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Chapter 06 Cost-Volume-Profit Analysis Answer Key
True / False Questions
1. Cost-volume-profit analysis assumes that all costs can be accurately described as either fixed
or variable.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
2. On a CVP graph, the break-even point is the point at which the contribution margin line
crosses the total cost line.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: CVP graph
3. Contribution margin is equal to fixed costs at the break-even point.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
6-1
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4. Break-even units can be found by dividing fixed costs by the unit contribution margin.
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Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
5. Target units equals fixed costs plus target profit divided by the unit contribution margin.
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Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
6. The target sales level equals fixed costs plus variable costs divided by the contribution margin
ratio.
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
7. To determine the number of units needed to earn a target profit, divide the target contribution
margin by the contribution margin per unit.
AICPA: FN Measurement
6-2
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
8. The margin of safety is the difference between actual sales and budgeted sales.
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Difficulty: 1 Easy
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
9. Managers can use cost-volume-profit analysis to help evaluate changes in price.
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
10. Managers can use cost-volume-profit analysis to evaluate changes in cost structure.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
11. Degree of operating leverage is calculated by dividing sales by profit.
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6-3
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
12. The degree of operating leverage can be multiplied by a change in sales to determine the
change in profit.
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Difficulty: 1 Easy
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
13. A firm with a higher degree of operating leverage would be considered less risky than a
comparable firm with a lower degree of operating leverage.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
14. Cost-volume-profit analysis can only be performed for companies that sell only one product.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
6-4
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15. In multiproduct cost-volume-profit analysis, a break-even point must be calculated separately
for each product.
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
Multiple Choice Questions
16. Which of the following statements is not correct about cost-volume-profit analysis?
A. CVP analysis is a decision-making tool for managers.
B. CVP analysis focuses on the relationship among volume and mix of units sold, prices,
variable costs, fixed costs, and profit.
D. Managers use CVP analysis to evaluate how changing one key variable will impact
AICPA: BB Critical Thinking
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
17. Cost-volume-profit analysis assumes that total costs behave in a ________ fashion.
A. Curvilinear
C. Exponential
D. Regressive
6-5
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McGraw-Hill Education.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
18. Which of the following is not a key assumption of cost-volume-profit?
B. Production and sales are equal.
C. Changes in total cost are strictly due to changes in activity.
D. Total costs and revenues can be depicted with a straight line.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
19. If production volume does not equal sales volume:
A. we must adjust the CVP formulas for that fact to use CVP.
B. we cannot use CVP, since an assumption is violated.
C. the CVP analysis will always indicate a breakeven point that cannot be reached.
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Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
6-6
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20. Profit is indicated on a cost-volume-profit graph by:
A. the vertical difference between zero and the break-even point.
B. the horizontal difference between the revenue line and the cost line.
D. the horizontal distance between zero and the break-even point.
AICPA: FN Measurement
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: CVP graph
21. Which of the following statements is correct about the break-even point?
A. The break-even point is the point where a company achieves its target profit.
B. The break-even point is the point where all variable costs are covered (but fixed costs are
not).
C. The break-even point is the point where all fixed costs are covered (but variable costs are
not).
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).
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Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: CVP graph
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22. What component of the profit equation should be set equal to zero to find the breakeven
point?
A. Total sales revenue
B. Total variable costs
C. Total fixed costs
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Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Basic CVP analysis
23. The break-even point is the point at which profit equals:
B. the target.
C. variable costs.
D. less than five percent.
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Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
24. The break-even point is:
A. the point where zero contribution margin is earned.
C. the point where selling price just equals variable cost.
D. equal to sales revenue less fixed costs.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Basic CVP analysis
6-8
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25. Which of the following statements is not correct about the methods managers use to model
the relationship between revenues, costs, profit, and volume?
A. Each method provides a different way to express the CVP relationships, yet answers the
same basic question.
B. Choice of method depends, in part, on personal preference.
C. Choice of method depends, in part, on the available information.
AICPA: BB Critical Thinking
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Basic CVP analysis
26. The profit equation is:
B. (Unit price × Q) - (Unit variable costs × Q) + Total fixed costs = Profit
C. (Unit price - Unit variable costs - Total fixed costs) × Q = Profit
D. (Unit price × Q) + (Unit variable costs × Q) + Total fixed costs = Profit
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
27. The formula for break-even point in terms of units is:
A. Total variable costs/Unit contribution margin
B. Total fixed costs/Contribution margin ratio
D. Total variable costs/Total fixed costs
AICPA: FN Measurement
6-9
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Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
28. The formula for break-even point in terms of sales dollars is:
A. Total variable costs/Contribution margin ratio
C. Total fixed costs/Unit contribution margin
D. Total variable costs/Total fixed costs
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Contribution margin ratio method
29. 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?
