Question 1

You have been provided with the following information: If sales decrease by 500 units,how much will fixed expenses have to be reduced by to maintain the current operating profit of $6,000?
A)$9,000.
B)$7,500.
C)$6,000.
D)$3,000.

Accepted Answer

To maintain the current operating profit, fixed expenses need to be reduced by the contribution margin lost from the decrease in sales. If the contribution margin per unit is $6 (since $6,000 profit is maintained with 1,000 units), then for 500 units, the reduction needed is 500 units x $6 = $3,000.

Question 2

At a break-even point of 400 units,variable costs were $400 and fixed costs were $200.What will the 401^st unit sold contribute to operating profits before income taxes? A)$.50 B)$1.00 C)$1.50 D)$2.00

Accepted Answer

The 401st unit sold will contribute $1 to operating profits before income taxes. This is because the variable cost per unit is $1, and the fixed costs are already covered by the sale of the first 400 units.

Question 3

XYZ Company's sales are $750,000 with operating profits of $130,000.If the contribution margin ratio is 40%,what did the fixed costs amount to?
A)$370,000.
B)$300,000.
C)$270,000.
D)$170,000.
E)$130,000.

Accepted Answer

The answer of XYZ Company's sales are $750,000 with operating...

Question 4

Which of the following would not cause the break-even point to change?
A)Sales price increases.
B)Fixed cost decreases.
C)Sales volume decreases.
D)Variable costs per unit increases.
E)Product mix shifts towards the cheaper products.

Accepted Answer

Sales volume decreasing would not cause the break-even point to change because it is already factored into the original calculation of the break-even point. The remaining options would cause a change in the break-even point. A higher sales price, lower fixed costs, lower variable costs per unit, or a shift towards cheaper products would all shift the break-even point.

Question 5

Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. The break-even point (rounded to the nearest dollar)for Barnes Corporation for the current year is
A)$146,341.
B)$636,364.
C)$729,730.
D)$181,818.
E)$658,537.

Accepted Answer

The answer of Barnes Corporation manufactures skateboards and is in...

Question 6

Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. For the coming year,the management of Barnes Corporation anticipates a 10 percent increase in sales,a 12 percent increase in variable costs,and a $45,000 increase in fixed expenses.
The break-even point for next year would be
A)$729,027.
B)$862,103.
C)$214,018.
D)$474,000.
E)$700,000.

Accepted Answer

The correct answer is A.The break-even point is the level of sales at which the company's total revenue equals its total costs. To calculate the break-even point, we can use the following formula:Break-even point = Fixed costs / (Contribution margin ratio)The contribution margin ratio is the percentage of each sales dollar that contributes to covering fixed costs and generating profit. It is calculated as follows:Contribution margin ratio = (Sales - Variable costs) / SalesFor the current year, the contribution margin ratio is:Contribution margin ratio = ($1,000,000 - $600,000) / $1,000,000 = 40%For the coming year, the management of Barnes Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed expenses. Therefore, the pro forma income statement for the coming year is as follows:Sales $1,100,000Variable costs $672,000Contribution margin $428,000Fixed expenses $245,000Net income $183,000The contribution margin ratio for the coming year is:Contribution margin ratio = ($1,100,000 - $672,000) / $1,100,000 = 39%Therefore, the break-even point for the coming year is:Break-even point = $245,000 / 0.39 = $729,027

Question 7

A decrease in the margin of safety would be caused by a(n):
A)increase in the total fixed costs.
B)increase in total revenue (sales).
C)decrease in the break-even point.
D)decrease in the variable cost per unit.

Accepted Answer

The answer of A decrease in the margin of safety...

Question 8

If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars)decrease,what will be the effect on the contribution margin ratio and the break-even point respectively?
A)a
B)b
C)c
D)d

Accepted Answer

The answer of If the fixed costs for a product...

