Question 1

Walters Corporation sells radios for $50 per unit.The fixed costs are $525,000 and the variable costs are 60% of the selling price.As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price.The new break-even point in units is:
A)26,250
B)26,000
C)25,750
D)21,000

Accepted Answer

The new fixed costs will be $525,000 + $125,000 = $650,000. With the variable cost now 50% of the selling price, the variable cost per unit is 50% of $50 = $25. The contribution margin per unit is the selling price minus the variable cost per unit, which is $50 - $25 = $25. The break-even point in units is the fixed costs divided by the contribution margin per unit, so $650,000 / $25 = 26,000 units.

Question 2

Fixed costs are $900,000 and the variable costs are 75% of the unit selling price.What is the break-even point in dollars?
A)$2,100,000
B)$2,700,000
C)$3,600,000
D)$1,200,000

Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs.

Let's denote the unit selling price as P. Then, the variable cost per unit is 0.75P, and the total cost can be expressed as:

Total Cost = Fixed Cost + Variable Cost 
Total Cost = $900,000 + 0.75P*Q

where Q is the quantity sold (in units).

On the other hand, the total revenue can be expressed as:

Total Revenue = P*Q

At the break-even point, Total Revenue = Total Cost. Therefore:

P*Q = $900,000 + 0.75P*Q

Solving for Q:

0.25P*Q = $900,000

Q = $900,000 / 0.25P

We can now substitute this expression for Q in the total revenue equation:

Total Revenue = P*($900,000 / 0.25P)

Total Revenue = $3,600,000

Therefore, the break-even point in dollars is $3,600,000.

The answer is (C) $3,600,000.

Question 3

Gall Manufacturing sells a product for $50 per unit.The fixed costs are $840,000 and the variable costs are 60% of the selling price.As a result of new automated equipment, it is anticipated that fixed costs will increase by $200,000 and variable costs will be 50% of the selling price.The new break-even point in units is:
A)42,000.
B)41,600.
C)41,200.
D)33,600.

Accepted Answer

The new variable cost per unit is 50% of $50, which is $25. The new fixed costs are $840,000 + $200,000 = $1,040,000. The contribution margin per unit is the selling price minus the variable cost, which is $50 - $25 = $25. The break-even point in units is the fixed costs divided by the contribution margin per unit, which is $1,040,000 / $25 = 41,600 units.

Question 4

The break-even point is where
A)total sales equal total variable costs.
B)contribution margin equals total fixed costs.
C)total variable costs equal total fixed costs.
D)total sales equal total fixed costs.

Accepted Answer

The break-even point is the point where the company's total revenue equals its total expenses. The expenses are divided into fixed costs and variable costs. The contribution margin is the difference between the selling price per unit and the variable cost per unit. At the break-even point, the contribution margin equals the total fixed costs, which means that there is no profit, but also no loss. Therefore, choice B (contribution margin equals total fixed costs) is the best option.

Question 5

A CVP graph does not include a
A)variable cost line.
B)fixed cost line.
C)sales line.
D)total cost line.

Accepted Answer

The answer of A CVP graph does not include a
A)variable...

Question 6

Nelson Manufacturing has the following data: Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The unit contribution margin is $500.
The fixed costs are $500,000.
Which of the following does not express the break-even point?
A)$500,000 + .60X = X
B)$500,000 + .40X = X
C)$500,000 ÷ $500 = X
D)$500,000 ÷ .40 = X

Accepted Answer

The answer of Nelson Manufacturing has the following data: Variable...

Question 7

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000.The number of units the company must sell to break even is
A)120,000 units.
B)48,000 units.
C)480,000 units.
D)80,000 units.

Accepted Answer

The answer of A company sells a product which has...

Question 8

Cunningham, Inc.sells MP3 players for $60 each.Variable costs are $40 per unit, and fixed costs total $120,000.What sales are needed by Cunningham to break even?
A)$160,000.
B)$300,000.
C)$360,000.
D)$480,000.

Accepted Answer

The break-even point is where total revenue equals total cost. 
Total cost = fixed cost + variable cost
Total cost = $120,000 + ($40/unit x Q)
Total revenue = $60/unit x Q
Setting total revenue equal to total cost:
$60Q = $120,000 + $40Q
$20Q = $120,000
Q = 6,000
Therefore, Cunningham needs to sell 6,000 units to break even: 
6,000 units x $60/unit = $360,000 in sales. The answer is (C).

