the contribution margin ratio.

By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

J&A Corporation has a monthly target operating income of $26,100. Variable expenses are 10% of sales and monthly fixed expenses are $9900. What is the monthly margin of safety as a percentage of target sales in dollars?

Medoc Company provides the following information about its single product. What is the contribution margin per unit?

To find the number of units that need to be sold in order to breakeven or generate a target profit, the formula used is