ACC 222 Chapter 4

Dartmouth Company produces a single product with a price of $9, variable cost per unit of $5, and total fixed cost of $8,200. Dartmouth's break-even point in units (round your answer to the nearest whole number) a. is 2,050. b. is 2,041. c. is 2,059. d. is 2,068. e. cannot be determined from the information given.

a. is 2,050.

The amount of revenue required to earn a targeted profit is equal to a. total fixed cost plus targeted profit divided by contribution margin ratio. b. total variable cost plus targeted profit divided by contribution margin. c. targeted profit divided by sales price per unit. d. total fixed cost plus total variable cost divided by contribution margin. e. targeted profit divided by break-even units.

a. total fixed cost plus targeted profit divided by contribution margin ratio.

If the variable cost per unit goes down, a.Total variable cost increases and Break-even point decreases. b. Contribution margin increases and Break-even point decreases. c. Cost of goods sold decreases and Break-even point remains unchanged. d. Contribution margin decreases and Break-even point remains unchanged. e. Fixed cost increases and Break-even point increases.

b. Contribution margin increases and Break-even point decreases.

The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. financial leverage. b. operating leverage. c. marginal cost analysis. d. degree of operating leverage. e. variable cost reduction.

b. operating leverage.

Break-even revenue for the multiple-product firm can a. be calculated by dividing total fixed cost by the overall contribution margin ratio. b. be calculated by adding total fixed cost and total variable cost then dividing by contribution margin ratio. c. be calculated by dividing segment fixed cost by unit sales per segment. d. be calculated by dividing total fixed cost by the overall variable cost ratio. e. None of these choices are correct.

be calculated by dividing total fixed cost by the overall contribution margin ratio.

Solemon Company has total fixed cost of $15,000, variable cost per unit of $6, and a price of $8. If Solemon wants to earn a targeted profit of $3,600, how many units must be sold? a. 2,500 b. 7,500 c. 9,300 d. 18,600 e. 18,750

c. 9,300

If the margin of safety is 0, then a. the company is earning its targeted profit. b. the company is earning a small profit. c. the company is precisely breaking even. d. the margin of safety cannot be less than or equal to 0; it must be positive. e. None of these choices are true.

c. the company is precisely breaking even.

Dartmouth Company produces a single product with a price of $10, variable cost per unit of $3, and total fixed cost of $8,000. The variable cost ratio and the contribution margin ratio for Dartmouth, rounded to the nearest whole number, are a. 30% and 30%, respectively. b. 70% and 30%, respectively. c. 70% and 70%, respectively. d. 30% and 70%, respectively. e. The contribution margin ratio cannot be determined from the information given.

d. 30% and 70%, respectively.

If a company's total fixed cost decreases by $10,000, which of the following will be true? a. The break-even point will increase. b. The variable cost ratio will increase. c. The break-even point will be unchanged. d. The variable cost ratio will be unchanged. e. The contribution margin ratio will increase.

d. The variable cost ratio will be unchanged.

In the cost-volume-profit graph, a. the break-even point is found where the total revenue curve crosses the x-axis. b. the area of profit is to the left of the break-even point. c. the area of loss cannot be determined. d. both the total revenue curve and the total cost curve appear. e. neither the total revenue curve nor the total cost curve appear.

d. both the total revenue curve and the total cost curve appear.

The contribution margin is the a.amount by which sales exceed total fixed cost. b.difference between sales and total cost. c.difference between sales and operating income. d.difference between sales and total variable cost. e.difference between variable cost and fixed cost.

d.difference between sales and total variable cost.

An important assumption of cost-volume-profit analysis is that a. both costs and revenues are linear functions. b. all cost and revenue relationships are analyzed within the relevant range. c. there is no change in inventories. d. the sales mix remains constant. e. all of these are assumptions of cost-volume-profit analysis.

e. all of these are assumptions of cost-volume-profit analysis.

Sensitivity analysis: a.examines how changes in fixed costs can impact profit. b.examines how changes in sales can impact profit. c.examines how changes in the sales mix can impact the break-even point. d.is a useful managerial planning tool. e.All of these choices are correct.

e.All of these choices are correct.

The sales mix is:

the combination of products being sold by the firm.

Contribution margin ratio is:

the percentage of sales dollars remaining after variable costs are covered.

The break-even point is:

the point where sales revenues equals all costs.

Operating leverage is:

the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

In a cost-volume-profit graph, the total cost line meets the Y (vertical) axis at the:

total fixed costs point.