Question 1

A company that desires to lower its break-even point should strive to:
A)decrease selling prices.
B)reduce variable costs.
C)increase fixed costs.
D)sell more units.
E)increase variable costs.

Accepted Answer

By reducing variable costs, the company can lower the cost per unit and ultimately the break-even point. Decreasing selling prices may not be enough to increase sales volume and could lead to lower profit margins. Increasing fixed costs or variable costs would increase the break-even point, making it more difficult to reach profitability. Selling more units can also lower the break-even point but may not always be feasible or cost-effective.

Question 2

Lucid Corporation has fixed costs of $2,800 and a per-unit contribution margin of $6. Which of the following statements is (are) true?
A)Each unit "contributes" $6 towards covering the fixed costs of $2,800.
B)The situation described is not possible and there must be an error.
C)Once the break-even point is reached, Lucid will lose money at the rate of $6 per unit.
D)Lucid will definitely lose money in this situation.
E)In order for Lucid to break-even they must increase their fixed costs.

Accepted Answer

The contribution margin of $6 means that for each unit sold, $6 is available to cover the fixed costs. Therefore, it can be said that each unit "contributes" $6 towards covering the fixed costs of $2,800. This statement is true. The other statements are incorrect or do not make sense.

Question 3

Dunrobin Company sells a single product for $12. Variable costs are $8 per unit and fixed costs total $360,000 at a volume level of 60,000 units. Assuming that fixed costs does not change, Dunrobin's break-even point would be:
A)30,000 units.
B)45,000 units.
C)60,000 units
D)90,000 units.
E)negative because the company loses $2 on every unit sold.

Accepted Answer

D

Question 4

A recent income statement of Toronto Corporation reported the following data: units sold 10,000; sales revenue $9,500,000; variable costs $4,000,000; fixed costs $1,600,000. If Dagwood wanted to earn a target net profit of $1,150,000, it would have to sell:
A)2,091 units.
B)2,895 units.
C)3,481 units.
D)5,000 units.
E)6.875 units.

Accepted Answer

To calculate the number of units required to earn a target net profit of $1,150,000, we need to use the formula:

(Target Net Profit + Fixed Costs) ÷ Contribution Margin per Unit = Number of Units

The contribution margin per unit is calculated as sales revenue per unit minus variable costs per unit. Therefore:

Contribution Margin per Unit = (Sales Revenue ÷ Units Sold) - (Variable Costs ÷ Units Sold)
Contribution Margin per Unit = ($9,500,000 ÷ 10,000) - ($4,000,000 ÷ 10,000)
Contribution Margin per Unit = $950 - $400
Contribution Margin per Unit = $550

Substituting the values:

($1,150,000 + $1,600,000) ÷ $550 = 5,000

Therefore, Dagwood would have to sell 5,000 units to earn a target net profit of $1,150,000. The answer is D.

Question 5

Which of the following expressions can be used to calculate the break-even point in sales dollars with the contribution-margin ratio (CMR)?
A)CMR ÷ fixed costs.
B)CMR x fixed costs.
C)Fixed costs ÷ CMR.
D)(Fixed costs + variable costs) x CMR.
E)(Sales revenue - variable costs) ÷ CMR.

Accepted Answer

The break-even point in sales dollars is calculated by dividing the fixed costs by the contribution-margin ratio (CMR). This gives the amount of sales needed to cover all fixed costs, resulting in zero profit or loss.

Question 6

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Each unit that Contemporary sells will:
A)contribute to overall profitability by $20.
B)contribute to overall profitability by $32.
C)contribute to overall profitability by $48.
D)contribute to overall profitability by $28.
E)contribute to overall profitability by some other amount.

Accepted Answer

The answer of Contemporary Corp. sells a single product for...

Question 7

Which of the following would take place if a company experienced an increase in fixed costs, all other things remaining constant?
A)The net income would increase.
B)The break-even point would increase.
C)The contribution margin would increase.
D)The contribution margin would decrease.
E)The break-even point would decrease.

Accepted Answer

An increase in fixed costs would lead to an increase in the break-even point, i.e., the level of sales at which the company's total revenues equal its total costs. This is because fixed costs remain constant regardless of the level of output produced, and thus have to be covered by a larger amount of revenue. None of the other options are likely to occur.

Question 8

Bingo Inc. sells a single product for $20. Variable costs are $14 per unit and fixed costs total $220,000 at a volume level of 10,000 units. What dollar sales level would Bingo Inc. have to achieve to earn a target net profit of $340,000?
A)$314,286.
B)$485,714.
C)$566,667.
D)$1,866,667.
E)$733,333.

