Question 1

Only variable production costs are used when calculating contribution margin.

Accepted Answer

False because all variable costs, production and selling/admin, are subtracted from revenue to determine contribution margin.

Question 2

Sky High sells helicopters. During the current year, 130 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $345,000 of fixed costs. Breakeven point in units is ________.

Accepted Answer

Contribution margin per unit = ($820,000 - $250,000) / 130 = $570,000 / 130 = $4,384.62 per unit.
Breakeven point = $345,000 / $4,384.62 = 79 units

Question 3

Sky High sells helicopters. During the current year, 130 helicopters were sold resulting in $840,000 of sales revenue, $260,000 of variable costs, and $350,000 of fixed costs. The number of helicopters that must be sold to achieve $320,000 of operating income is ________.

Accepted Answer

Number of helicopters to be sold to achieve an operating income of $320,000 = ($350,000 + $320,000) / $4,461.54 = 151 units

Question 4

The difference between total revenues and total variable costs is called contribution margin.

Accepted Answer

Contribution margin is calculated by subtracting total variable costs from total revenues. Therefore, the statement is true.

Question 5

If unit outputs exceed the breakeven point ________.

Accepted Answer

If unit outputs exceed the breakeven point, it means that the sales have covered both fixed and variable costs, resulting in a profit.

Question 6

Sales total $400,000 when variable costs total $300,000 and fixed costs total $80,000. The breakeven point in sales dollars is ________. (Round interim calculations to two decimal places and the final answer to the nearest dollar.)

Accepted Answer

Contribution margin percentage = ($400,000 - $300,000) / $400,000 = 25%;
BE sales = $80,000 / 0.25 = $320,000

Question 7

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________.

Accepted Answer

When the variable costs per unit decrease, the contribution margin increases because there is more revenue left over after covering variable costs. This results in a higher contribution margin percentage.

Question 8

What is the breakeven point in units, assuming a product's selling price is $300, fixed costs are $18,000, unit variable costs are $20, and operating income is $6,000?

Accepted Answer

Unit contribution margin = $300 ? $20 = $280.
Breakeven point in units = $18,000 / $280 = 65 units

Question 9

At breakeven point, ________.

Accepted Answer

At the breakeven point, a business's operating income is zero because its total revenues are exactly equal to its total costs (both fixed and variable).

Question 10

Arthur's Plumbing reported the following:
  
Required:
a.Compute contribution margin.
b.Compute contribution margin percentage.
c.Compute gross margin.
d.Compute gross margin percentage.
e.Compute operating income.

Accepted Answer

The answer of Arthur's Plumbing reported the following:
  
Required:
a.Compute...

Question 11

Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue, $32,000 of variable costs, and $26,000 of fixed costs.
Breakeven point in units is ________. (Round to the nearest whole unit.)

Accepted Answer

Contribution margin per unit = ($75,000 - $32,000) / 600 = $71.67
Breakeven point = $26,000 / $71.67 = 363 units.

Question 12

The breakeven point revenues is calculated by dividing ________.

Accepted Answer

The breakeven point revenues can be calculated by dividing the fixed costs by the contribution margin percentage. Contribution margin is the difference between the selling price per unit and the variable costs per unit. It represents the amount available to cover the fixed costs and contribute to profits. Therefore, by dividing the fixed costs by the contribution margin percentage, we can determine the amount of revenue needed to cover all the costs and break even.

Question 13

The breakeven point decreases if ________.

Accepted Answer

The breakeven point is the point where revenues equal total costs (fixed and variable). To decrease the breakeven point, total fixed costs must decrease. This can happen for example if the company reduces overhead expenses or rents a cheaper facility. The other options (A, C, D) would increase the breakeven point as they result in higher costs or lower revenues.

Question 14

Firebird Ltd. sells packaged birdseed for $6.00 per package. Variable product costs are $3.00 per package. Fixed costs are $12,000 per period. How many packages must Firebird sell to earn a target operating income of $7,900?

Accepted Answer

Correct. Quantity required = (fixed costs + target OpInc) / CM per unit
Q = ($12,000 + $7,900) / ($6.00 - $3.00) = 6,633 units.

Question 15

The controller at TellCo is examining her books. She determines that at the breakeven point of 5,000 units, variable costs total $4,000 and fixed costs total $7,000. Therefore, 5,001st unit sold will contribute ________ to profits. (Round the final answer to the nearest cent.)

Accepted Answer

Fixed costs of $7,000/5,000 units = Contribution Margin of $1.40 per unit.

Question 16

The breakeven point is the activity level where ________.

Accepted Answer

Revenue - Variable Costs - Fixed Costs = Operating income, thus;
Revenue = Variable Costs + Fixed Costs

Question 17

SaleCo sells 11,000 units resulting in $110,000 of sales revenue, $50,000 of variable costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________. (Round intermediate calculations to two decimal places and the final answer to the nearest dollar.)

Accepted Answer

((110,000 - 50,000) / 110,000) = 55%
($150,000 + $45,000) / 55% = $357,500 in sales

Question 18

Sparkle Jewelry sells 800 units resulting in $85,000 of sales revenue, $32,000 of variable costs, and $26,000 of fixed costs.
The number of units that must be sold to achieve $41,000 of operating income is ________.

Accepted Answer

($85,000 - $32,000) / 800 = $66.25
The number of units that must be sold to achieve $41,000 of operating income = ($26,000 + $41,000) / $66.25 = 1,012 units

Question 19

Rosewood company sells wooden carvings for $300 each. The direct materials cost per unit is $160 and the direct labor is 2 hours at a rate of $26 per hour. Manufacturing overhead is applied on the basis of labor hours at a rate of $36 per hour. Rosewood makes and sells 1,000 units per period. How many units must Rosewood sell to breakeven?

Accepted Answer

Correct. Unit Contribution Margin 300 - 160 - (2 x $26) = $88
Fixed cost per period = (2 x $36) x 1,000 units = $72,000
Breakeven = FC / CM = $72,000 / $88 = 818 units

Question 20

Breakeven point in units is ________.

Accepted Answer

The breakeven point in units is the number of units a company needs to sell in order to cover its fixed costs. This can be calculated by dividing the fixed costs by the contribution margin per unit. Choice C is the correct formula for calculating breakeven point in units.

Quiz 3: Cost-Volume-Profit Analysis