Question 1

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

Accepted Answer

The formula for the break-even point is:
Break-even point = Fixed costs / (Unit selling price - Variable cost per unit)
The formula to attain a given target operating profit is:
Target sales in units = (Fixed costs + Target operating profit) / (Unit selling price - Variable cost per unit)
If the target operating profit is zero, then the formula simplifies to:
Target sales in units = Fixed costs / (Unit selling price - Variable cost per unit)
which is the same as the formula for the break-even point.

Question 2

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

Accepted Answer

The answer of The break-even point in units can be...

Question 3

The break-even in sales dollars for the expected sales mix is closest to which of the following?
A) $160,772.
B) $95,178.
C) $109,091.
D) $175,644.Total CM = (150 - 120 - 16)* 600 + (165 - 126 - 13)* 1,200 = $39,600.

Accepted Answer

The answer of The break-even in sales dollars for the...

Question 4

Once the break-even point has been reached,increases in contribution margin will be reflected dollar for dollar in increased operating income.

Accepted Answer

This is because once the break-even point has been reached, all fixed costs have been covered by the total contribution margin. Therefore, any additional contribution margin will directly increase operating income.

Question 5

What is the break-even point in annual sales dollars?
A) $530,000.
B) $350,000.
C) $460,000.
D) $400,000.

Accepted Answer

The answer of What is the break-even point in annual...

Question 6

At the break-even point: Sales - Variable expenses = Fixed expenses.

Accepted Answer

The break-even point is the point where the total sales revenue equals total expenses, or in other words, the point where the contribution margin (sales minus variable expenses) equals fixed expenses. Therefore, Sales - Variable expenses = Fixed expenses at the break-even point.

Question 7

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000.
CM ratio = 50% so incremental CM = 22,000 * .5 which is less than $12,000.

Accepted Answer

The incremental contribution margin is $11,000 (not $22,000) which is less than $12,000, therefore it is not advisable for the company to spend $12,000 on increased advertising.

Question 8

For a given level of sales,a low contribution margin ratio will produce less operating income than a high contribution margin ratio.

Accepted Answer

This is because contribution margin is the amount available to cover fixed expenses and provide operating income. Therefore, a higher contribution margin ratio means a larger portion of each sales dollar is available to cover fixed expenses and provide operating income, resulting in higher operating income.

Question 9

In the current year,the company sold 43,000 units.Due to competition,management will be forced to lower the selling price by 10% next year.How many units must be sold next year to earn the same operating income as was earned in the current year?
A) 50,000 units.
B) 53,200 units.
C) 58,800 units.
D) 60,200 units.New CM = 40 * (1 - .10)- 20 - 6 = $10.Units required = (532,000 + 70,000)/10 = 60,200 units.

Accepted Answer

Using the formula for calculating units required to earn the same operating income, we can determine that the company needs to sell 60,200 units next year to earn the same operating income as was earned in the current year. Therefore, option D is the correct answer.

Question 10

A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole.

Accepted Answer

This statement is true because products with a high contribution margin ratio generate more revenue per unit sold, which means that fewer units need to be sold to cover the fixed costs of the business, thus lowering the break-even point.

Question 11

Company Y is considering two production technologies,Bronze and Platinum,for producing its new product.The cost structures of the two technologies are as follows: 
At what level of sales volume in units (rounded to the nearest whole unit)would Company Y be indifferent in choosing between the Bronze and Platinum technologies?
A) 10,000 units.
B) 12,100 units.
C) 13,000 units.
D) Cannot be determined without additional information.

Accepted Answer

The answer of Company Y is considering two production technologies,Bronze...

Question 12

What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?
A) 33%.
B) 50%.
C) 12%.
D) 67%.

Accepted Answer

Margin of safety is the percentage difference between actual sales and breakeven sales. It indicates how much sales can decline before the company starts incurring losses. The formula for margin of safety is (Actual Sales - Breakeven Sales) / Actual Sales * 100. In this case, the breakeven sales are $200,000 and the actual sales are $300,000. Therefore, the margin of safety is (300,000 - 200,000) / 300,000 * 100, which equals 33%.