Accepted Answer

First, we need to determine the contribution margin per unit:

Sales price - Variable cost per unit = Contribution margin per unit 
$20 - $14 = $6

Next, we can use the following formula to calculate the sales volume needed to achieve the target net profit:

(Sales volume x Contribution margin per unit) - Fixed costs = Target net profit

Plugging in the numbers:

(Sales volume x $6) - $220,000 = $340,000

Simplifying:

(Sales volume x $6) = $560,000

Sales volume = $560,000 / $6 = 93,333 units

Finally, we can calculate the dollar sales level needed to achieve this volume:

93,333 units x $20 per unit = $1,866,660

So, the best choice is (D) $1,866,667.

Question 9

The unit contribution margin is calculated as the difference between:
A)selling price and fixed cost per unit.
B)selling price and variable cost per unit.
C)selling price and product cost per unit.
D)fixed cost per unit and variable cost per unit.
E)fixed cost per unit and product cost per unit.

Accepted Answer

The unit contribution margin is the amount of money that remains after subtracting the variable cost per unit from the selling price per unit. Therefore, the correct formula is selling price per unit - variable cost per unit = unit contribution margin. Option B is the only choice that includes the correct formula.

Question 10

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. In order to produce a target profit of $22,000, Contemporary's dollar sales must total:
A)$36,667.
B)$833,333.
C)$870,000.
D)$1,250,000.
E)$1,305,000.

Accepted Answer

The contribution margin per unit can be found by subtracting the variable costs per unit from the selling price per unit:

$80 * 0.60 = $48

This means that for every unit sold, $48 is available to contribute to covering fixed costs and generating profit.

To calculate the dollar sales necessary to achieve a target profit of $22,000, we can use the following formula:

(Target profit + Fixed costs) / Contribution margin ratio

($22,000 + $500,000) / 0.60 = $870,000

Therefore, the dollar sales must total $870,000 to produce a target profit of $22,000.

Question 11

The contribution-margin ratio is defined as:
A)the difference between the selling price and the variable cost per unit.
B)fixed cost per unit divided by variable cost per unit.
C)variable cost per unit divided by the selling price.
D)unit contribution margin divided by the unit selling price.
E)unit contribution margin divided by fixed cost per unit.

Accepted Answer

The contribution-margin ratio is calculated as the unit contribution margin divided by the unit selling price. This ratio provides useful information for decision-making related to pricing and sales volume. Option A is incorrect as it defines the unit contribution margin. Option B is incorrect as it combines fixed and variable costs, while the contribution-margin ratio only considers variable costs. Option C is incorrect as it does the inverse of the actual calculation of the contribution-margin ratio. Option E is incorrect as it combines fixed costs and unit contribution margin, while the ratio only considers the unit contribution margin.

Question 12

Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:
A)$12.
B)$30.
C)$32.
D)$50.
E)$92.

Accepted Answer

The answer of Orion recently reported sales revenues of $800,000,...

Question 13

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Contemporary:
A)will break-even by selling 27,000 units.
B)will break-even by selling 10,417 units.
C)will break-even by selling 15,625 units.
D)will break-even by selling 18,000 units.
E)will break even by selling 12,000 units.

Accepted Answer

To calculate the break-even point, we need to use the following formula:
Break-even point = Fixed Costs / (Price - Variable Costs)

The variable cost is 40% of the selling price, which means it is $32 per unit ($80 x 40%). So, the equation becomes:
Break-even point = $500,000 / ($80 - $32) = 10,417 units

Therefore, the best choice is B, which indicates that Contemporary will break-even by selling 10,417 units.

Question 14

The break-even point is the volume of activity where:
A)total revenue equals total cost.
B)variable cost equals fixed cost.
C)total contribution margin equals the sum of variable cost plus fixed cost.
D)sales revenue equals total variable cost.
E)profit is greater than zero.

Accepted Answer

The break-even point is the point at which the total cost equals total revenue. This means that there is no profit, but there are no losses as well. It is the point where the business breaks even, hence the name break-even point.

Question 15

Skinner Manufacturing reported sales revenue of $3,800,000, variable costs of $800,000, and fixed costs of $300,000. If these data are based on the sale of 20,000 units, the break-even point in units would be:
A)1,714 units.
B)2,000 units.
C)2,222 units.
D)4,571 units.
E)5,333 units.

Accepted Answer

The answer of Skinner Manufacturing reported sales revenue of $3,800,000,...

Question 16

At a volume level of 500,000 units, Sullivan reported the following information: sales price $60; variable cost per unit $20; fixed cost per unit $20. Sullivan's contribution margin ratio is:
A)0.33.
B)0.40.
C)0.50.
D)0.67.
E)0.83.

Accepted Answer

The answer of At a volume level of 500,000 units,...

