Chapter 3

Which of the following will increase a company's breakeven point? A) increasing variable cost per unit B) increasing contribution margin per unit C) reducing its total fixed costs D) increasing the selling price per unit

A

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

C

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

C

All else being equal, a reduction in selling price will ________. A) increase contribution margin B) reduce fixed costs C) increase variable costs D) reduce operating income

D

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

D

Which of the following will increase a company's breakeven point? A) Increasing variable cost per unit B) Increasing contribution margin per unit C) Reducing its total fixed costs D)Increasing the selling price per unit

A

All else being equal, an increase in advertising expenditures will ________. A) reduce operating income B) reduce contribution margin C) increase variable costs D) increase selling price

A

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

A

Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month.What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 200 times? A) 40 times B) 30 times C) 20 times D) 10 times

A

Fixed costs ________. A) are considered variable costs over the long run B) provide less operating leverage C) reduce the risk of loss D) are graphed as a steeply sloped line

A

Globus Autos sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. If a change is made in one parameter of CVP analysis, it is an example of ________. A) sensitivity analysis B) incremental budgeting C) variance analysis D) multiple cost drivers

A

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

A

In the merchandising sector ________. A) only variable costs are subtracted to determine gross margin B) fixed overhead costs are subtracted to determine gross margin C) fixed overhead costs are subtracted to determine contribution margin D) all operating costs are subtracted to determine contribution margin

A

Product X: Revenue $15.00 Variable Cost $2.50 Product Y: Revenue $25.00 Variable Cost $10.00 Total fixed costs $50,000 What is the operating income, assuming actual sales total 150,000 units, and the sales mix is two units of Product X and one unit of Product Y? A) $1,950,000 B) $1,850,000 C) $1,750,000 D) $2,150,000

A

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

A

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

A

Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%? A) 200 dresses B) 170 dresses C) 150 dresses D) 145 dresses

A

To apply CVP analysis in the hotel industry, which of the following is the most important measure of output? A) number of room-nights occupied B) number of visitors C) number of dishes on the menu D) number of employees

A

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

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

A

Zealz Manufacturing produces a single product that sells for $80. Variable costs per unit equal $30. The company expects total fixed costs to be $70,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. What is the current breakeven point in terms of number of units? A) 1,400 units B) 2,250 units C) 3,333 units D) 1725 units

A

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

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

B

Gross margin is ________. A) sales revenue less variable costs B) sales revenue less cost of goods sold C) contribution margin less fixed costs D) contribution margin less variable costs

B

Helping Hands is a nonprofit organization that supplies electric fans during summer for individuals in need. Fixed costs are $225,000. The fans cost $25.00 each. The organization has a budgeted appropriation of $675,000. How many people can receive a fan during summer? A) 15,000 people B) 18,000 people C) 22,000 people D) 16,000 people

B

If Beta Corp's net income is $210,000 and the tax rate is 30%, then the company's planned operating income is ________. A) $325,000 B) $300,000 C) $273,000 D) $357,000

B

If the contribution margin ratio is 0.40, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is ________. A) $250,000 B) $312,500 C) $275,000 D) $350,000

B

In the manufacturing sector, ________. A) only variable costs are subtracted to determine gross margin B) fixed overhead costs are subtracted to determine gross margin C) fixed overhead costs are subtracted to determine contribution margin D) all operating costs are subtracted to determine contribution margin

B

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

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

Pearl Lights sells only pearl necklaces. 8,000 units were sold resulting in $240,000 of sales revenue, $60,000 of variable costs, and $40,000 of fixed costs. The breakeven point in total sales dollars is ________. A) $40,000 B) $53,334 C) $100,000 D) $58,334

B

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

B

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

B

The margin of safety is the difference between ________. A) budgeted expenses and breakeven expenses B) budgeted revenues and breakeven revenues C) actual operating income and budgeted operating income D) actual sales margin and budgeted sales margin

B

The planned operating income is calculated by ________. A) dividing net income by tax rate B) dividing net income by 1 − tax rate C) multiplying net income by tax rate D) multiplying net income by 1 − tax rate

B

When a greater proportion of costs are fixed costs, then ________. A) a small increase in sales results in a small decrease in operating income B) when demand is low the risk of loss is high C) a decrease in sales reduces the total fixed cost per unit D) a decrease in sales reduces the cost per unit

B

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

B

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

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

________ 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

B

A nonprofit organization aids the unemployed by supplementing their incomes by $5,000 annually, while they seek new employment skills. The organization has fixed costs of $200,000 and the budgeted appropriation for the year totals $700,000. How many individuals can receive financial assistance this year? A) 115 people B) 110 people C) 100 people D) 95 people

C

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

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

C

Blistre Company operates on a contribution margin of 20% and currently has fixed costs of $500,000. Next year, sales are projected to be $3,000,000. An advertising campaign is being evaluated that costs an additional $80,000. How much would sales have to increase to justify the additional expenditure? A) $320,000 B) $380,000 C) $400,000 D) $600,000

