ACCT 302 Chap 3 Cost Volume Profit

9) Sales total $400,000 when variable costs total $300,000 and fixed costs total $50,000. The breakeven point in sales dollars is ________. A) $200,000 B) $120,000 C) $170,000 D) $210,000 Answer:

A) $200,000

Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs. 20) What is the contribution margin per ticket package? A) $50 B) $100 C) $150 D) $200 Answer:

A) $50

23) For every $25,000 of ticket packages sold, operating income will increase by ________. A) $6,250 B) $12,500 C) $18,750 D) $15,000 Answer:

A) $6,250

5) Sky High sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. The number of helicopters that must be sold to achieve $300,000 of operating income is ________. A) 113 units B) 102 units C) 96 units D) 100 units Answer:

A) 113 units

27) Which of the following is the mathematical expression of contribution margin ratio? A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars) B) Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars) C) Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars) D) Contribution margin ratio = Contribution margin percentage × Operating leverage Answer:

A) Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)

6) Which of the following is an assumption of CVP analysis? A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. B) When graphed, total costs curve upward. C) The unit-selling price is variable as it is subject to demand and supply. D) Total costs can be divided into inventoriable and period costs with respect to the level of output.

A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.

11) At breakeven point, ________. A) operating income is equal to zero B) contribution margin minus fixed costs is equal to profits earned C) revenues equal fixed costs minus variable costs D) breakeven revenues equal fixed costs divided by the variable cost per unit Answer:

A) operating income is equal to zero

18) If breakeven point is 1,000 units, each unit sells for $30, and fixed costs are $10,000, then on a graph the ________. A) total revenue line and the total cost line will intersect at $30,000 of revenue B) total cost line will be zero at zero units sold C) revenue line will start at $10,000 D) total revenue line and the total cost line will intersect at $40,000 of revenue Answer:

A) total revenue line and the total cost line will intersect at $30,000 of revenue

Answer the following questions using the information below: Northern Star sells several products. Information of average revenue and costs is as follows: Selling price per unit $20.00 Variable costs per unit: Direct material $4.00 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.00 Annual fixed costs $96,000 The company sells 12,000 units at the end of the year. 20) The contribution margin per unit is ________. A) $11.00 B) $12.00 C) $4.00 D) $14.00 Answer:

B) $12.00

19) When fixed costs are $50,000 and variable costs are 60% of the selling price, then breakeven sales are ________. A) $115,000 B) $125,000 C) $175,000 D) $275,000 Answer:

B) $125,000

19) Fixed costs equal $15,000, unit contribution margin equals $25, and the number of units sold equal 1,150. Operating income is ________. A) $28,750 B) $13,750 C) $15,000 D) $14,750 Answer:

B) $13,750

Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month. 24) What is the budgeted revenue for the month assuming that Alex sells 175 tables? A) $145,750 B) $148,750 C) $150,000 D) $142,250

B) $148,750

Bell Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $28.50 Variable costs per unit: Direct material $5.25 Direct manufacturing labor $1.15 Manufacturing overhead $0.25 Selling costs $1.85 Annual fixed costs $110,000 The company sells 10,000 units. 22) The contribution margin per unit is ________. A) $15 B) $20 C) $22 D) $125 Answer:

B) $20

15) Contribution margin per software is ________. A) $10.00 B) $30.00 C) $40.00 D) $36.00

B) $30.00

17) Pacific Company sells only one product for $11 per unit, variable production costs are $3 per unit, and selling and administrative costs are $1.50 per unit. Fixed costs for 10,000 units are $5,000. The operating income is ________. A) $6.50 per unit B) $6.00 per unit C) $5.50 per unit D) $5.00 per unit Answer:

B) $6.00 per unit

26) Winnz sells 8,000 units resulting in $100,000 of sales revenue, $35,000 of variable costs, and $45,000 of fixed costs. The contribution margin percentage is ________. A) 66.67% B) 65.0% C) 37.5% D) 75.0% Answer:

B) 65.0%

12) ________ is the process of varying key estimates to identify those estimates that are the most critical to a decision. A) The graph method B) A sensitivity analysis C) The degree of operating leverage D) Sales mix Answer:

B) A sensitivity analysis

3) Which of the following is true of cost-volume-profit analysis? A) The theory assumes that all costs are variable. B) The theory assumes that units manufactured equal units sold. C) The theory states that total variable costs remain the same over a relevant range. D) The theory states that total costs remain the same over the relevant range.