Question 9

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000.What is Boswell's break-even point in units?
A)32,728.
B)40,000.
C)51,112.
D)56,250.

Accepted Answer

Total variable cost per unit = ($500,000 + $50,000) / 50,000 units = $11 per unit
Contribution margin per unit = Sales price per unit - Variable cost per unit = $20 - $11 = $9
Break-even point (in units) = Fixed costs / Contribution margin per unit = $360,000 / $9 per unit = 40,000 units

Question 10

O'Malley Company sells 100,000 units for $13 a unit.Fixed costs are $350,000 and net income is $250,000.What should be reported as variable expenses in the CVP income statement?
A)$600,000.
B)$700,000.
C)$950,000.
D)$1,050,000.

Accepted Answer

We can use the CVP (Cost-Volume-Profit) analysis formula to calculate the variable expenses:

Sales - Variable Expenses - Fixed Expenses = Net Income

Plugging in the given values:

$1,300,000 - Variable Expenses - $350,000 = $250,000

Solving for variable expenses:

Variable Expenses = $1,300,000 - $350,000 - $250,000

Variable Expenses = $700,000

Therefore, the best choice is B) $700,000, as this is the amount that would be reported as variable expenses in the CVP income statement.

Question 11

Select the correct statement concerning the cost-volume-profit graph at right:

A)The point identified by "B" is the break-even point.
B)Line F is the variable cost line.
C)At point B, profits equal total costs.
D)Line E is the total cost line.

Accepted Answer

The answer of Select the correct statement concerning the cost-volume-profit...

Question 12

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%.The total sales necessary to break even are
A)$960,000.
B)$1,200,000.
C)$300,000.
D)$288,000.

Accepted Answer

Break-even point can be calculated using the formula:

Break-even point = Fixed Costs / Contribution Margin Ratio

Substituting the given values:

Break-even point = $240000 / 0.20 = $1200000

Therefore, the total sales necessary to break even are $1200000.

Question 13

Pascal, Inc.is planning to sell 900,000 units for $1.50 per unit.The contribution margin ratio is 20%.If Pascal will break even at this level of sales, what are the fixed costs?
A)$270,000.
B)$630,000.
C)$900,000.
D)$1,020,000.

Accepted Answer

Fixed costs can be calculated using the formula: Fixed Costs = Total Sales - (Variable Costs + Fixed Costs). Given the contribution margin ratio (20%), we can find the total contribution margin (Total Sales * Contribution Margin Ratio) = 900,000 units * $1.50/unit * 20% = $270,000. Since Pascal Inc. breaks even, the total contribution margin equals the fixed costs, which are $270,000.

Question 14

April Industries sells a product with a contribution margin of $12 per unit, fixed costs of $223,200, and sales for the current year of $300,000.How much is April's break-even point?
A)13,800 units
B)$76,800
C)18,600 units
D)6,400 units

Accepted Answer

To find the break-even point, we need to use the formula:

Break-even point (in units) = fixed costs / contribution margin per unit

Substituting the given values, we get:

Break-even point (in units) = $223,200 / $12 = 18,600 units

Therefore, the answer is C.

Question 15

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000.What is Boswell's contribution margin ratio?
A)68%.
B)45%.
C)32%.
D)55%.

Accepted Answer

Contribution margin = Sales - Variable costs
Contribution margin ratio = Contribution margin / Sales

So, Contribution margin = $1,000,000 - ($500,000 + $50,000) = $450,000

And Contribution margin ratio = $450,000 / $1,000,000 = 0.45 or 45%

Therefore, the correct answer is B.

Question 16

Kaplan, Inc.produces flash drives for computers, which it sells for $27 each.The variable cost to make each flash drive is $13.During April, 700 drives were sold.Fixed costs for April were $2 per unit for a total of $1,400 for the month.How much is the monthly break-even level of sales in dollars for Kaplan?
A)$100
B)$2,700
C)$14,000
D)$8,400

Accepted Answer

To calculate the monthly break-even level of sales in dollars, we need to use the formula:

Total Cost = Fixed Cost + Variable Cost

We know that Kaplan's fixed cost for April was $1,400 and the variable cost to make each flash drive is $13. We also know that Kaplan sells each drive for $27.