B. 14,000
C. 3,500
D. 2,334
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
6-10
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McGraw-Hill Education.
30. 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?
B. 14,000
C. 3,500
D. 2,334
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
31. 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?
A. 7,000
C. 3,500
D. 2,334
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
32. Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-
even point in sales dollars?
A. $52,000
C. $225,000
D. $78,000
AICPA: FN Measurement
6-11
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Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Contribution margin ratio method
33. Allen, Inc., has a contribution margin of 40% and fixed costs of $250,000. What is the break-
even point in sales dollars?
A. $100,000
B. $250,000
C. $375,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Contribution margin ratio method
34. Mira Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of
$90,000. How many units must be sold to break-even?
A. 1,800
B. 2,250
D. 2,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
6-12
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35. 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?
A. 19,000
B. 12,000
C. 14,333
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
Topic: Unit contribution margin method
36. 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?
A. 12,000
B. 8,000
C. 20,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-13
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37. 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?
B. $90,000
C. $30,000
D. $280,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
38. 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?
A. $360,000
B. $420,000
D. $240,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-14
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39. 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?
A. $100,000
B. $5,000
D. $50,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
40. 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?
A. 32,300
B. 20,400
C. 24,366
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
6-15
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41. 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?
B. $125,000
C. $5,000,000
D. $1,000,000
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Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Unit contribution margin method
42. 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?
A. 4,000
B. 12,000
D. 5,500
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
6-16
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43. 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?
A. $60,000
B. $75,000
C. $45,000
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Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
44. 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?
A. $90,000
C. $166,667
D. $280,000
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Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-17
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45. 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?
A. $166,667
C. $280,000
D. $220,000
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Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
46. At a sales level of 20,000 units, Pony Corp. has sales of $400,000, a variable cost ratio of
60%, and a profit of $40,000. What is the break-even point in units?
A. 8,000
B. 12,000
D. 20,000
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Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-18
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47. 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?
A. $360,000
B. $480,000
D. $420,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Contribution margin ratio method
48. The formula for target units is:
A. (Total fixed costs + Target profit)/Contribution margin ratio
B. (Total variable costs + Total fixed costs)/Contribution margin ratio
D. (Total variable costs + Total fixed costs)/Unit contribution margin
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Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
49. The formula for target sales is:
B. (Total variable costs + Total fixed costs)/Contribution margin ratio
C. (Total fixed costs + Target profit)/Unit contribution margin
D. (Total variable costs + Total fixed costs)/Unit contribution margin
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Difficulty: 1 Easy
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
50. Merlot, Inc. has fixed costs of $200,000, sales price of $50, and variable cost of $30 per unit.
How many units must be sold to earn profit of $80,000?
A. 2,800
B. 11,200
D. 202,400
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
51. Martol, Inc. has fixed costs of $200,000 and a contribution margin ratio of 40%. How much
sales revenue must be earned for a profit of $80,000?
A. $140,000
B. $560,000
D. $1,120,000
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-20
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52. Megan, Inc. has fixed costs of $400,000, sales price of $40, and variable cost of $30 per unit.
How many units must be sold to earn profit of $80,000?
A. 2,000
B. 10,000
C. 40,000
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
53. Fern, Inc. has fixed costs of $400,000 and a contribution margin ratio of 30%. How much sales
revenue must be earned for a profit of $80,000?
A. $144,000
B. $336,000
D. $1,920,000
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
54. Pecan, Inc., has a contribution margin of 50% and fixed costs of $220,000. What sales
revenue is needed to attain a $60,000 profit?
A. $70,400
B. $440,000
D. $240,000
AICPA: FN Measurement
6-21
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
55. Munoz Inc. has a contribution margin ratio of 30% and fixed costs of $90,000. What sales
revenue is needed to generate a $60,000 profit?
A. $45,000
B. $200,000
D. $214,286
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
56. Louise Corp. has a contribution margin ratio of 35%, fixed costs of $60,000, and a profit of
$45,000. What are total sales?