Question 17

Which of the following would take place if a company was able to reduce its variable cost per unit, all of things remaining constant? $\begin{array} { | l | l | l | } 
\hline & \text { Contribution Margin } & \text { Break-even Point } \
\hline 1 & \text { Increase } & \text { Increase } \
\hline 2 & \text { Increase } & \text { Decrease } \
\hline 3 & \text { Decrease } & \text { Increase } \
\hline 4 & \text { Decrease } & \text { Decrease } \
\hline 5 & \text { Increase } & \text { No effect } \
\hline
\end{array}$
A)1
B)2
C)3
D)4
E)5

Accepted Answer

If a company is able to reduce its variable cost per unit, the contribution margin will increase because each unit sold will now generate more profit. Additionally, the break-even point will decrease because the company now needs to sell fewer units to cover its fixed costs. Therefore, the correct choice is B: Increase in contribution margin and decrease in break-even point.

Question 18

A recent income statement of Hendrix Inx. reported sales revenue of $5,000,000, variable costs of $3,000,000, and fixed costs of $1,000,000. If these data are based on the sale of 40,000 units, the contribution margin per unit would be:
A)$25.
B)$50.
C)$75.
D)$100.
E)$200.

Accepted Answer

Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit

We can calculate the sales price per unit by dividing total sales revenue by the number of units sold:

Sales Price per Unit = Sales Revenue / Number of Units Sold
Sales Price per Unit = $5,000,000 / 40,000 units
Sales Price per Unit = $125

Using the same logic, we can calculate the variable cost per unit by dividing the total variable costs by the number of units sold:

Variable Cost per Unit = Variable Costs / Number of Units Sold
Variable Cost per Unit = $3,000,000 / 40,000 units
Variable Cost per Unit = $75

Now we can use the formula to calculate contribution margin per unit:

Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit
Contribution Margin per Unit = $125 - $75
Contribution Margin per Unit = $50

Therefore, the contribution margin per unit is $50 per unit. The correct answer is B.

Question 19

At a volume of 50,000 units, MGMT Incorporated reported sales revenues of $2,050,000, variable costs of $550,000, and fixed costs of $360,000. The company's contribution margin per unit is:
A)$7.20.
B)$11.00.
C)$18.20.
D)$22.80.
E)$30.00.

Accepted Answer

The answer of At a volume of 50,000 units, MGMT...

Question 20

Ribco Co. makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company's fixed costs are:
A)$4,000.
B)$14,400.
C)$40,000.
D)$144,000.
E)$24,000.

Accepted Answer

The break-even point in units is calculated as fixed costs divided by the unit contribution margin. Therefore, fixed costs = 24,000 units * $6 = $144,000.

Quiz 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing

A company that desires to lower its break-even point should strive to:

Lucid Corporation has fixed costs of $2,800 and a per-unit contribution margin of $6. Which of the following statements is (are) true?

Dunrobin Company sells a single product for $12. Variable costs are $8 per unit and fixed costs total $360,000 at a volume level of 60,000 units. Assuming that fixed costs does not change, Dunrobin's break-even point would be:

A recent income statement of Toronto Corporation reported the following data: units sold 10,000; sales revenue $9,500,000; variable costs $4,000,000; fixed costs $1,600,000. If Dagwood wanted to earn a target net profit of $1,150,000, it would have to sell:

Which of the following expressions can be used to calculate the break-even point in sales dollars with the contribution-margin ratio (CMR) ?

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Each unit that Contemporary sells will:

Which of the following would take place if a company experienced an increase in fixed costs, all other things remaining constant?

Bingo Inc. sells a single product for $20. Variable costs are $14 per unit and fixed costs total $220,000 at a volume level of 10,000 units. What dollar sales level would Bingo Inc. have to achieve to earn a target net profit of $340,000?

The unit contribution margin is calculated as the difference between:

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. In order to produce a target profit of $22,000, Contemporary's dollar sales must total:

The contribution-margin ratio is defined as:

Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. Contemporary:

The break-even point is the volume of activity where:

Skinner Manufacturing reported sales revenue of $3,800,000, variable costs of $800,000, and fixed costs of $300,000. If these data are based on the sale of 20,000 units, the break-even point in units would be:

At a volume level of 500,000 units, Sullivan reported the following information: sales price $60; variable cost per unit $20; fixed cost per unit $20. Sullivan's contribution margin ratio is:

A recent income statement of Hendrix Inx. reported sales revenue of $5,000,000, variable costs of $3,000,000, and fixed costs of $1,000,000. If these data are based on the sale of 40,000 units, the contribution margin per unit would be:

At a volume of 50,000 units, MGMT Incorporated reported sales revenues of $2,050,000, variable costs of $550,000, and fixed costs of $360,000. The company's contribution margin per unit is:

Ribco Co. makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company's fixed costs are: