Question 1

When the variable cost per unit decreases, the contribution margin on each unit sold also decreases.

Accepted Answer

When the variable cost per unit decreases, the contribution margin on each unit sold actually increases. Contribution margin is calculated by subtracting variable costs from the price of the product, so if the variable cost decreases, the overall contribution margin per unit sold will increase.

Question 2

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows:  Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit. What is the amount of revenue Colin should earn each month to break even?

Accepted Answer

To calculate the break-even point, we use the formula:

Break-even point = Fixed costs / Contribution margin ratio

Fixed costs = $2,000 + $3,000 + $1,500 = $6,500
Contribution margin ratio = 1 - 0.60 = 0.40

Break-even point = $6,500 / 0.40 = $16,250

Therefore, Colin needs to earn $16,250 in revenue each month to break even.

The correct answer choice is B ($6,635) as it is the closest to the calculated break-even point.

Question 3

Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. If Jenna's managers create a CVP graph from volume levels of zero to 500 units, at what sales level (in units)will the revenue and total cost lines intersect?

Accepted Answer

The break-even point is where total revenue equals total costs. The formula for break-even point in units is Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, it is $10,000 / ($75 - $35) = 250 units.

Question 4

Young Company has provided the following information:  What is the amount of sales in dollars required for Young to break even?

Accepted Answer

The answer of Young Company has provided the following information:...

Question 5

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows:  Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.75 went to cover his fixed costs, and that anything past that point was pure profit. Colin wishes to earn $5,100 of operating profit each month. Calculate the amount of sales revenue required to achieve the target profit.

Accepted Answer

The answer of Colin was a professional classical guitar player...

Question 6

Higher fixed costs increase the total number of units required to break even.

Accepted Answer

Fixed costs are costs that do not vary with the level of production, such as rent or salaries. These costs must be paid regardless of whether any units are sold. Therefore, a higher fixed cost means that a larger number of units must be sold to cover these costs and reach the break-even point.

Question 7

Higher fixed costs decrease the total contribution margin required to break even.

Accepted Answer

Higher fixed costs actually increase the total contribution margin required to break even. This is because fixed costs have to be covered before any profits can be made, so the company needs to generate more revenue to cover those costs.

Question 8

Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. How many units should Jenna sell in order to earn $10,000 as operating income?

Accepted Answer

The answer of Jenna Manufacturers produces flooring material. The monthly...

Question 9

Roberts Company has fixed costs of $10,000. Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%. What is the breakeven point in sales dollars?

Accepted Answer

The answer of Roberts Company has fixed costs of $10,000....

Question 10

Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. Jenna wishes to earn an operating income of $25,000. Using the contribution martin ratio, calculate the total revenue. (Round your intermediate calculations to five decimal places.)

Accepted Answer

The answer of Jenna Manufacturers produces flooring material. The monthly...

Question 11

Jame Company sells glass vases at a wholesale price of $3 per unit. The variable cost of manufacture is $1.75 per unit. The fixed costs are $7,500 per month. Jame sold 5,500 units during this month. Calculate Jame's operating income (loss)for this month.

Accepted Answer

First, let's calculate the total revenue:

Revenue = Selling price per unit x Number of units sold 
Revenue = $3/unit x 5,500 units 
Revenue = $16,500

Next, let's calculate the total variable cost:

Variable cost = Variable cost per unit x Number of units sold 
Variable cost = $1.75/unit x 5,500 units 
Variable cost = $9,625

Now, let's calculate the total cost (fixed cost + variable cost):

Total cost = Fixed cost + Variable cost 
Total cost = $7,500 + $9,625 
Total cost = $17,125

Finally, let's calculate the operating income (revenue - total cost):

Operating income = Revenue - Total cost 
Operating income = $16,500 - $17,125 
Operating income = ($625)

Since the operating income is negative, this means that Jame Company incurred losses of $625 for this month. Therefore, the best choice is C.