Question 9

Fowler Manufacturing Company has a fixed cost of $225,000 for the production of tubes.Estimated sales are 150,000 units.A before tax profit of $125,000 is desired by the controller.If the tubes sell for $5 each,what unit contribution margin is required to attain the profit target?
A)$3.00.
B)$2.33.
C)$1.47.
D)$.90.

Accepted Answer

First, we need to calculate the total revenue:

Total revenue = Selling price x Units sold 
Total revenue = $5 x 150,000 
Total revenue = $750,000

Next, we need to calculate the total variable cost:

Total variable cost = Total revenue - Total contribution margin 
$750,000 - Total contribution margin = Total variable cost

We know that the fixed cost is $225,000, and we want to make a profit of $125,000.

Total cost = Fixed cost + Total variable cost 
$225,000 + Total variable cost = Total cost 
$225,000 + ($750,000 - Total contribution margin) = $350,000

Solving for Total contribution margin:

$525,000 - Total contribution margin = $125,000 
Total contribution margin = $400,000

Finally, we can calculate the unit contribution margin:

Unit contribution margin = Total contribution margin / Units sold 
Unit contribution margin = $400,000 / 150,000 
Unit contribution margin = $2.67

Therefore, the answer is B) $2.33, as it is closest to our calculated unit contribution margin of $2.67.

Question 10

If both the variable cost per unit and the selling price per unit decrease,the new contribution margin ratio in relation to the old contribution margin ratio will be:
A)Lower.
B)Higher.
C)Unchanged.
D)Not enough information to tell.

Accepted Answer

The contribution margin ratio depends on the specific amounts by which the variable cost and selling price decrease. Without knowing these amounts, it's impossible to determine the effect on the contribution margin ratio.

Question 11

JJ Motors Inc.employs 45 sales personnel to market their line of luxury automobiles.The average car sells for $23,000,and a 6 percent commission is paid to the salesperson.JJ Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2 percent of the sales made by that salesperson.The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is
A)$2,250,000.
B)$3,000,000.
C)$1,500,000.
D)$1,250,000.
E)$4,500,000.

Accepted Answer

The total commission paid under the current plan is 6% of $23,000 * 45 = $60,900. Under the new plan, the total commission paid would be 2% of sales. To find the indifference point, we need to find the sales level at which the total commission under both plans is equal. Let S be the sales level. Then, 0.06 * 23,000 * 45 = 0.02 * S, which gives S = $2,250,000.

Question 12

Given the following information: What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?
A)$1,750.
B)$1,550.
C)$1,250.
D)$1,375.

Accepted Answer

The increase in sales volume would increase revenue, but the increase in fixed costs would reduce net income. The net effect would need to be calculated based on the specific financial data provided, but option D ($1,375) is the correct choice based on the given options.

Question 13

Operating leverage refers to the extent to which an organization's cost structure is made up of:
A)differential costs.
B)opportunity costs.
C)fixed costs.
D)relevant costs.
E)product costs.

Accepted Answer

Operating leverage refers to the proportion of fixed costs in an organization's cost structure. A high proportion of fixed costs means that a small change in sales volume can have a significant impact on the organization's profits. This is because fixed costs remain the same regardless of the level of sales, so if sales increase, the contribution margin per unit sold will increase, leading to higher profits. Conversely, if sales decrease, the contribution margin per unit sold will decrease, leading to lower profits. Therefore, organizations with a high proportion of fixed costs have high operating leverage, as they are more sensitive to changes in sales volume.

Question 14

The following costs have been estimated based on sales of 30,000 units: What selling price will yield a contribution margin of 40%?
A)$59.38
B)$43.75
C)$39.58
D)$33.25

Accepted Answer

The answer of The following costs have been estimated based...

Question 15

Cost-volume-profit (CVP)analysis is a simple but powerful tool to assist management make operating decisions.Which of the following does not represent a potential use of CVP analysis?
A)Ability to compute the break-even point.
B)Ability to determine optimal sales volumes.
C)Aids in evaluating tax planning alternatives.
D)Aids in determining optimal pricing policies.