B. $105,000
C. $36,750
D. $171,429
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Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-22
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57. Ironwood Inc. has a variable cost ratio of 60% and fixed costs of $90,000. What sales revenue
is needed to generate a $120,000 profit?
A. $128,572
B. $225,000
C. $375,000
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Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
58. Payton Corp. has sales of $200,000, a contribution margin ratio of 35%, and a target profit of
$40,000. If 10,000 units were sold, what are total variable costs?
A. $200,000
C. $240,000
D. $160,000
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
59. Chelsea Company has sales of $400,000, variable costs of $10 per unit, fixed costs of
$100,000, and a target profit of $60,000. How many units were sold?
A. 12,000
B. 18,000
D. 30,000
6-23
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McGraw-Hill Education.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
60. Elk Corp. has sales of $300,000, a contribution margin ratio of 40%, and a target profit of
$30,000. If 20,000 units were sold, what is the variable cost per unit?
A. $22.50
C. $6.00
D. $2.00
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
61. Bugle Corp. has sales of $400,000, a variable cost ratio of 40%, and a profit of $40,000. If
10,000 units were sold, what is the contribution margin per unit?
A. $60.00
B. $36.00
D. $18.00
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-24
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62. Nancy Company has sales of $100,000, variable costs of $5 per unit, fixed costs of $25,000,
and a profit of $15,000. How many units were sold?
A. 20,000
B. 16,000
D. 8,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
63. Keith Corp. has sales of $200,000, a contribution margin ratio of 35%, and a profit of $40,000.
If 10,000 units were sold, what is the variable cost per unit?
B. $20.00
C. $7.00
D. $3.00
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-25
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64. Vesper Company has sales of $200,000, variable costs of $8 per unit, fixed costs of $50,000,
and a profit of $30,000. How many units were sold?
A. 10,000
C. 20,000
D. 25,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
65. Paint Corp. has sales of $600,000, a contribution margin ratio of 30%, and a profit of $40,000.
If 20,000 units were sold, what is the variable cost per unit?
A. $9.00
B. $30.00
D. $3.00
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
66. Harvest Corp. has a contribution margin ratio of 30%, fixed costs of $45,000, and a profit of
$60,000. What are total sales?
A. $31,500
B. $105,000
C. $150,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
6-26
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Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
67. Leather Company sold 20,000 units, had variable costs of $12 per unit, fixed costs of
$100,000, and profits of $60,000. What is the selling price per unit?
A. $8
B. $17
D. $32
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Profit equation method
68. Last month Lyle Company had a $60,000 profit on sales of $300,000. Fixed costs are
$120,000 a month. How much do sales have to increase for Lyle to earn a $100,000 profit?
B. $83,333
C. $220,000
D. $400,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-27
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69. The margin of safety is the difference between:
A. actual sales and budgeted sales.
C. target sales and actual sales.
D. target sales and budgeted sales.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
70. At the break-even point, the margin of safety will be:
A. positive.
B. negative.
D. equal to fixed costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
71. Dragon, Inc. has actual sales of $400,000 and a margin of safety of $150,000. What is
Dragon's break-even point in sales?
A. $100,000
C. $350,000
D. $450,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
6-28
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72. Jerome Corp. has fixed costs of $500,000 and a contribution margin ratio of 40%. Currently,
sales are $3,000,000. What is Jerome's margin of safety?
B. $3,500,000
C. $5,250,000
D. $7,000,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
73. Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales
are $75,000. What is Idaho's margin of safety?
A. $28,000
C. $42,000
D. $70,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
74. The margin of safety tells managers:
A. how much sales would have to increase to hit the target profit.
B. how much profit would drop if sales decreased.
D. how much profit would have to increase to hit target sales.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
6-29
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McGraw-Hill Education.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
75. Dexter Corp. has fixed costs of $500,000 and a contribution margin ratio of 25%. Currently,
margin of safety is $1,000,000. What are Dexter's current sales?
A. $1,000,000
B. $2,000,000
D. $4,000,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
76. Irwin Corp. has fixed costs of $20,000 and a contribution margin ratio of 40%. Currently,
margin of safety is $35,000. What are Irwin's current sales?
A. $35,000
B. $37,500
C. $50,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
6-30
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77. Fountain Corp. has a selling price of $15 per unit and variable costs of $10 per unit. When
14,000 units are sold, profits equaled $45,000. What is the margin of safety?
