ACC222 - Chapter 7 Practice Problems

T/F If price is $10, unit variable cost is $2.50, and total fixed cost is 3,000, 240 units must be sold to breakeven.

False

T/F If the gym's monthly unlimited plan cost $100 and the daily plan cost $12, Lacy would need to go to the gym at least 10 times per month for the monthly plan to be the better deal.

False

T/F If the variable cost ratio is known, it can be subtracted from 100 to yield the contribution margin ratio.

False

A company manufactures two products. Information about the two product lines for the current year is as follows: Product A Product B Selling price per unit $90 $120 Variable costs per unit $50 $60 The company expects fixed costs to be $70,000. Calculate the break-even quantity of each product when the sales mix is 2:1. a. 1,145 units, 572 units b. 1,250 units, 625 units c. 1,110 units, 555 units d. 1,000 units, 500 units

1,000 units, 500 units

Whittier Company plans to produce and sell 2,000 units next month. The following data is given. Per unit Total Selling price $50 Variable cost $24 Fixed costs $28,000 Calculate the break-even point in units. 1,000 units 560 units 1,077 units 1,028 units

1077

Young Manufacturing Company plans to sell 600 units at $500 each in the following year. The data on costs is as follows: Variable cost$400Total fixed cost$30,000Operating Income$30,000 Calculate the degree of operating leverage. a. 3 b. 2 c. 4 d. 1

2

Information for Noble Company is as follows: Sales $400,000 Variable costs 100,000 Fixed costs 150,000 Calculate the break-even point in sales dollars. $157,000 $175,000 $250,000 $200,000

200000

Lauren Company plans to sell 3,000 units of a product at $500 each. For the product, unit variable cost is $380 and break-even units are 700. Calculate the margin of safety for Lauren in terms of the number of units. a. 2,000 units b. 2,100 units c. 2,200 units d. 2,300 units

2300 units

Paule Company manufactures computers. The budgeted sales are $300,000, budgeted variable costs are $153,000, and budgeted fixed costs are $270,000. Calculate the variable cost ratio. 51% 60% 45% 48%

51

Marc Company sells a product for $20, incurs a variable cost of $12 per unit, and has total fixed costs of $6,000. What is the per-unit contribution margin? $6 $8 $7 $9

8

Which of the following statements is true of sales mix? a. It is the relative combination of inputs being purchased by a firm. b. It is the relative combination of products being sold by a firm. c. It is the relative combination of products being produced by a firm. d. It is the relative combination of inputs being used by a firm.

It is the relative combination of products being sold by a firm.

Which of the following is an assumption of CVP analysis? a. Selling prices and costs are known with uncertainty. b. Linear revenue and cost functions remain constant over the relevant range. c. Units produced are sold but finished goods inventories retained. d. Sales mix is known with uncertainty for single product break-even settings.

Linear revenue and cost functions remain constant over the relevant range.

Which of the following is the mathematical expression for calculating number of units to earn target income? a. Number of Units to Earn Target Income = (Total Fixed Cost + Target Income) ÷ Contribution Margin per Unit b. Number of Units to Earn Target Income = (Price - Variable Cost per Unit) ÷ Target Income c. Number of Units to Earn Target Income = (Contribution Margin ratio × Target Income) ÷ Variable Cost Ratio . Number of Units to Earn Target Income = (Total Fixed Cost - Sales) ÷ Contribution Margin Ratio

Number of Units to Earn Target Income = (Total Fixed Cost + Target Income) ÷ Contribution Margin per Unit

Which of the following differentiates direct fixed expenses from common fixed expenses? a. The direct fixed expenses are those fixed costs that can be traced to a segment, whereas the common fixed expenses are not traceable to the segments. b. The direct fixed expenses are linear revenue and linear cost functions that remain constant, whereas the common fixed expenses are profits and sales unit functions that change over a relevant range. c. The direct fixed expenses are fixed costs that are the measures of profit, whereas the common fixed expenses are fixed costs that are the measures of revenue. d. The direct fixed expenses are fixed costs which remain even if one of the segments is eliminated, whereas the common fixed expenses are fixed costs that would be avoided if a segment is eliminated.

The direct fixed expenses are those fixed costs that can be traced to a segment, whereas the common fixed expenses are not traceable to the segments.

T/F Graphically, the breakeven point is where the contribution margin crosses the fixed cost line

True

T/F If price is $10, unit variable cost is $2.50, and total fixed cost is 3,000, the unit contribution margin is $7.50.

True

T/F If the gym's monthly unlimited plan cost $50 and the daily plan cost $8, Lacy should use the daily plan if she only intends to go to the gym 6 times per month.

True

T/F Tacos-2-Go could reduce their variable costs by shopping at wholesale supplies over local groceries.

True

T/F The breakeven in sales dollars equation is total fixed expenses divided by the contribution margin ratio.

True

T/F The contribution margin is the difference between sales and variables expenses.

True

T/F Total fixed costs, price, and unit variable costs all have an impact on the breakeven point.

True

Which of the following statements is true of relationship of fixed cost to contribution margin affect operating income? a. If fixed cost is greater than contribution margin and operating income is zero, the company makes a profit. b. If fixed cost equals contribution margin and operating income is zero, the company breaks even. c. If fixed cost is less than contribution margin and operating income is less than zero, the company makes a profit. d. If fixed cost is greater than contribution margin and operating income is greater than zero, the company makes a loss.

if fixed cost equals contribution margin and operating income is zero, then the company breaks even

Which of the following is true of the break-even point? a. It is the point where total revenue equals total cost. b.It is the point where total fixed cost equals total revenue. c. It is the point where total contribution margin equals total variable cost. d. It is the point where total revenue equals total variable cost.

it is the point where total revenue equals total cost

Assuming that fixed costs remain the same, the change in operating income from a change in revenues is calculated by. a. multiplying the variable cost ratio and the change in sales. b. multiplying the contribution margin ratio and the change in sales. c. multiplying the variable cost ratio and the break-even sales. d. multiplying the contribution margin ratio and the break-even sales.

multiplying the contribution margin ratio and the change in sales.

The margin of safety in dollars is calculated by. a. subtracting total cost from the actual sales. b. subtracting the contribution margin from the actual sales. c. subtracting the break-even sales from the actual sales. d. subtracting the fixed cost from the actual sales.

subtracting the break-even sales from the actual sales.

In a cost-volume-profit graph, the break-even point lies at the point: a. where the total revenue line and the total cost line intersect. b. where the operating income line meets the variable costs line. c. where the total cost line crosses the x-axis. d. where the total cost line and operating income line intersect.

where the total revenue line and the total cost line intersect.