B) The theory assumes that units manufactured equal units sold.

7) Which of the following is true of CVP analysis? A) Costs may be separated into separate inventoriable and period components with respect to the level of output. B) Total revenues and total costs are linear in relation to output units. C) Unit selling price, unit variable costs, and unit fixed costs are known and remain constant. D) Proportion of different products will vary according to demand and supply when multiple products are sold.

B) Total revenues and total costs are linear in relation to output units.

8) A revenue driver is defined as ________. A) any factor that affects costs and revenues B) any factor that affects revenues C) the only factor that can influence a change in selling price D) the only factor that can influence a change in demand

B) any factor that affects revenues

8) A revenue driver is defined as ________. A) any factor that affects costs and revenues B) any factor that affects revenues C) the only factor that can influence a change in selling price D) the only factor that can influence a change in demand Answer:

B) any factor that affects revenues

10) The breakeven point revenues is calculated by dividing ________. A) fixed costs by total revenues B) fixed costs by contribution margin percentage C) total revenues by fixed costs D) contribution margin percentage by fixed costs Answer:

B) fixed costs by contribution margin percentage

2) One of the first steps to take when using CVP analysis to help make decisions is ________. A) calculating the break-even point B) identifying the variable and fixed costs C) calculation of the degree of operating leverage for the company D) estimating the volume of sales to make a good profit

B) identifying the variable and fixed costs

12) The breakeven point decreases if ________. A) the variable cost per unit increases B) the total fixed costs decrease C) the contribution margin per unit decreases D) the selling price per unit decreases Answer:

B) the total fixed costs decrease

1) Managers use cost-volume-profit (CVP) analysis to ________. A) forecast the cost of capital for a given period of time B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income C) estimate the risks associated with a given job D) analyse a firm's profitability and help to decide wealth distribution among its stakeholders

B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income

13) Contribution margin per unit is ________. A) $4.00 B) $11.00 C) $10.00 D) $8.00

C) $10.00

6) At the breakeven point of 2,000 units, variable costs total $4,000 and fixed costs total $6,000. The 2,001st unit sold will contribute ________ to profits. A) $1 B) $2 C) $3 D) $5 Answer:

C) $3

25) What is the budgeted operating income for the month assuming that Alex sells 175 tables? A) $45,250 B) $37,000 C) $36,250 D) $36,750 Answer:

C) $36,250

21) How many ticket packages will Ruben need to sell to break even? A) 34 packages B) 50 packages C) 100 packages D) 150 packages Answer:

C) 100 packages

16) How many units would have to be sold to yield a target operating income of $23,000, assuming variable costs are $25 per unit, total fixed costs are $2,000, and the unit selling price is $30? A) 4,800 units B) 4,400 units C) 5,000 units D) 5,200 units Answer:

C) 5,000 units

4) Sky High sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. Breakeven point in units is ________. A) 80 units B) 64 units C) 60 units D) 78 units Answer:

C) 60 units

3) The number of units that must be sold to achieve $40,000 of operating income is ________. A) 677 units B) 717 units C) 617 units D) 650 units Answer:

C) 617 units

10) Which of the following is true about the assumptions underlying basic CVP analysis? A) Selling price varies with demand and supply of the product. B) Only selling price and variable cost per unit are known and constant. C) Only selling price, variable cost per unit, and total fixed costs are known and constant. D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

C) Only selling price, variable cost per unit, and total fixed costs are known and constant.

9) As per CVP, operating income calculations use ________. A) net income and dividends B) income tax expense and net income C) contribution margins and fixed costs D) nonoperating revenues and nonoperating expenses

C) contribution margins and fixed costs

21) If direct labor and direct material costs increase by $1 each, contribution margin ________. A) increases by $20,000 B) increases by $14,000 C) decreases by $24,000 D) decreases by $14,000 Answer:

C) decreases by $24,000

8) Breakeven point in units is ________. A) total costs divided by profit margin per unit B) contribution margin per unit divided by total cost per unit C) fixed costs divided by contribution margin per unit D) the sum of fixed and variable costs divided by contribution margin per unit Answer:

C) fixed costs divided by contribution margin per unit

1) Multiple cost drivers ________. A) have only one revenue driver B) can utilize the simple CVP formula C) have no unique breakeven point D) are the result of multiple products Answer:

C) have no unique breakeven point

1) Winnz sells 8,000 units resulting in $100,000 of sales revenue, $35,000 of variable costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________. A) $440,000 B) $160,000 C) $130,000 D) $300,000 Answer:

D) $300,000

16) If sales increase by $60,000, operating income will increase by ________. A) $10,000 B) $40,000 C) $45,000 D) $60,000

D) $60,000 Answer: D

14) Calculate the variable cost per unit. A) $11.00 B) $7.00 C) $8.00 D) $7.50

D) $7.50

22) How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income? A) 367 packages B) 434 packages C) 1,100 packages D) 1,300 packages Answer:

D) 1,300 packages

Answer the following questions using the information below: Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. 2) Breakeven point in units is ________. A) 196 units B) 203 units C) 185 units D) 192 units Answer:

D) 192 units

14) What is the breakeven point in units, assuming a product's selling price is $100, fixed costs are $16,000, unit variable costs are $20, and operating income is $5,200? A) 100 units B) 300 units C) 400 units D) 200 units Answer:

D) 200 units

23) What is the proportion of variable costs to total costs? A) 45.00% B) 48.56% C) 53.56% D) 43.56% Answer:

D) 43.56%

11) The contribution margin income statement ________. A) reports gross margin B) is allowed for external reporting to shareholders C) categorizes costs as either direct or indirect D) can be used to predict future profits at different levels of activity

D) can be used to predict future profits at different levels of activity

4) The selling price per unit less the variable cost per unit is the ________. A) fixed cost per unit B) gross margin C) margin of safety D) contribution margin per unit

D) contribution margin per unit

7) The breakeven point is the activity level where ________. A) revenues equal fixed costs B) revenues equal variable costs C) contribution margin equals total costs D) revenues equal the sum of variable and fixed costs Answer:

D) revenues equal the sum of variable and fixed costs

15) If unit outputs exceed the breakeven point ________. A) there will be an increase in fixed costs B) total sales revenue will exceed fixed costs C) total sales revenue will exceed variable costs D) there will be a profit Answer:

D) there will be a profit

18) The contribution income statement highlights ________. A) gross margin B) the segregation of costs into period costs and inventoriable costs C) different product lines D) variable and fixed costs Answer:

D) variable and fixed costs

43) Arthur's Plumbing reported the following: Revenues $4,500 Variable manufacturing costs $ 900 Variable nonmanufacturing costs $ 810 Fixed manufacturing costs $ 630 Fixed nonmanufacturing costs $ 545 Required: a. Compute contribution margin. b. Compute contribution margin percentage. c. Compute gross margin. d. Compute gross margin percentage. e. Compute operating income.

a. Contribution margin $4,500 - $900 - $810 = $2,790 b. Contribution margin percentage = ($2,790/$4,500) × 100 = 62% c. Gross margin $4,500 - $900 - $630 = $2,970 d. Gross margin percentage = ($2,970/$4,500) × 100 = 66% e. Operating income $4,500 - $900 - $810 - $630 - $545 = $1,615

A decision table is a summary of the alternative actions, events, outcomes, and probabilities of events. T/F?

True

3) How many actions and events will a decision table contain? A) 1 action and 3 events B) 1 action and 6 events C) 2 actions and 3 events D) 3 actions and 6 events Answer:

3 actions and 6 events

Breakeven point

Breakeven point is the point at which operating income is zero

12) Contribution margin equals ________. A) revenues minus period costs B) revenues minus product costs C) revenues minus variable costs D) revenues minus fixed costs

C) revenues minus variable costs

17) If the breakeven point is 1,000 units and each unit sells for $50, then ________. A) selling 1,040 units will result in a loss B) selling $60,000 will result in a loss C) selling $50,000 will result in zero profit D) selling $45,000 will result in profit Answer:

C) selling $50,000 will result in zero profit

13) Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________. A) total fixed costs increase B) total fixed costs decrease C) variable costs per unit increase D) variable costs per unit decrease Answer:

D) variable costs per unit decrease

5) In the graph method of CVP analysis, the total revenues line always begins from the x-axis and the total costs line begins from the fixed cost line.

true