A. $210,000
B. $105,000
D. $75,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
78. Fontaine Corp. has a selling price of $15 and variable costs of $10 per unit. When 10,000 units
are sold, profits equaled $25,000. What is the margin of safety?
B. $25,000
C. $105,000
D. $50,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
6-31
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79. Rollag Corp. has a selling price of $30 and variable costs of $20 per unit. When 14,000 units
are sold, profits equaled $45,000. What is the margin of safety?
A. $420,000
C. $142,500
D. $75,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
80. Indigo Corp. has a selling price of $45 and variable costs of $30 per unit. When 10,000 units
are sold, profits equaled $25,000. What is the margin of safety?
B. $25,000
C. $80,000
D. $150,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
6-32
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81. Knoll, Inc. currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit,
and fixed costs of $300,000. Knoll is considering increasing the price of its units to $60 per
unit. This will not affect costs, but demand is expected to drop 20%. Should Knoll increase the
price of its product?
B. Yes, profit will increase $150,000.
C. No, profit will decrease $150,000.
D. No, profit will decrease $30,000.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
82. Knoll, Inc. currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit,
and fixed costs of $300,000. Knoll is considering increasing the price of its units to $60 per
unit. If the price is changed, how many units will Knoll need to sell for profit to remain the same
as before the price change?
A. 10,000
C. 12,000
D. 12,500
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
6-33
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83. All else being equal, what happens to the unit contribution margin and the contribution margin
ratio if the sales price per unit increases?
B. Both unit contribution margin and contribution margin ratio decrease.
C. Unit contribution margin increases while contribution margin ratio decreases.
D. Unit contribution margin decreases while contribution margin ratio increases.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
84. Cost structure refers to:
A. a company's break-even point.
B. whether fixed costs are covered by the contribution margin.
D. where funds are stored.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
6-34
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85. Plymouth Corp. sells units for $100 each. Variable costs are $75 per unit, and fixed costs are
$200,000. If Plymouth leases a new machine, fixed costs will increase by $60,000 a year, but
production will be more efficient, saving $5 per unit. At what level of production will Plymouth
be indifferent between leasing and not leasing the new machine?
A. 5,000
B. 10,000
C. 10,400
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
86. A company is debating whether to change its cost structure so that fixed costs increase from
$300,000 to $400,000, but variable costs decrease from $5 per unit to $4 per unit. If it were to
implement the change at its current production level of 100,000 units, profit would not change.
What would happen to the company's profit if the change were implemented and production
increased to 125,000 units?
A. It will stay the same.
C. It will decrease.
D. It could increase or decrease.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
6-35
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87. A company is debating whether to change its cost structure so that variable costs increase
from $4 per unit to $5 per unit but fixed costs decrease from $400,000 to $300,000. If it were
to implement the change at its current production level of 100,000, profit would not change.
What would happen to the company's profit if the change were implemented and production
increased?
A. It will stay the same.
B. It will increase.
D. It could increase or decrease.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
88. Plymouth Corp. sells units for $100 each. Variable costs are $75 per unit, and fixed costs are
$200,000. If Plymouth leases a new machine, production will be more efficient, saving $5 per
unit. If Plymouth plans to sell 12,000 units, at what lease cost will Plymouth be indifferent
between leasing and not leasing the new machine?
A. $10,000
B. $40,000
D. $80,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
6-36
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McGraw-Hill Education.
89. Which of the following statements about leverage is not correct?
A. Measuring the degree of operating leverage is a form of measuring risk.
B. Decisions about the use of debt or equity affect a company's financial leverage.
C. Decisions about whether to use fixed or variable costs affect a company's operating
leverage.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
90. Degree of operating leverage is calculated as:
A. profit divided by contribution margin.
B. break-even sales divided by profit.
C. profit divided by break-even sales.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
91. Degree of operating leverage is used to:
A. calculate change in sales given change in profit.
C. calculate break-even sales given change in sales.
D. calculate break-even sales given change in profit.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
6-37
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
92. Frontier Corp. has a contribution margin of $450,000 and profit of $150,000. What is its degree
of operating leverage?
A. 0.33
B. 1.67
C. 2.50
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
93. Frontier Corp. has a contribution margin of $450,000 and profit of $150,000. If sales increase
20%, by how much will profits increase?
A. 20%
B. 30%
D. 90%
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
6-38
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94. Frontier Corp. has fixed costs of $300,000 and profit of $150,000. What is its degree of
operating leverage?