So, the variable cost per unit is $13 and the selling price per unit is $27, which means the contribution margin per unit is:

Contribution Margin per unit = Selling price - Variable cost per unit 
= $27 - $13 
= $14

This means that for every flash drive Kaplan sells, $14 goes towards covering their fixed costs and generating profit.

To find the break-even point, we need to divide Kaplan's fixed costs by the contribution margin per unit:

Break-even point (in units) = Fixed costs / Contribution margin per unit 
= $1,400 / $14 
= 100 units

Therefore, Kaplan needs to sell 100 flash drives in a month to break even.

To calculate the monthly break-even level of sales in dollars, we can simply multiply the break-even point (in units) by the selling price per unit:

Monthly break-even level of sales = Break-even point (in units) x Selling price per unit 
= 100 units x $27 
= $2,700

Therefore, the correct answer is B) $2,700.

Question 17

Fixed costs are $3,000,000 and the unit contribution margin is $150.What is the break-even point?
A)$7,500,000
B)$20,000,000
C)7,500 units
D)20,000 units

Accepted Answer

Break-even point can be calculated using the formula:

Break-even point = Fixed costs/Unit contribution margin

Substituting the values given:

Break-even point = $3000000/$150 = 20000 units

Hence, the answer is D - 20000 units.

Question 18

Cunningham, Inc.sells MP3 players for $60 each.Variable costs are $40 per unit, and fixed costs total $120,000.How many MP3 players must Cunningham sell to earn net income of $280,000?
A)20,000.
B)7,000.
C)5,000.
D)6,000.

Accepted Answer

The answer of Cunningham, Inc.sells MP3 players for $60 each.Variable...

Question 19

The break-even point cannot be determined by
A)computing it from a mathematical equation.
B)computing it using contribution margin.
C)reading the prior year's financial statements.
D)deriving it from a CVP graph.

Accepted Answer

Reading the prior year's financial statements may provide historical information on the company's break-even point, but it does not determine the current or future break-even point. It is necessary to use mathematical equations, contribution margin, or CVP graphs to determine the break-even point.

Question 20

The CVP income statement
A)is distributed internally and externally.
B)classifies costs by functions.
C)discloses contribution margin in the body of the statement.
D)will reflect a different net income than the traditional income statement.

Accepted Answer

The CVP (Cost-Volume-Profit) income statement discloses contribution margin in the body of the statement, which is a key difference from traditional income statements. This format is specifically designed to aid in decision-making by highlighting the contribution margin, which is sales revenue minus variable costs.

Quiz 5: Merchandising Operations and the Multiple-Step Income Statement

Fixed costs are $900,000 and the variable costs are 75% of the unit selling price.What is the break-even point in dollars?

The break-even point is where

A CVP graph does not include a

Nelson Manufacturing has the following data: Variable costs are 60% of the unit selling price. The contribution margin ratio is 40%. The unit contribution margin is $500. The fixed costs are $500,000. Which of the following does not express the break-even point?

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $240,000.The number of units the company must sell to break even is

Cunningham, Inc.sells MP3 players for $60 each.Variable costs are $40 per unit, and fixed costs total $120,000.What sales are needed by Cunningham to break even?

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000.What is Boswell's break-even point in units?

O'Malley Company sells 100,000 units for $13 a unit.Fixed costs are $350,000 and net income is $250,000.What should be reported as variable expenses in the CVP income statement?

Select the correct statement concerning the cost-volume-profit graph at right:

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%.The total sales necessary to break even are

Pascal, Inc.is planning to sell 900,000 units for $1.50 per unit.The contribution margin ratio is 20%.If Pascal will break even at this level of sales, what are the fixed costs?

April Industries sells a product with a contribution margin of $12 per unit, fixed costs of $223,200, and sales for the current year of $300,000.How much is April's break-even point?

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000.What is Boswell's contribution margin ratio?

Fixed costs are $3,000,000 and the unit contribution margin is $150.What is the break-even point?

Cunningham, Inc.sells MP3 players for $60 each.Variable costs are $40 per unit, and fixed costs total $120,000.How many MP3 players must Cunningham sell to earn net income of $280,000?

The break-even point cannot be determined by

The CVP income statement