Question 1

A major assumption of breakeven analysis and one which causes severe limitations in its use is that ________.

Accepted Answer

Breakeven analysis assumes that revenues and operating costs are linear, meaning they change at a constant rate relative to production and sales levels. This simplification can limit the analysis's accuracy in real-world scenarios where costs and revenues may not behave linearly.

Question 2

One function of breakeven analysis is to ________.

Accepted Answer

Breakeven analysis helps a company to evaluate the profitability of various sales levels by calculating the level of sales required to cover all costs, including fixed and variable costs. By analyzing the breakeven point, a firm can determine the level of sales needed to generate a profit and can also use the analysis to evaluate the profitability of different pricing strategies, cost structures, and production levels.

Question 3

If a firm's sale price per unit decreases, the firm's ________.

Accepted Answer

If the sale price per unit decreases, the contribution margin per unit will also decrease, thus the firm will have to sell more units to cover its fixed costs and reach the operating breakeven point. Therefore, the operating breakeven point will increase.

Question 4

If a firm's fixed financial costs decrease, the firm's operating breakeven point will ________.

Accepted Answer

The operating breakeven point is determined by fixed operating costs, not fixed financial costs.

Question 5

Tony's Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in units is ________.

Accepted Answer

The breakeven sales level in units is calculated by dividing the fixed annual operating costs by the contribution margin per unit. The contribution margin per unit is the difference between the selling price per unit and the variable cost per unit. In this case, the fixed annual operating costs are $75,000, the selling price per unit is $14.99, and the variable cost per unit is $4.99. Therefore, the contribution margin per unit is $14.99 - $4.99 = $10.00. Dividing the fixed annual operating costs by the contribution margin per unit gives us the breakeven sales level in units, which is $75,000 / $10.00 = 7,500 units.

Question 6

At the operating breakeven point, ________ equals zero.

Accepted Answer

At the operating breakeven point, earnings before interest and taxes (EBIT) equals zero. This is because the company's total revenue exactly covers its total operating costs (both fixed and variable), leaving no profit or loss.

Question 7

A firm has fixed operating costs of $525,000. The sales price per unit is $35 and its variable costs per unit is $22.50. The firm's operating breakeven point in units is ________.

Accepted Answer

Operating Breakeven Point (units) = Fixed Costs / contribution margin per unit

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

Contribution Margin = $35 - $22.50 = $12.50

Operating Breakeven Point (units) = $525,000 / $12.50 per unit = 42,000 units

Question 8

The preferred approach to breakeven analysis for a multiproduct firm is the ________.

Accepted Answer

Expressing the breakeven point in dollars allows for easier comparison between the different products and provides a more holistic view of the firm's financial situation. The cash breakeven point and overall breakeven point may also be useful, but expressing the breakeven point in dollars is the preferred approach for a multiproduct firm.

Question 9

Mark must buy four new tires for his car. He is considering buying tires that are $25 a piece more than his regular brand, because the higher priced tires are supposed to increase his miles per gallon by 20%. If the tires are good for 48,000 miles and Mark drives an average of 1,000 miles per month, gas costs $2.50 per gallon over the next 4 years, and Mark's car gets 30 miles to the gallon now (on the old tires), should Mark purchase the more expensive tires?

Accepted Answer

With the new tires, Mark's car would get 36 miles per gallon (a 20% increase from 30 mpg). Over 48,000 miles, he would need 1,333.33 gallons of gas with the old tires (48,000 miles / 30 mpg) and 1,111.11 gallons with the new tires (48,000 miles / 36 mpg), saving 222.22 gallons. At $2.50 per gallon, he saves $555.55 on gas. The new tires cost $100 more in total ($25 more per tire), so he saves about $455.55 overall, making option A the closest correct choice despite the slight discrepancy in the savings calculation presented in the question.

Question 10

A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. The firm's operating breakeven point in dollars is ________.

Accepted Answer

The answer of A firm has fixed operating costs of...

Question 11

Breakeven analysis is used by a firm ________.

Accepted Answer

The answer of Breakeven analysis is used by a firm...

Question 12

Carol's Dolls has fixed operating costs of $25,000. Its sale price is $55 per doll, and its variable operating cost is $30 per doll. It sells 3,000 dolls per month. The firm's earnings before interest and taxes is ________.

Accepted Answer

The answer of Carol's Dolls has fixed operating costs of...

Question 13

A firm's operating breakeven point is the point at which ________.