A. 0.33
B. 1.67
C. 2.50
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
95. Frontier Corp. has fixed costs of $300,000 and profit of $150,000. If sales increase 20%, by
how much will profits increase?
A. 20%
B. 30%
D. 90%
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
6-39
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96. Frontier Corp. sells units for $50, has unit variable costs of $20, and fixed costs of $300,000. If
Frontier sells 15,000 units, what is its degree of operating leverage?
A. 0.33
B. 1.67
C. 2.50
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
97. Frontier Corp. sells units for $50, has unit variable costs of $20, and fixed costs of $300,000.
Frontier sells 15,000 units. If sales increase 20%, by how much will profits increase?
A. 20%
B. 30%
D. 90%
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
6-40
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98. In multiproduct cost-volume-profit analysis, an assumption made in addition to those used in
single-product CVP analysis is that:
B. all costs can be classified as fixed or variable.
C. costs are linear in the relevant range.
D. production and sales are equal.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
99. If a firm sells more than one product, the break-even point in units represents:
A. the number of units of the largest-selling product required to break even.
B. the number of units of the most profitable product required to break even.
C. the number of units of the highest-revenue product required to break even.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
6-41
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100. Friar Corp. sells two products. Product A sells for $100 per unit, and has unit variable costs of
$60. Product B sells for $70 per unit, and has unit variable costs of $50. Currently, Friar sells
three units of product B for every one unit of product A sold. Friar has fixed costs of $750,000.
What is Friar's break-even point in units?
A. 30,000 units of A and 30,000 units of B
C. 22,500 units of A and 7,500 units of B
D. 15,000 units of A and 15,000 units of B
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
101. Friar Corp. sells two products. Product A sells for $100 per unit, and has unit variable costs of
$60. Product B sells for $70 per unit, and has unit variable costs of $50. Currently, Friar sells
three units of product B for every one unit of product A sold. Friar has fixed costs of $750,000.
How many units would Friar have to sell to earn a profit of $250,000?
A. 40,000 units of A and 40,000 units of B
C. 30,000 units of A and 10,000 units of B
D. 20,000 units of A and 20,000 units of B
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
6-42
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102. Graham Corp. sells two products. Product A sells for $200 per unit, and has unit variable costs
of $150. Product B sells for $50 per unit, and has unit variable costs of $20. Currently, Graham
sells three units of product B for every two units of product A sold. Graham has fixed costs of
$760,000. What is Graham's break-even point in units?
A. 20,000 units of A and 20,000 units of B
B. 12,000 units of A and 8,000 units of B
D. 10,000 units of A and 10,000 units of B
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
103. Graham Corp. sells two products. Product A sells for $200 per unit, and has unit variable costs
of $150. Product B sells for $50 per unit, and has unit variable costs of $20. Currently, Graham
sells three units of product B for every two units of product A sold. Graham has fixed costs of
$760,000. How many units would Graham have to sell to earn a profit of $57,000?
A. 21,500 units of A and 21,500 units of B
B. 12,900 units of A and 8,600 units of B
D. 10,750 units of A and 10,750 units of B
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
Essay Questions
6-43
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104. Match the assumption for cost behavior patterns used in cost-volume-profit analysis with its
corresponding explanation. Your choices are:
-All costs can be classified as either fixed or variable.
-There is a constant product mix.
-There is a linear relationship between cost and revenue.
-Only volume affects total cost and total revenue.
-Production volume is equal to sales volume.
Assumption Explanation
a.
Ignore other factors that affect cost
and revenue, for example employee
learning curves and productivity
gains.
b.
Use a straight line to approximate the
relationship between total cost and
sales volume and between total
revenue and sales volume.
c.
Simply the analysis with this
assumption, even though we know
some costs vary with production
while others vary with sales.
d.
Determine the total fixed and variable
costs per unit (including for mixed
costs); step costs remain fixed within
the relevant range.
e.
Even if a company makes and sells
multiple products, we assume the
relative proportion of units sold
remains the same.
AICPA: BB Critical Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Topic: Assumptions of cost-volume-profit analysis
105. Roland had revenues of $600,000 in March. Fixed costs in March were $200,000 and profit
was $40,000. Answer the following questions:
a. What was the contribution margin percentage?
b. What monthly sales volume (in dollars) would be needed to break-even?
c. What sales volume (in dollars) would be needed to earn $150,000?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-45
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McGraw-Hill Education.