Question 13

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.

Accepted Answer

This statement is true according to the formula for calculating the required sales volume: Sales volume = (Fixed expenses + Target operating profit) / Contribution margin ratio.

Question 14

In two companies making the same product and with the same total sales and total expenses,the contribution margin ratio will tend to be lower in the company with a higher proportion of fixed expenses in its cost structure.

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales, and it is not directly affected by the proportion of fixed expenses in a company's cost structure.

Question 15

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Accepted Answer

Margin of safety is the difference between actual or expected sales and the sales needed to break even. If fixed expenses increase, the break-even point will increase, which means that the sales needed to reach break-even will be higher. As a result, the margin of safety will decrease because the company will have less room for error before starting to incur losses.

Question 16

If fixed expenses increase by $10,000 per year,then the level of sales needed to break even will also increase by $10,000.

Accepted Answer

The answer of If fixed expenses increase by $10,000 per...

Question 17

The company has an opportunity to secure a special order of 800 units if it is willing to drop the selling price on these units to $13.Costs of securing the special order would be $1,000.The special order would not affect the company's regular sales.If the special order is accepted,what will be the impact on the company's overall operating income?
A) Increase $3,200.
B) Increase $2,200.
C) Increase $3,800.
D) Remain the same.Incremental profit = 800 * (13 - 9)- 1,000 = $2,200 increase

Accepted Answer

The incremental profit from accepting the special order is $2,200, which means that the company's overall operating income would increase by this amount. Therefore, the correct answer is B - Increase $2,200.

Question 18

If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?
A) $7,500.
B) $6,000.
C) $2,000.
D) $3,000.

Accepted Answer

Fixed expenses would need to be reduced by $3,000 to maintain the current operating income after a decrease in sales by 500 units. The contribution margin per unit is $18,000 / 3,000 units = $6 per unit. A decrease of 500 units would result in a decrease in total contribution margin by 500 units * $6/unit = $3,000. To maintain the same operating income, fixed expenses would need to be reduced by this amount.

Question 19

If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe),where would the break-even level of sales be as compared to the expected sales mix?
A) The same as with the expected sales mix.
B) Higher than with the expected sales mix.
C) Lower than with the expected sales mix.
D) Cannot be determined with the available data.

Accepted Answer

The break-even level of sales would be higher with an equal sales mix because the Deluxe model has a higher contribution margin per unit than the Standard model. By selling more of the Standard model and less of the Deluxe model, the average contribution margin per unit decreases, requiring a higher volume of sales to cover the fixed costs.

Question 20

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

Accepted Answer

The margin of safety percentage is calculated by dividing the margin of safety in dollars by total sales in dollars and expressing the result as a percentage.

Quiz 4: Cost-Volume-Profit Relationships

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

The break-even in sales dollars for the expected sales mix is closest to which of the following?

Once the break-even point has been reached,increases in contribution margin will be reflected dollar for dollar in increased operating income.

What is the break-even point in annual sales dollars?

At the break-even point: Sales - Variable expenses = Fixed expenses.

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000. CM ratio = 50% so incremental CM = 22,000 * .5 which is less than $12,000.

For a given level of sales,a low contribution margin ratio will produce less operating income than a high contribution margin ratio.

In the current year,the company sold 43,000 units.Due to competition,management will be forced to lower the selling price by 10% next year.How many units must be sold next year to earn the same operating income as was earned in the current year?

A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole.

What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.

In two companies making the same product and with the same total sales and total expenses,the contribution margin ratio will tend to be lower in the company with a higher proportion of fixed expenses in its cost structure.

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

If fixed expenses increase by $10,000 per year,then the level of sales needed to break even will also increase by $10,000.

If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?

If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe) ,where would the break-even level of sales be as compared to the expected sales mix?

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.