Question 1

Management predicts total sales for June to be $3,000,000, yielding a margin of safety of $1,000,000 and a contribution margin ratio of 25%. Which of the following amounts is not consistent with this information?

Accepted Answer

A)  Fixed costs, $500,000. 
B)  Variable costs, $750,000. 
C)  Operating income, $250,000. 
D)  Break-even sales volume, $2,000,000.

Question 2

If unit sales prices are $7 and variable costs are $5 per unit, how many units would have to be sold to break-even if fixed costs equal $8,000?

Accepted Answer

A)  2,000. 
B)  3,000. 
C)  4,000. 
D)  3,800.

Question 3

What will be Sultan 's monthly operating income if 3,700 units are sold each month?

Accepted Answer

A)  $15,000. 
B)  $31,000. 
C)  $75,000. 
D)  $105,000.

Question 4

Estimating costs and profit
First-Class Company sells a single product. The unit selling price is $250, and variable costs are 60% of this selling price. Fixed costs are currently $68,000 per month.
(a) Calculate the monthly break-even point in units. ____________ Units.
(b) First-Class is considering the acquisition of new robotic equipment. Depreciation on the new robots will increase monthly fixed costs by $8,000, but reduce variable costs to 50% of the current selling price. If First-Class acquires the robots what will be the new monthly break-even point in units? ________________________ Units.

Accepted Answer

The answer of Estimating costs and profit
First-Class Company sells a...

Question 5

Executive salaries are typically considered variable costs.

Accepted Answer

A) True 
 B)False

Question 6

What will be the monthly margin of safety (in dollars) if 1,800 units are sold each month?

Accepted Answer

A)  $82,500. 
B)  $70,500. 
C)  $12,000. 
D)  $16,500.

Question 7

The contribution margin ratio may be expressed as:

Accepted Answer

A)  A percentage of revenue. 
B)  A total dollar amount for the period. 
C)  A contribution margin per unit. 
D)  Total contribution margin amount.

Question 8

The dollar sales volume necessary to produce operating income of $245,000 is closest to:

Accepted Answer

A)  $2,052,228. 
B)  $4,124,000. 
C)  $2,465,842. 
D)  $3,078,343.

Question 9

A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the selling price can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $300,000?

Accepted Answer

A)  5,595 units. 
B)  7,667 units. 
C)  1,278 units. 
D)  6,389 units.

Question 10

Multiple product companies
Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis:

(a) The total monthly sales revenue required to break-even is $__________. (Rounded)
(b) The total monthly sales revenue required to earn an operating income of $135,000 is $__________.
(c) The company's margin of safety at a monthly sales level of $2,500,000 is $__________.
(d) If monthly fixed costs increase by $10,000, the break-even point, expressed in sales dollars, will increase to $__________.

Accepted Answer

The answer of Multiple product companies
Pet Park International sells cat...

Question 11

Shown below are the monthly high and low levels of direct labor hours and of total manufacturing overhead for Apex Mfg. Co.: In a month in which 5,000 direct labor hours are used, the fixed element of total manufacturing overhead costs should be approximately:

Accepted Answer

A)  $15,500. 
B)  $8,000. 
C)  $7,500. 
D)  $8,000 plus $1.50 per unit.

Question 12

On the basis of the above data, the cost formula for Onyx's monthly manufacturing overhead can be expressed as:

Accepted Answer

A)  $18.00 average cost per direct labor hour. 
B)  $1.80 average cost per direct labor hour. 
C)  $26,000 fixed cost plus $1.50 per direct labor hour. 
D)  $18,000 fixed cost plus $2.00 per direct labor hour.

Question 13

The margin of safety is calculated by:

Accepted Answer

A)  Dividing fixed costs plus target income by the contribution margin. 
B)  Subtracting break-even income from current income. 
C)  Subtracting break-even sales from current sales. 
D)  Subtracting fixed costs from current contribution margin.

Question 14

Unique Corporation manufactures two products; data are shown below: If Unique's monthly fixed costs average $400,000, what is its break-even point expressed in sales dollars?

Accepted Answer

A)  $1,320,000. 
B)  $1,250,000. 
C)  $1,400,000. 
D)  $1,052,632.

Question 15

Using the high-low method, compute the fixed element of Olsen's monthly overhead cost.

Accepted Answer

A)  $33,000. 
B)  $35,000. 
C)  $37,500. 
D)  $40,000.

Question 16

Fixed costs:

Accepted Answer

A)  Fall as sales volume falls. 
B)  Rise as sales volume rises. 
C)  Rise as sales volume falls. 
D)  Remain steady when sales volume changes.

Question 17

The dollar amount by which sales can decline before an operating loss is incurred is called the:

Accepted Answer

A)  Contribution margin. 
B)  Contribution margin ratio. 
C)  Margin of safety. 
D)  Relevant range.

Question 18

Using cost-volume-profit formulas
Fantasy Corporation manufactures a single product. The selling price is $125 per unit, and variable costs amount to $81 per unit. The fixed costs are $28,500 per month.
(a) What is the contribution margin per unit? $________________ per unit
(b) What is the contribution margin ratio? ________________% (Rounded to 1 decimal place)
(c) What is the monthly sales volume (in dollars) at the break-even point? $_________________
(d) How many units must be sold each month to earn a monthly operating income of $50,000? _______________ units
(e) What is the monthly margin of safety (in dollars) if 1,500 units are sold each month? $________________
(f) What will be the monthly operating income if 1,500 units are sold each month? $________________

Accepted Answer

The answer of Using cost-volume-profit formulas
Fantasy Corporation manufactures a single...

Question 19

In a month in which 6,500 direct labor hours are worked, Onyx's manufacturing overhead should be approximately:

Accepted Answer

A)  $18,000. 
B)  $28,000. 
C)  $31,000. 
D)  $35,000.

Question 20

Millar Company produces a single product which it sells for $89 a unit. If the fixed costs of manufacturing and selling the product are $68,400 a month and the variable costs are $57 a unit, which of the below are correct?

Accepted Answer

A)  The fixed costs amount to $32 per unit at any level of output within a relevant volume range. 
B)  The company will break even with a sales volume of $68,400 a month. 
C)  An increase in sales volume above $68,400 a month will cause an increase in fixed costs. 
D)  The contribution margin per unit of product is $32.

Exam 20: Cost-Volume-Profit Analysis