106. Portia Company is a retailer of hammers. Portia pays $4.75 for each hammer and sells them
for $8.00. Monthly fixed costs are $26,000. The hammer cost is the only variable cost.
a. What is the contribution margin per unit?
b. What is the break-even point in units?
c. How many units will Portia need to sell to earn target profit of $13,000?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Unit contribution margin method
107. Nora Inc. sells a single product for $15. Variable costs include $6 for each unit plus a 10%
sales commission. Fixed costs are $150,000 per month.
a. What is the contribution margin percentage?
b. What is the break-even sales revenue?
c. What sales revenue is needed to achieve a $100,000 per month profit?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-46
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108. Raven Inc. sells a single product for $45. Variable costs include $26 for each unit plus a $10
selling expense per unit. Fixed costs are $200,000 per month.
a. What is the contribution margin percentage?
b. What is the breakeven sales revenue?
c. What sales revenue is needed to achieve a $175,000 per month profit?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
109. Holly Inc. sells a single product for $40. Variable costs include $22 for each unit plus a 10%
sales commission. Fixed costs are $105,000 per month.
a. What is the contribution margin percentage?
b. What is the breakeven sales revenue?
c. What sales revenue is needed to achieve a $140,000 per month profit?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Topic: Contribution margin ratio method
6-47
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McGraw-Hill Education.
110. Jasmine Inc. sells a product for $50 per unit. Variable costs per unit are $30, and monthly fixed
costs are $150,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $100,000?
c. Assume they achieve the level of sales required in part b, what is the margin of safety in
sales dollars?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
Topic: Unit contribution margin method
111. Halifax Products sells a product for $75. Variable costs per unit are $50, and monthly fixed
costs are $75,000. Answer the following questions:
a. What is the break-even point in units?
b. How many units would need to be sold to earn a target profit of $200,000?
c. Assume they achieve the level of sales required in part b, what is the margin of safety in
sales dollars?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
Topic: Unit contribution margin method
6-48
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McGraw-Hill Education.
112. Juniper had revenues of $450,000 in March. Fixed costs in March were $240,000 and profit
was $30,000. Answer the following questions:
a. What was the contribution margin percentage?
b. What monthly sales volume (in dollars) would be needed to break-even?
c. What was the margin of safety for March?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Contribution margin ratio method
Topic: Margin of safety
113. Dallas Inc. sells a product for $60. Variable costs are 60% of sales, and monthly fixed costs
are $54,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $120,000?
c. Assume they achieve the level of sales required in part b, what is the margin of safety in
sales dollars?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Margin of safety
Topic: Unit contribution margin method
6-49
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McGraw-Hill Education.
114. Duncan had revenues of $900,000 in March. Fixed costs in March were $480,000 and profit
was $60,000. Answer the following questions:
a. What was the contribution margin percentage?
b. What monthly sales volume (in dollars) would be needed to break-even?
c. What was the margin of safety for March?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Contribution margin ratio method
Topic: Margin of safety
115. Boise Corp had a margin of safety of $375,000 last month, with sales revenue of $1,000,000
and fixed costs of $250,000.
a. What are break-even sales?
b. What is the contribution margin ratio?
c. How much profit did Boise earn last month?
d. How much would sales have to increase for Boise to earn profit of 600,000?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Contribution margin ratio method
Topic: Margin of safety
6-50
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McGraw-Hill Education.
116. Akron Corp. had a margin of safety of $500,000 last month, with sales revenue of $1,250,000
and fixed costs of $150,000.
a. What are break-even sales?
b. What is the contribution margin ratio?
c. How much profit did Akron earn last month?
d. How much would sales have to be for Akron to earn profit of 500,000?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-03 Compute the margin of safety.
Topic: Contribution margin ratio method
Topic: Margin of safety
117. The manager of Calypso, Inc. is considering raising its current price of $30 per unit by 10%. If
she does so, she estimates that demand will decrease by 20,000 units per month. Calypso
currently sells 50,000 units per month, each of which costs $25 in variable costs. Fixed costs
are $180,000.
a. What is the current profit?
b. What is the current break-even point in units?
c. If the manager raises the price, what will profit be?
d. If the manager raises the price, what will be the new break-even point in units?
e. Assume the manager does not know how much demand will drop if the price increases. By
how much would demand have to drop before the manager would not want to implement the
price increase?
6-51
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McGraw-Hill Education.