C

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

C

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

C

Globus Autos sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. If variable costs decrease by $1 per unit, the new margin of safety is ________. A) $65,000 B) $73,567 C) $68,235 D) $66,765

C

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

C

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

C

If the contribution margin ratio is 0.40, targeted operating income is $80,000, and targeted sales volume in dollars is $500,000, then the degree of operating leverage is ________. A) 1.50 times B) 2.00 times C) 2.50 times D) 3.00 times

C

In CVP analysis, focusing on target net income rather than operating income ________. A) will increase the breakeven point B) will decrease the breakeven point C) will not change the breakeven point D) will help managers construct a better capital policy

C

Stones Manufacturing, sells a marble slab for $1,000. Fixed costs are $30,000, while the variable costs are $400 per slab. The company currently plans to sell 200 slabs this month. What is the margin of safety assuming 75 slabs are budgeted? A) $40,000 B) $38,000 C) $25,000 D) $33,000

C

The Marietta Company has fixed costs of $60,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit ________. A) must be $1.20 B) must be $6.00 C) must be $5.60 D) must be $4.23

C

Which of the following forms a part of decision making in CVP analysis? A) selection of inventory method for financial reporting purposes B) decision to form a capital policy C) decision to advertise D) decision to improve the efficiency of the work force

C

Which of the following is an output measure for a hospital? A) number of doctors needed to cater to patients B) number of patients admitted every day in a hospital C) number of days spent by a patient in a hospital D) charges applicable on the number of days spent by a patient in a hospital

C

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

Which of the following is true of net income? A) Net income is operating income divided by income tax rate. B) Net income is operating income plus operating revenues minus operating costs minus income taxes. C) Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes. D) Net income is operating income minus nonoperating revenues minus nonoperating costs minus sales taxes.

C

Which of the following statements about net income (NI) is true? A) NI = operating income plus nonoperating revenue. B) NI = operating income plus operating costs. C) NI = operating income less income taxes. D) NI = operating income less cost of goods sold.

C

The Marietta Company has fixed costs of $60,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit ________. A) must be $1.20 B) must be $6.00 C) must be $5.60 D) must be $4.23

C ((60,000+10,000)/.25=280,000 280,000/50,000=5.6

) If selling price per unit is $40, variable costs per unit are $25, total fixed costs are $20,000, the tax rate is 30%, and the company sells 5,000 units, net income is ________. A) $32,158 B) $26,548 C) $28,500 D) $38,500

D

Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then ________. A) fixed costs increases by $6 per unit B) operating profits decreases by $6 per unit C) fixed costs decreases by $6 per unit D) operating profits increases by $6 per unit

D

If a company has a degree of operating leverage of 3.0 and sales increase by 25%, then ________. A) total fixed costs will increase by 75% B) total costs will increase by 75% C) profit will increase by 30% D) profit will increase by 75%

D

If a company would like to increase its degree of operating leverage it should ________. A) increase its sales relative to its fixed costs B) increase its sales relative to its variable costs C) increase its variable costs relative to its fixed costs D) increase its fixed costs relative to its variable costs

D

If the contribution margin ratio is 0.25, targeted operating income is $50,000, and targeted sales volume in dollars is $250,000, then total fixed costs are ________. A) $11,500 B) $15,000 C) $20,000 D) $12,500

D

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

D

In a company with low operating leverage, ________. A) fixed costs are more than the contribution margin B) contribution margin and operating income are inversely related C) there is a higher possibility of net loss than a higher-leveraged firm D) less risk is assumed than in a highly leveraged firm

D

In multiproduct situations, when sales mix shifts toward the product with the lowest contribution margin then ________. A) total revenues will increase B) interest cost will decrease C) total contribution margin will increase D) operating income will decrease

D

Lights Manufacturing produces a single product that sells for $125. Variable costs per unit equal $50. The company expects total fixed costs to be $75,000 for the next month at the projected sales level of 1,000 units. What is the current breakeven point in terms of number of units? A) 800 units B) 1033 units C) 667 units D) 1,000 units

D

Product X: Revenue $15.00 Variable Cost $2.50 Product Y: Revenue $25.00 Variable Cost $10.00 Total fixed costs $50,000 What is the breakeven point assuming the sales mix consists of two units of Product X and one unit of Product Y? A) 1,000 units of Y and 2,000 units of X B) 1,113 units of Y and 2,025 units of X C) 2,313 units of Y and 4,025 units of X D) 1,250 units of Y and 2,500 units of X

D

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

D

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

D

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

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

To apply CVP analysis in not-for profit organization ________. A) managers need to focus on the customer base rather than the cost drivers B) managers need to focus on measuring their output, which is the same as tangible units sold by manufacturing and merchandising companies C) managers need to focus on measuring their input, which is different from the tangible units consumed by manufacturing and merchandising companies D) managers need to focus on measuring their output, which is different from the tangible units sold by manufacturing and merchandising companies

D

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

D

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

D