Question 1

Which graph depicts the relationships among total variable costs, total fixed costs, number of units, and operating income?

Accepted Answer

A)  cost graph 
B)  volume graph 
C)  break-even graph 
D)  cost-volume-profit graph

Question 2

Date Company
Date Company makes calendars. Information on cost per unit is as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & \$ 1.20 \
\text { Variable overhead } & \$ 0.90 \
\text { Variable marketing expense } & \$ 0.40
\end{array}$$ Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The sales price per calendar is $10.
-Refer to Date Company. What is the variable cost ratio?

Accepted Answer

A)  36% 
B)  40% 
C)  46% 
D)  50%

Question 3

The impact on a firm's income resulting from a change in the number of units sold can be assessed by multiplying the unit contribution margin by the change in units sold assuming that fixed costs remain the same.

Accepted Answer

A) True 
 B)False

Question 4

Match each following terms with their correct description from the items listed below.
-Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment

Accepted Answer

A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix

Question 5

What should be used to compute the sales mix so that the break-even computation is meaningful to management?

Accepted Answer

A)  the expected mix 
B)  the traditional mix 
C)  the least desirable mix 
D)  the most desirable mix

Question 6

Oldman River Company expects to produce and sell 2,000 units next month. Data on costs follows:
Per unit costs:
Selling sales price $40
Variable manufacturing costs $10
Variable selling costs $ 6
Total costs:
Fixed manufacturing costs $16,000
Fixed selling costs $ 8,000
A. Calculate the break-even point in units.
B. Calculate the break-even point in sales dollars.
C. Calculate the expected operating income for next month.
D. Calculate the margin of safety in dollars.

Accepted Answer

The answer of Oldman River Company expects to produce and...

Question 7

Which statement best describes the break-even point?

Accepted Answer

A)  Profit is greater than zero. 
B)  Total revenue minus total cost. 
C)  Total contribution margin equals total fixed cost. 
D)  Total contribution margin equals total variable cost.

Question 8

Match each following terms with their correct description from the items listed below.
-The point where total sales revenue equals total cost

Accepted Answer

A) Break-even point 
B) Common fixed expenses 
C) Contribution margin 
D) Direct fixed expenses 
E) Margin of safety
F)Operating leverage
G)Degree of operating leverage
H)Sales mix

Question 9

Smart Inc. expects to produce and sell 4,000 units next month. Data on costs follows: $\begin{array}{l}
\text { Per unit costs: }\
\begin{array}{lr}
\text { Selling sales price } & \$ 80 \
\text { Variable manufacturing costs } & \$ 20 \
\text { Variable selling costs } & \$ 12
\end{array}\
\text { Total costs: }\
\begin{array}{lr}
\text { Fixed manufacturing costs } & \$ 32,000 \
\text { Fixed selling costs } & \$ 16,000\\end{array}
\end{array}$ A. Calculate the variable cost per unit.
B. Calculate the contribution margin per unit.
C. Calculate the variable cost ratio.
D. Calculate is the contribution margin ratio.

Accepted Answer

The answer of Smart Inc. expects to produce and sell...

Question 10

Which statement is an assumption of a cost-volume-profit analysis?

Accepted Answer

A)  Revenue and costs behave in a linear manner. 
B)  More inventory is produced than is sold in the period. 
C)  Sales price and costs vary within the relevant range. 
D)  Sales price and costs cannot be accurately identified.

Question 11

Diamonds in the Ruff sells only one product at a regular sales price of $7.50 per unit. Variable costs are 60% of sales, and fixed costs are $30,000. What is the break-even point in sales dollars?

Accepted Answer

A)  $12,000 
B)  $18,000 
C)  $50,000 
D)  $75,000

Question 12

What are components of operating leverage?

Accepted Answer

A)  fixed and variable costs 
B)  manufacturing costs and period costs 
C)  high-volume and low-volume products 
D)  revenues earned and manufacturing costs

Question 13

Refer to Books and Things. What is the variable cost per unit?

Accepted Answer

A)  $14 
B)  $20 
C)  $28 
D)  $30

Question 14

Better Bonds
Better Bonds provided the following data: $\begin{array}{lr}
\text { Sales } & \$ 540,000 \
\text { Variable costs } & \$ 378,000 \
\text { Fixed costs } & \$ 120,000 \
\text { Expected production and sales in units } & 40,000
\end{array}$
-Refer to Better Bonds. What is the break-even point in sales dollars?

Accepted Answer

A)  $112,500 
B)  $150,000 
C)  $171,429 
D)  $400,000

Question 15

Which statement best describes a profit-volume graph?

Accepted Answer

A)  It is difficult to interpret. 
B)  It can be plotted only if fixed costs are known. 
C)  It can be plotted only if the break-even point is known. 
D)  It fails to reveal how costs change as sales volume changes.

Question 16

In a multi-product firm, if the sales mix changes, the break-even points for each product will change.

Accepted Answer

A) True 
 B)False

Question 17

Date Company
Date Company makes calendars. Information on cost per unit is as follows: $$\begin{array} { l l } 
\text { Direct materials } & \$ 1.50 \
\text { Direct labour } & \$ 1.20 \
\text { Variable overhead } & \$ 0.90 \
\text { Variable marketing expense } & \$ 0.40
\end{array}$$ Fixed marketing expense totalled $13,000, and fixed administrative expense totalled $35,000. The sales price per calendar is $10.
-Refer to Date Company. What is the break-even point in units?

Accepted Answer

A)  2,167 
B)  2,800 
C)  5,833 
D)  8,000

Question 18

Zena Inc. has the following information for the current year:
Selling sales price per unit $10
Variable costs per unit $ 6
Fixed costs $1,000
Required: Prepare a cost-volume-profit graph identifying the following items:
A. Total costs line
B. Total fixed costs line
C. Total variable costs line
D. Total revenues line
E. Break-even point in sales dollars
F. Break-even point in units
G. Profit area
H. Loss area

Accepted Answer

The answer of Zena Inc. has the following information for...

Question 19

In a normal month, the Whitewater Company generates total sales of $25,000. To do so they incur variable costs of $15,000 and fixed costs of $10,000.
Required: Calculate each of the following:
A. Variable cost ratio
B. Contribution margin ratio
C. Monthly break-even point in dollar sales
D. Monthly margin of safety in dollars

Accepted Answer

The answer of In a normal month, the Whitewater Company...

Question 20

Better Bonds
Better Bonds provided the following data: $\begin{array}{lr}
\text { Sales } & \$ 540,000 \
\text { Variable costs } & \$ 378,000 \
\text { Fixed costs } & \$ 120,000 \
\text { Expected production and sales in units } & 40,000
\end{array}$
-Refer to Woods Company. What is the percent change in operating income expected in the coming year?

Accepted Answer

A)  8.3% 
B)  20.0% 
C)  30.0% 
D)  48.0%

Exam 4: Cost-Volume-Profit Analysis: a Managerial Planning Tool