Question 1

The difference between budgeted sales revenue and break-even sales revenue is the:

Accepted Answer

The safety margin is the difference between budgeted sales revenue and break-even sales revenue. It represents the amount of sales revenue that can be lost before a company starts to incur losses. Therefore, choice C is the correct answer.

Question 2

Refer to the ﬁgure above.Line A is the:

Accepted Answer

The answer of Refer to the ﬁgure above.Line A is...

Question 3

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total ﬁxed costs of $360,000.If Santa Fe's unit sales are 300 units more than anticipated, its break-even point will:

Accepted Answer

The break-even point is determined by fixed costs, selling price, and variable costs, not by the actual sales volume. Therefore, an increase in unit sales does not affect the break-even point.

Question 4

Quigley Glass Industries sells glass vases at a wholesale price of $2.50 per unit.The variable cost is $1.75 per unit.Monthly ﬁxed costs are $7,500.If Quigley's current sales are 25,000 units per month, and Quigley wants to increase operating income by 20%, how many additional units should be sold (to the nearest unit)?

Accepted Answer

To increase operating income by 20%, calculate the current operating income, then find the target income and determine the additional units needed. Current operating income is (25,000 * ($2.50 - $1.75)) - $7,500 = $11,250. A 20% increase is $11,250 * 1.2 = $13,500. The additional income needed is $13,500 - $11,250 = $2,250. Each additional unit contributes $0.75 ($2.50 - $1.75) to income, so $2,250 / $0.75 = 3,000 additional units are needed.

Question 5

Refer to the ﬁgure above.The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

Accepted Answer

The vertical distance between the total cost line and the total revenue line represents the profit or loss at that volume. Therefore, choice C is the correct answer.

Question 6

Refer to the ﬁgure above.At a given sales volume, the vertical distance between the ﬁxed cost line and the total cost line represents:

Accepted Answer

The vertical distance between the fixed cost line and the total cost line represents the variable cost, as total cost is the sum of fixed and variable costs.

Question 7

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and ﬁxed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in dollars?

Accepted Answer

The answer of Food Mart produces gourmet cookies, which sell...

Question 8

Refer to the ﬁgure above.Assume that the company whose cost structure is depicted in the ﬁgure expects to produce a loss for the upcoming period.The loss would be shown on the graph:

Accepted Answer

If the company expects to produce a loss, it means that its total costs would exceed its total revenue. Therefore, the break-even point would not be reached and the area diagonally to the left of the break-even point would represent the loss. This area shows the difference between the total costs and the total revenue at the expected level of output.

Question 9

A recent income statement of McClennon Corporation reported the following data:  If the company desired to earn a target proﬁt of $1,270,000, it would have to sell:

Accepted Answer

The answer of A recent income statement of McClennon Corporation...

Question 10

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total ﬁxed costs of $360,000.Santa Fe's safety margin in units is:

Accepted Answer

The answer of Santa Fe Production sells a single product...

Question 11

Refer to the ﬁgure above.Line C represents the level of:

Accepted Answer

Line C represents the level of fixed cost, which remains constant regardless of the level of production or sales.

Question 12

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total ﬁxed costs of $360,000.If Santa Fe's unit sales are 200 units less than anticipated, its break-even point will:

Accepted Answer

The break-even point is determined by fixed costs, selling price, and variable costs per unit, not by the actual number of units sold. Therefore, a change in anticipated sales volume does not affect the break-even point.

Question 13

Refer to the ﬁgure above.The slope of line A is equal to the:

Accepted Answer

The answer of Refer to the ﬁgure above.The slope of...

Question 14

Flower Depot, Inc.sells a single product for $10.Variable costs are $4 per unit and ﬁxed costs total $120,000 at a volume level of 10,000 units.What dollar sales level would Flower Depot have to achieve to earn a target proﬁt of $240,000?

Accepted Answer

The answer of Flower Depot, Inc.sells a single product for...

Question 15

Finn's budget for the upcoming year revealed the following ﬁgures:  If the company's break-even sales total $750,000, Finn's safety margin would be:

Accepted Answer

The answer of Finn's budget for the upcoming year revealed...

Question 16

Refer to the ﬁgure above.The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

Accepted Answer

The triangular area represents profit, as it is the area above the horizontal axis and below Line A, indicating the difference between sales revenue and costs beyond the breakeven point at 4,000 units.

Question 17

Refer to the ﬁgure above.The slope of line B is equal to the:

Accepted Answer

Line B represents the total cost function. The slope of this line indicates the variable cost per unit, as it shows the increase in cost for each additional unit produced.

Question 18

Refer to the ﬁgure above.Line A is the:

Accepted Answer

Line A is the total revenue line because it shows the total amount of revenue that the firm receives at different levels of output.

Question 19

Refer to the ﬁgure above.The triangular area between the horizontal axis and Line A, to the left of 4,000, represents:

Accepted Answer

The answer of Refer to the ﬁgure above.The triangular area...

Question 20

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and ﬁxed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in number of baskets?

Accepted Answer

The margin of safety is the difference between the actual sales quantity and the breakeven sales quantity.

To find the breakeven sales quantity, we need to calculate the total fixed costs and contribution margin per basket:

Total fixed costs = $5,000 per month
Contribution margin per basket = Selling price per basket – Variable costs per basket
= $16 – $6
= $10

Breakeven sales quantity = Total fixed costs ÷ Contribution margin per basket
= $5,000 ÷ $10
= 500 baskets

Therefore, the margin of safety is:

Margin of safety = Expected sales quantity – Breakeven sales quantity
= 1,500 – 500
= 1,000 baskets

So the answer is (D) 1,000.

Quiz 7: Cost-Volume-Profit Analysis

The difference between budgeted sales revenue and break-even sales revenue is the:

Refer to the ﬁgure above.Line A is the:

Refer to the ﬁgure above.The vertical distance between the total cost line (Line B) and the total revenue line (Line A) represents:

Refer to the ﬁgure above.At a given sales volume, the vertical distance between the ﬁxed cost line and the total cost line represents:

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and ﬁxed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in dollars?

Refer to the ﬁgure above.Assume that the company whose cost structure is depicted in the ﬁgure expects to produce a loss for the upcoming period.The loss would be shown on the graph:

A recent income statement of McClennon Corporation reported the following data: If the company desired to earn a target proﬁt of $1,270,000, it would have to sell:

Santa Fe Production sells a single product to wholesalers.The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total ﬁxed costs of $360,000.Santa Fe's safety margin in units is:

Refer to the ﬁgure above.Line C represents the level of:

Refer to the ﬁgure above.The slope of line A is equal to the:

Flower Depot, Inc.sells a single product for $10.Variable costs are $4 per unit and ﬁxed costs total $120,000 at a volume level of 10,000 units.What dollar sales level would Flower Depot have to achieve to earn a target proﬁt of $240,000?

Finn's budget for the upcoming year revealed the following ﬁgures: If the company's break-even sales total $750,000, Finn's safety margin would be:

Refer to the ﬁgure above.The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

Refer to the ﬁgure above.The slope of line B is equal to the:

Refer to the ﬁgure above.Line A is the:

Refer to the ﬁgure above.The triangular area between the horizontal axis and Line A, to the left of 4,000, represents:

Food Mart produces gourmet cookies, which sell for $16 a basket.Variable costs per basket are $6 and ﬁxed costs are $5,000 per month.If Food Mart expects to sell 1,500 baskets of cookies, what is the margin of safety in number of baskets?