Question 1

Dane Co. sells three products and incurs $18,000 per period in fixed costs. The three products have the following characteristics:  How many units of Product P will be sold at the breakeven point?

Accepted Answer

To find the breakeven point, we need to find out the total contribution margin (sales price minus variable cost) needed to cover the fixed costs. 
Product P has the highest contribution margin per unit ( $12 - $5 = $7) compared to other products. 
Therefore, the breakeven point can be calculated as:

$7P = $18,000 
P = 2,571.43 units

Since we cannot sell fractional units, the closest answer choice is C, which is 120 units.

Question 2

SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: If SXF increases its sales volume by 10%, what will happen to its margin of safety?

Accepted Answer

If SXF increases its sales volume by 10%, its total sales revenue will increase, which will lead to an increase in its contribution margin. As fixed costs remain constant, the increase in contribution margin will increase the margin of safety. Therefore, the correct answer is B, it will increase.

Question 3

Nelson Co. incurs $568,000 in fixed costs while producing three products with the following characteristics: What is the breakeven point in units?

Accepted Answer

The answer of Nelson Co. incurs $568,000 in fixed costs...

Question 4

If all other factors remain unchanged, a 10% decrease in both the selling price and variable costs for a product will

Accepted Answer

The answer of If all other factors remain unchanged, a...

Question 5

The breakeven point for a service organisation will decrease if

Accepted Answer

The breakeven point decreases when the variable cost ratio decreases because it increases the contribution margin, allowing the company to cover fixed costs with fewer sales.

Question 6

SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: Which of the following actions will move Point A to the right on the x axis?

Accepted Answer

The answer of SXF sells its single product for $14...

Question 7

SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: Which of the following actions will move Point B higher on the y axis?

Accepted Answer

Purchasing new equipment would likely increase fixed costs, which would move Point B higher on the y-axis in a CVP graph, as Point B represents the break-even point where total revenue equals total costs.

Question 8

In CVP analysis, managers usually assume that the revenue function is linear. Which of the following equations best represents a linear revenue function if the cost is a variable cost?

Accepted Answer

A linear revenue function has a constant slope, which means that for every unit sold, the revenue will increase by a constant amount. The only option with a constant slope is y = $60x, as the other options include a fixed cost component (y-intercept) that would result in a non-constant slope.

Question 9

A limiting assumption in CVP analysis is that

Accepted Answer

CVP analysis assumes that both revenues and costs behave linearly within the relevant range. This means that total revenue changes proportionately with the level of activity, and variable costs increase or decrease proportionately with changes in the level of activity. This assumption may not hold true if there are changes in the sales mix or if there are nonlinear relationships between revenues and costs. However, it is a necessary assumption for conducting CVP analysis as it simplifies the calculations and allows managers to easily calculate breakeven points and evaluate different pricing and cost strategies.

Question 10

Nelson Co. incurs $568,000 in fixed costs while producing three products with the following characteristics: At the breakeven point, what is the dollar sales volume for Product Q?

Accepted Answer

To find the breakeven point for Product Q, we need to determine its contribution margin per unit. The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. 
For Product Q, the selling price per unit is $80 and the variable cost per unit is $48, so the contribution margin per unit is $32 ($80 - $48 = $32). 
To cover the fixed costs of $568,000, we divide the total fixed costs by the weighted average contribution margin per unit. 
The weighted average contribution margin per unit is calculated as follows: 
(Product P contribution margin per unit x Product P sales mix) + (Product Q contribution margin per unit x Product Q sales mix) + (Product R contribution margin per unit x Product R sales mix) 
= ($16 x 0.4) + ($32 x 0.5) + ($48 x 0.1) = $23.2 
Breakeven point for Product Q = Total fixed costs ÷ Weighted average contribution margin per unit for all three products 
= $568,000 ÷ $23.2 
= $24,482.76 
To get the dollar sales volume for Product Q, we need to multiply the breakeven point for Product Q by its selling price: 
Breakeven point for Product Q x Selling price for Product Q = Dollar sales volume for Product Q 
$24,482.76 x $80 = $1,958,620.80 
Therefore, the dollar sales volume for Product Q at the breakeven point is $1,958,620.80, which is not one of the answer choices. However, the closest answer choice is B) $360,000, which is approximately 18.4% of the correct answer. This could be a typo in the question or an error in the calculation of the correct answer.

Question 11

SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows:  If SXF increases its volume of sales by 10%, what will happen to its degree of operating leverage?

Accepted Answer

The answer of SXF sells its single product for $14...

Question 12

SXF sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows: If SXF increases its sales volume by 10%, what will happen to its breakeven point?

Accepted Answer

The breakeven point is determined by fixed costs and the contribution margin per unit, which are not affected by changes in sales volume.

Question 13

Nelson Co. incurs $568,000 in fixed costs while producing three products with the following characteristics:  What is the selling price of Product T?

Accepted Answer