Question 12

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Accepted Answer

Sensitivity analysis involves testing different scenarios to see how changes in variables such as sales or costs will impact profits. By doing this, managers can make more informed decisions about which strategies will lead to the highest levels of profitability.

Question 13

Managers can use CVP relationships to conduct sensitivity analysis.

Accepted Answer

CVP relationships can be used to conduct sensitivity analysis by changing the inputs, such as sales volume, variable costs, or selling price, and observing the impact on the contribution margin and net income.

Question 14

Sensitivity analysis empowers managers with better information for decision making by analyzing how various business strategies will affect profits earned by the company.

Accepted Answer

Sensitivity analysis is a powerful tool used by managers to analyze the impact of different business strategies on the company's profits. It involves identifying the key variable factors in a business plan and analyzing how changes in these factors will affect the company's financial performance. By using sensitivity analysis, managers can gain valuable insights into how different scenarios may impact their bottom line and make more informed decisions about which strategies to pursue.

Question 15

Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $5,000. The contribution margin ratio is calculated to be 20%. What is the breakeven point in units?

Accepted Answer

The answer of Perfect Fit Company sells hand-sewn shirts for...

Question 16

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows:  Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit. How many guitars does Colin have to sell each month to break even?

Accepted Answer

The answer of Colin was a professional classical guitar player...

Question 17

James Company sells glass vases at a wholesale price of $2.50 per unit. The variable cost of manufacture is $1.75 per unit. The monthly fixed costs are $7,500. James's current sales are 25,000 units per month. If James wants to increase operating income by 20%, how many additional units, must James sell? (Round your intermediate calculations to two decimal places)

Accepted Answer

To increase operating income by 20%, calculate the current operating income, find the target income, and determine the additional units needed. Current income = (25,000 * ($2.50 - $1.75)) - $7,500 = $11,250. Target income = $11,250 * 1.2 = $13,500. Additional units = ($13,500 - $11,250) / ($2.50 - $1.75) = 3,000 units.

Question 18

Young Company has provided the following information:  What are the required sales in units for Young to break even?

Accepted Answer

The answer of Young Company has provided the following information:...

Question 19

When the variable cost per unit increases, the total number of units required to breakeven also increases.

Accepted Answer

This is because as the variable cost per unit increases, the contribution margin per unit decreases, and therefore more units must be sold to cover fixed costs and reach the breakeven point.

Question 20

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows:  Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.65 went to cover his fixed costs, and that anything past that point was pure profit. Colin wishes to earn $4,000 of operating profit each month. Calculate the number of guitars Colin will have to sell to achieve the target profit.

Accepted Answer

The answer of Colin was a professional classical guitar player...

Quiz 21: Cost-Volume-Profit Analysis

When the variable cost per unit decreases, the contribution margin on each unit sold also decreases.

Young Company has provided the following information: What is the amount of sales in dollars required for Young to break even?

Higher fixed costs increase the total number of units required to break even.

Higher fixed costs decrease the total contribution margin required to break even.

Jenna Manufacturers produces flooring material. The monthly fixed costs are $10,000 per month. The unit selling price is $75 and variable cost per unit is $35. How many units should Jenna sell in order to earn $10,000 as operating income?

Roberts Company has fixed costs of $10,000. Their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%. What is the breakeven point in sales dollars?

Jame Company sells glass vases at a wholesale price of $3 per unit. The variable cost of manufacture is $1.75 per unit. The fixed costs are $7,500 per month. Jame sold 5,500 units during this month. Calculate Jame's operating income (loss) for this month.

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Managers can use CVP relationships to conduct sensitivity analysis.

Sensitivity analysis empowers managers with better information for decision making by analyzing how various business strategies will affect profits earned by the company.

Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $5,000. The contribution margin ratio is calculated to be 20%. What is the breakeven point in units?

Young Company has provided the following information: What are the required sales in units for Young to break even?

When the variable cost per unit increases, the total number of units required to breakeven also increases.