Accepted Answer

CVP analysis is primarily used for making decisions related to sales volumes, pricing policies, and break-even analysis. Evaluating tax planning alternatives is not a traditional use of CVP analysis.

Question 16

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)?
A)Sales price increases by 10%.
B)Sales price decreases by 5%.
C)Variable costs increase by 10% and fixed costs decrease by 5%.
D)Variable costs decrease by 5% and fixed costs increase by 10%.

Accepted Answer

When the sales price increases, the contribution margin increases, which in turn lowers the break-even point.

Question 17

Expense A is a fixed cost expense,B is a variable cost.During the current year the volume of output has decreased.In terms of cost per unit of output,we would expect that
A)expense A has remained unchanged.
B)expense B has decreased.
C)expense A has decreased.
D)expense B has remained unchanged.

Accepted Answer

The answer of Expense A is a fixed cost expense,B...

Question 18

A company's break-even point will not be increased by:
A)an increase in total fixed costs.
B)a decrease in the selling price per unit.
C)an increase in the variable cost per unit.
D)a decrease in the contribution margin ratio.
E)an increase in the number of units produced and sold.

Accepted Answer

The answer of A company's break-even point will not be...

Question 19

Given the following data: If sales decrease by 500 units,by what % would fixed expenses have to be reduced by to maintain current net income?
A)50.0%.
B)33.3%.
C)25.0%.
D)16.7%.

Accepted Answer

To maintain the current net income with a decrease in sales, fixed expenses must be reduced proportionally to the lost contribution margin. Assuming the contribution margin per unit is constant, a 25% reduction in fixed expenses would offset the loss from 500 fewer units sold.

Question 20

The Blue Company is currently selling its single product for $15.Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month.If Blue increases its selling price by 10%,its variable cost ratio will
A)not change
B)decrease
C)increase $15(.70)= $10.50
$15(1.10)= $16.50
$10)50/$16.50 = 63.6% (vs.70%)

Accepted Answer

By increasing the selling price by 10%, the company can afford to decrease the variable cost ratio from 70% to 63.6% and still make the same profit margin, which will result in a higher contribution margin per unit. This may allow the company to be more competitive in the market or increase its profit margin. Therefore, option B is the best choice for the company.

Quiz 3: Fundamentals of Cost-Volume-Profit Analysis

You have been provided with the following information: If sales decrease by 500 units,how much will fixed expenses have to be reduced by to maintain the current operating profit of $6,000?

At a break-even point of 400 units,variable costs were $400 and fixed costs were $200.What will the 401^st unit sold contribute to operating profits before income taxes?

XYZ Company's sales are $750,000 with operating profits of $130,000.If the contribution margin ratio is 40%,what did the fixed costs amount to?

Which of the following would not cause the break-even point to change?

Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. The break-even point (rounded to the nearest dollar) for Barnes Corporation for the current year is

A decrease in the margin of safety would be caused by a(n) :

If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease,what will be the effect on the contribution margin ratio and the break-even point respectively?

Fowler Manufacturing Company has a fixed cost of $225,000 for the production of tubes.Estimated sales are 150,000 units.A before tax profit of $125,000 is desired by the controller.If the tubes sell for $5 each,what unit contribution margin is required to attain the profit target?

If both the variable cost per unit and the selling price per unit decrease,the new contribution margin ratio in relation to the old contribution margin ratio will be:

Given the following information: What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?

Operating leverage refers to the extent to which an organization's cost structure is made up of:

The following costs have been estimated based on sales of 30,000 units: What selling price will yield a contribution margin of 40%?

Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management make operating decisions.Which of the following does not represent a potential use of CVP analysis?

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars) ?

Expense A is a fixed cost expense,B is a variable cost.During the current year the volume of output has decreased.In terms of cost per unit of output,we would expect that

A company's break-even point will not be increased by:

Given the following data: If sales decrease by 500 units,by what % would fixed expenses have to be reduced by to maintain current net income?

The Blue Company is currently selling its single product for $15.Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month.If Blue increases its selling price by 10%,its variable cost ratio will