Question 1

Young Guns Company,which sells tents,has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 45 \
\hline \text { Variable cost per unit } & 11 \
\hline \text { Fixed costs per month } & \$ 12,700 \
\hline
\end{array}$$ What are the required sales in units for Young to break even? (Round your answer up to the nearest whole unit. )

Accepted Answer

To find the break-even point in units, use the formula: Break-even point (units) = Fixed Costs / (Sales price per unit - Variable cost per unit). Here, it is $12,700 / ($45 - $11) = 373.53. Rounding up gives 374 units.

Question 2

Identify the breakeven point in the graph given below.

Accepted Answer

The breakeven point is where the total cost curve intersects with the total revenue curve. In the given graph, this occurs at point E, where the total cost curve and total revenue curve intersect. At this point, the company is neither making a profit nor incurring a loss. Therefore, the best choice is option C, which corresponds to point E.

Question 3

From the graph given below,identify the sales revenue line.

Accepted Answer

The answer of From the graph given below,identify the sales...

Question 4

Hisham was a professional classical guitar player until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 2,000 \
\hline \text { Other expenses } & 474 \
\hline
\end{array}$$ Hisham's accountant told him about contribution margin ratios,and Hisham understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and anything above that point was profit.
Hisham wishes to earn $4,000 of operating profit each month.Calculate the number of guitars Hisham will need to sell to achieve the target profit.(Round your answer up to the nearest whole guitar. )

Accepted Answer

To find the number of guitars needed to achieve the target profit, calculate the total fixed costs and desired profit, then divide by the contribution margin per guitar. Fixed costs are $3,274 ($800 + $2,000 + $474). Desired profit is $4,000. Total needed is $7,274. Contribution margin per guitar is $585 ($900 * 0.65). $7,274 / $585 ≈ 12.43, so Hisham needs to sell 13 guitars.

Question 5

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

Accepted Answer

The answer of Daytona Manufacturer produces flooring material.The monthly fixed...

Question 6

Hurst Company sells hand-sewn shirts for $40 per shirt.It incurs monthly fixed costs of $7,000.The contribution margin ratio is calculated to be 50%.What is the breakeven point in units? (Round your answer up to the nearest whole unit. )

Accepted Answer

D)Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Required sales in dollars = ($7,000 + 0)/ 50% = $14,000.00
Number of units to be sold to break even = $14,000.00 / $40 = 350 units

Question 7

Colin was a professional classical guitarist until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $900,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 700 \
\hline \text { Wages and benefits to luthier } & 2,000 \
\hline \text { Other expenses } & 475 \
\hline
\end{array}$$ Colin's accountant told him about contribution margin ratios,and Colin understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
What is the amount of revenue Colin should earn each month to break even? (Round your answer to the nearest dollar. )

Accepted Answer

The answer of Colin was a professional classical guitarist until...

Question 8

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

Accepted Answer

The answer of Brevard Manufacturer produces flooring material.The monthly fixed...

Question 9

Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.

Accepted Answer

This is the correct formula for calculating the breakeven point in sales dollars. Fixed costs are divided by the contribution margin ratio (which is the sales price minus variable costs divided by sales price) to determine the number of units needed to be sold to cover all fixed costs. This number of units can then be multiplied by the sales price to determine the breakeven point in sales dollars.

Question 10

Joshua was a professional classical guitarist until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $800,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 600 \
\hline \text { Wages and benefits to luthier } & 2,300 \
\hline \text { Other expenses } & 479 \
\hline
\end{array}$$ Joshua's accountant told him about contribution margin ratios,and Joshua understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
How many guitars does Joshua need to sell each month to break even? (Round your answer up to the nearest whole guitar. )

Accepted Answer

The answer of Joshua was a professional classical guitarist until...

Question 11

The breakeven point represents the sales level at which the company's operating income is zero.

Accepted Answer

The breakeven point is the level of sales at which a company's total revenue and total expenses are equal, resulting in an operating income of zero. So, the given statement is true.