Accepted Answer

The operating breakeven point is the point where the EBIT (earnings before interest and taxes) is zero, meaning the company is generating just enough revenue to cover its variable and fixed costs.

Question 14

If a firm's variable costs per unit increase,the firm's ________.

Accepted Answer

The operating breakeven point represents the level of sales at which the firm covers all of its variable costs and some portion of its fixed costs. If the variable costs per unit increase, the firm will need to sell more units to cover its fixed costs, causing the operating breakeven point to increase. The financial breakeven point is the level of sales at which the firm covers all of its costs, including fixed costs and a desired level of profit. A change in variable costs per unit would not directly impact the financial breakeven point. The sale price per unit and fixed costs per unit would also not be impacted by a change in variable costs per unit.

Question 15

A firm has fixed operating costs of $253,750, a sales price per unit of $100, and a variable cost per unit of $65. The firm's operating breakeven point in dollars is ________.

Accepted Answer

The operating breakeven point in units is calculated as fixed costs divided by the contribution margin per unit (sales price per unit - variable cost per unit). Contribution margin per unit = $100 - $65 = $35. Breakeven point in units = $253,750 / $35 = 7,250 units. To find the breakeven point in dollars, multiply the breakeven point in units by the sales price per unit: 7,250 units * $100 = $725,000.

Question 16

________ is 100 percent minus total variable operating costs as a percentage of total sales.

Accepted Answer

Contribution margin is defined as sales revenue minus variable costs, which can also be expressed as a percentage of sales. This percentage represents the portion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs and generating profit.

Question 17

A firm has fixed operating costs of $10,000, the sale price per unit of its product is $25, and its variable cost per unit is $15. The firm's operating breakeven point in units is ________ and its breakeven point in dollars is ________.

Accepted Answer

The answer of A firm has fixed operating costs of...

Question 18

A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating breakeven point if it targets net operating income of $10,000?

Accepted Answer

The operating breakeven point is calculated by dividing the sum of fixed costs and target net operating income by the contribution margin per unit (sales price per unit - variable cost per unit). Here, it is ($25,000 + $10,000) / ($5 - $3) = 17,500 units.

Question 19

Tony's Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in dollars is ________.

Accepted Answer

The answer of Tony's Beach T-Shirts has fixed annual operating...

Question 20

If a firm's fixed operating costs decrease, the firm's ________.

Accepted Answer

Fixed operating costs are a part of the overall breakeven analysis, and a decrease in fixed costs will result in a decrease in the overall breakeven point. In other words, the firm will need to sell fewer units to cover its fixed costs and reach the breakeven point, making it easier to turn a profit. This will not affect the sale price per unit.

Quiz 13: Leverage and Capital Structure

A major assumption of breakeven analysis and one which causes severe limitations in its use is that ________.

One function of breakeven analysis is to ________.

If a firm's sale price per unit decreases, the firm's ________.

If a firm's fixed financial costs decrease, the firm's operating breakeven point will ________.

Tony's Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in units is ________.

At the operating breakeven point, ________ equals zero.

A firm has fixed operating costs of $525,000. The sales price per unit is $35 and its variable costs per unit is $22.50. The firm's operating breakeven point in units is ________.

The preferred approach to breakeven analysis for a multiproduct firm is the ________.

A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. The firm's operating breakeven point in dollars is ________.

Breakeven analysis is used by a firm ________.

Carol's Dolls has fixed operating costs of $25,000. Its sale price is $55 per doll, and its variable operating cost is $30 per doll. It sells 3,000 dolls per month. The firm's earnings before interest and taxes is ________.

A firm's operating breakeven point is the point at which ________.

If a firm's variable costs per unit increase,the firm's ________.

A firm has fixed operating costs of $253,750, a sales price per unit of $100, and a variable cost per unit of $65. The firm's operating breakeven point in dollars is ________.

________ is 100 percent minus total variable operating costs as a percentage of total sales.

A firm has fixed operating costs of $10,000, the sale price per unit of its product is $25, and its variable cost per unit is $15. The firm's operating breakeven point in units is and its breakeven point in dollars is .

A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating breakeven point if it targets net operating income of $10,000?

Tony's Beach T-Shirts has fixed annual operating costs of $75,000. Tony retails his T-shirts for $14.99 each and the variable cost per T-shirt is $4.99. Based on this information, the breakeven sales level in dollars is ________.

If a firm's fixed operating costs decrease, the firm's ________.