Accounting final ch 6.1- multiple choice
Skyline Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $25,000. What sales revenue is needed to break-even?
$125,000 Break-even point in units is $25,000/($25 - $20) = 5,000. Revenue = 5,000 × $25 = $125,000. Alternatively, break-even point is fixed costs divided by contribution margin ratio. $25,000/($5/$25 or 20%) = $125,000
Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Peggy to break even?
$166,667 Contribution margin ratio is ($30,000 + $60,000)/$250,000 = 36%. Break-even point is $60,000/.36 = $166,667.
Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even?
$200,000 Contribution margin ratio is ($60,000 + $120,000)/$300,000 = 60%. Break-even point in sales revenue is $120,000/0.60 = $200,000.
Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-even point in sales dollars?
$325,000 Calculate the break-even point in sales dollars by dividing fixed costs by the contribution margin ratio. $130,000/0.40 = $325,000
Last month Dexter Company had a $15,000 loss on sales of $150,000. Fixed costs are $60,000 a month. By how much do sales have to increase for Dexter to break even?
$50,000 Contribution margin ratio is ($60,000 - $15,000)/$150,000 = 30%. Break-even sales is $60,000/0.30 = $200,000. Sales must increase $200,000 - $150,000 = $50,000. Current sales are 150,000 and break even sales are $200,000, so sales must increase by $50,000 in order for the company to break even.
Belle Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $100,000. What sales revenue is needed to break-even?
$500,000 Break-even point in units is $100,000/($50 - $40) = 10,000. Revenue = 10,000 × $50 = $500,000. Alternatively, break-even point in sales dollars is fixed costs divided by contribution margin ratio. ($100,000/($10/$50) = $500,000)
Last month Angus Company had a $30,000 loss on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Angus to break even?
$500,000 Contribution margin ratio is ($60,000 - $30,000)/$250,000 = 12%. Break-even sales is $60,000/0.12 = $500,000.
Allen, Inc., has a contribution margin of 40% and fixed costs of $250,000. What is the break-even point in sales dollars?
$625,000 Calculate break-even point by dividing fixed costs by the contribution margin ratio. $250,000/0.40 = $625,000
Maggie Corp. has a selling price of $20 per unit, variable costs of $10 per unit, and fixed costs of $140,000. How many units must be sold to break even?
14,000 Calculate break-even point in units by dividing fixed costs by the contribution margin per unit. $140,000/($20 - $10) = 14,000
At a level of 20,000 units sold, Gail Corp. has sales of $400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units?
15,000 Fixed costs are ($400,000 × 40%) - $40,000 = $120,000. Break-even point is $120,000/0.40 = $300,000 in sales, and $300,000/$20 = 15,000 in units.
Jasper Corp. has a selling price of $30, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $70,000. How many units must be sold to break-even?
5,000 Fixed costs are [($30 - $20) × 12,000] - $70,000 = $50,000. Break-even point is $50,000/($30 - $20) = 5,000.
Virgil Corp. has a selling price of $30 per unit, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $55,000. How many units must be sold to break-even?
6,500 Fixed costs are [($30 - $20) × 12,000] - $55,000 = $65,000. Break-even point is $65,000/($30 - $20) = 6,500 units.
Thunder Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $35,000. How many units must be sold to break even?
7,000 Calculate the break-even point by dividing fixed costs by the contribution margin. $35,000/($25 - $20) = 7,000
Mustang Corp. has a selling price of $15, variable costs of $10 per unit, and fixed costs of $35,000. How many units must be sold to break-even?
7,000 Calculate the break-even point in units by dividing fixed costs by the contribution margin per unit. $35,000/($15 - $10) = 7,000
Last month Stagecoach Company had a $60,000 loss on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Stagecoach to break even?
$600,000 Contribution margin ratio is ($120,000 - $60,000)/$300,000 = 20%. Break-even sales in sales dollars is fixed costs divided by the contribution margin ratio. ($120,000/0.20 = $600,000) Derive fixed costs by working backwards on an income statement.
Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. By how much would sales be able to decrease for Empire to still break even?
$83,333 Contribution margin ratio is ($30,000 + $60,000)/$250,000 = 36%. Break-even sales is $60,000/0.36 = $166,667. Sales would be able to decrease by $83,333. ($250,000 - $166,667 = $83,333)
The formula for target units is:
(Total fixed costs + Target profit)/Unit contribution margin
The profit equation is: (Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit (Unit price × Q) - (Unit variable costs × Q) + Total fixed costs = Profit (Unit price - Unit variable costs - Total fixed costs) × Q = Profit (Unit price × Q) + (Unit variable costs × Q) + Total fixed costs = Profit
(Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit The formula for profit is sales price per unit times number of units sold, less variable costs per unit times number of units, less fixed costs.
Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units are sold, profits equaled $35,000. How many units must be sold to break-even?
8,500 Fixed costs are [($20 - $10) × 12,000] - $35,000 = $85,000. Break-even point is $85,000/($20 - $10) = 8,500.
Which of the following statements is not correct about cost-volume-profit analysis? CVP analysis is a decision-making tool for managers. CVP analysis focuses on the relationship among volume and mix of units sold, prices, variable costs, fixed costs, and profit. CVP analysis works best when all variables are changed concurrently. Managers use CVP analysis to evaluate how changing one key variable will impact profitability, while holding everything else constant.
CVP analysis works best when all variables are changed concurrently. CVP analysis works best when managers change one key variable to determine the impact on profitability, while holding everything else constant (not while changing all variables concurrently).
Which of the following is not a key assumption of cost-volume-profit? Costs must be fixed. Production and sales are equal. Changes in total cost are strictly due to changes in activity. Total costs and revenues can be depicted with a straight line.
Costs must be fixed. CVP assumes that all costs must be classified (or classifiable) as either fixed or variable.
Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume? Each method provides a different way to express the CVP relationships, yet answers the same basic question. Choice of method depends, in part, on personal preference. Choice of method depends, in part, on the available information. Each method yields a different final answer to be used in analysis.
Each method yields a different final answer to be used in analysis. The method a manager uses to model the relationship between revenues, costs, profit, and volume yield the same final answer (not a different final answer) as long as managers have complete information.
Cost-volume-profit analysis assumes that total costs behave in a ________fashion. Curvilinear Linear Exponential
Linear Cost-volume-profit analysis assumes that total costs behave in a linear fashion.
What component of the profit equation should be set equal to zero to find the breakeven point? Total sales revenue Total variable costs Total fixed costs Profit
Profit The break-even point is the point where profit is zero.
Which of the following statements is correct about the break-even point? The break-even point is the point where a company achieves its target profit. The break-even point is the point where all variable costs are covered (but fixed costs are not). The break-even point is the point where all fixed costs are covered (but variable costs are not). The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.
The break-even point quantifies the number of units that must be sold to cover total costs with zero profit. The break-even point is the number of units that must be sold for the company to cover total costs yet not generate a profit (i.e., profit equals zero).
The formula for break-even point in terms of sales dollars is: Total variable costs/Contribution margin ratio Total fixed costs/Contribution margin ratio Total fixed costs/Unit contribution margin Total variable costs/Total fixed costs
Total fixed costs/Contribution margin ratio
The formula for break-even point in terms of units is:
Total fixed costs/Unit contribution margin
Profit is indicated on a cost-volume-profit graph by: the vertical difference between zero and the break-even point. the horizontal difference between the revenue line and the cost line. the vertical difference between the revenue line and the cost line. the horizontal distance between zero and the break-even point.
the vertical difference between the revenue line and the cost line. The vertical difference between the revenue line and the cost line is revenue minus cost, which equals profit. The horizontal difference between these lines is the change in volume, which isn't equal to profit. The distance between zero and the break-even point (horizontally or vertically) does not indicate profit, since it would be less than the break-even point (indicating a loss).