Question 12

Winter Wonderland sells hand-knit scarves.Each scarf sells for $50.The company pays $30 to rent a vending space for one day.The variable costs are $10 per scarf.What total revenue amount does the company need to earn to break even? (Round any percentages to two decimal places and your final answer to the nearest cent. )

Accepted Answer

B)Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Contribution margin ratio = Contribution margin / Net sales revenue
Unit contribution margin = $50 - $10 = $40 per scarf
Contribution margin ratio = ($40 / $50)× 100 = 80.00%
Required sales in dollars = ($30 + $0)/ 80.00% = $37.50

Question 13

Madison Company has provided the following information: $$\begin{array} { | l | r | } 
\hline \text { Sales price per unit } & \$ 40 \
\hline \text { Variable cost per unit } & 18 \
\hline \text { Fixed costs per month } & \$ 12,800 \
\hline
\end{array}$$ What is the amount of sales in dollars required for Madison to break even? (Round any percentages to two decimal places and your final answer to the nearest dollar. )

Accepted Answer

To find the break-even point in sales dollars, use the formula: Break-even sales = Fixed Costs / (1 - (Variable Cost per Unit / Sales Price per Unit)). Here, it is $12,800 / (1 - (18/40)) = $23,273.

Question 14

Roberts Produce Company has fixed costs of $14,000.The company's contribution margin ratio is 46%,and the ratio of selling revenue to sales is 20%.What is the breakeven point in sales dollars? (Round your answer to the nearest dollar. )

Accepted Answer

B)Required sales in dollars = (Fixed costs + Target profit)/ Contribution margin ratio
Required sales in dollars = ($14,000 + 0)/ 46% = $30,435

Question 15

One of the assumptions of cost-volume-profit (CVP)analysis is that there are no changes in the ________.

Accepted Answer

CVP analysis assumes that inventory levels remain constant. This assumption helps to simplify the analysis and make it easier to calculate the breakeven point and the level of profitability at different levels of sales. Changes in accounts payable, cash balance, or accounts receivables do not directly affect the breakeven point or the level of profitability, so they are not included in the assumptions of CVP analysis.

Question 16

Ethan was a professional classical guitar player until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier and started a small shop to make and sell Spanish guitars.The guitars sell for $600,and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 600 \
\hline \text { Wages and benefits to luthier } & 2,200 \
\hline \text { Other expenses } & 470 \
\hline
\end{array}$$ Ethan's accountant told him about contribution margin ratios,and Ethan understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit.
Ethan wishes to earn $5,000 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.(Round your answer to the nearest dollar. )

Accepted Answer

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

Question 17

Fixed costs divided by contribution margin per unit equals the breakeven point in unit sales.

Accepted Answer

This is the formula for calculating the breakeven point in unit sales. Fixed costs are divided by the contribution margin per unit to determine how many units must be sold in order to cover all fixed costs and begin generating profits.

Question 18

The sales level at which operating income is zero is called the breakeven point.

Accepted Answer

The breakeven point is the sales level at which operating income is zero, meaning that total costs and total revenues are equal.

Question 19

Maywood Company sells hand-knit scarves.Each scarf sells for $40.The company pays $60 to rent vending space for one day.The variable costs are $15 per scarf.How many scarves should the company sell each day in order to break even? (Round your answer up to the nearest whole scarf. )

Accepted Answer

B)Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit
Unit contribution margin = $40 - $15 = $25 per scarf
Required sales in units = ($60 + $0)/ $25 = 3 scarves (rounded)

Question 20

If all other factors remain constant,an increase in fixed costs will increase the breakeven point.

Accepted Answer

Fixed costs are costs that remain the same regardless of the level of production. As fixed costs increase, the total costs of production increase, which means that the breakeven point will be reached at a higher level of sales. Therefore, an increase in fixed costs will increase the breakeven point.

Quiz 20: Cost-Volume-Profit Analysis