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
Topic: Profit equation method
Topic: Unit contribution margin method
118. The manager of Arbor, Inc. is considering raising its current price of $50 per unit by 10%. If she
does so, she estimates that demand will decrease by 30,000 units per month. Arbor currently
sells 100,000 units per month, each of which costs $35 in variable costs. Fixed costs are
$1,200,000.
a. What is the current profit?
b. What is the current break-even point in units?
c. If the manager raises the price, what will profit be?
d. If the manager raises the price, what will be the new break-even point in units?
e. Assume the manager does not know how much demand will drop if the price increases. By
how much would demand have to drop before the manager would not want to implement the
price increase?
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: CVP for decision making
Topic: Profit equation method
Topic: Unit contribution margin method
6-52
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McGraw-Hill Education.
119. Glade, Inc. is trying to decide whether to increase the commission-based pay of its
salespeople. Currently, each of its five salespeople earns a 15% commission on the units they
sell for $100 each, plus a fixed salary of $40,000 per person. Glade hopes that by increasing
commissions to 20% and decreasing each salesperson's salary to $25,000, sales will increase
because salespeople will be more motivated. Currently, sales are 13,000 units. Glade's other
fixed costs, NOT including the salespeople's salaries, total $580,000. Glade's other variable
costs, NOT including commissions, total $20 per unit.
a. What is current profit?
b. What is the current break-even point in units?
c. What would the break-even point in units be if commissions are increased and salaries
decreased?
d. If sales increase by 4,000 units, what will profit be under the new plan?
e. At what sales level would Glade be indifferent between the lower-commission plan and the
higher-commission plan?
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
Topic: Profit equation method
Topic: Unit contribution margin method
6-53
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McGraw-Hill Education.
120. Forge, Inc. is trying to decide whether to increase the commission-based pay of its
salespeople. Currently, each of its ten salespeople earns a 10% commission on the units they
sell for $90 each, plus a fixed salary of $30,000 each. Forge hopes that by increasing
commissions to 20% and decreasing each salesperson's salary to $21,000, sales will increase
because salespeople will be more motivated. Currently, sales are 12,000 units. Forge's other
fixed costs, not including the salespeople's salaries, total $188,580. Forge's other variable
costs, not including commissions, total $30 per unit.
a. What is current profit?
b. What is the current break-even point in units?
c. What would the break-even point in units be if commissions are increased and salaries
decreased?
d. If sales increase by 1,000 units, what will profit be under the new plan?
e. At what sales level would Forge be indifferent between the lower-commission plan and the
higher-commission plan?
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-04 Analyze how changes in prices and cost structure affect cost-volume-profit relationships.
Topic: Changes in cost structure
Topic: Profit equation method
Topic: Unit contribution margin method
6-54
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McGraw-Hill Education.
121. Cantor Products sells a product for $75. Variable costs per unit are $50, and monthly fixed
costs are $75,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $200,000?
c. Assume they achieve the level of sales required in part b, what is the degree of operating
leverage?
d. If sales decrease by 30% from that level, by what percentage will profits decrease?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
Topic: Unit contribution margin method
122. Harmony sells a product for $50 per unit. Variable costs per unit are $30, and monthly fixed
costs are $150,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $100,000?
c. Assume they achieve the level of sales required in part b, what is the degree of operating
leverage?
d. If sales increase by 40% from that level, by what percentage will profits increase?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-01 Use cost-volume-profit analysis to find the break-even point.
6-55
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McGraw-Hill Education.
Learning Objective: 06-02 Use cost-volume-profit analysis to determine the sales needed to achieve a target profit.
Learning Objective: 06-05 Calculate the degree of operating leverage and use it to predict the effect a change in sales will
have on profit.
Topic: Degree of operating leverage
Topic: Unit contribution margin method
123. Malibu, Inc., which has fixed costs of $2,150,000, sells three products whose sales price,
variable cost per unit, and percentage of sales units are presented in the table below.
Product A Product B Product C
Sales Price $7.00 $12.00 $25.00
Variable Cost $3.00 $10.00 $12.00
Sales Mix 60% 30% 10%
a. What is the weighted average unit contribution margin?
b. At the break-even point, how many units of Product A must be sold?
c. To make a profit of $1,075,000, how many units of Product B must be sold?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
6-56
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McGraw-Hill Education.
124. Drake, Inc., which has fixed costs of $1,400,000, sells three products whose sales price,
variable cost per unit, and percentage of sales units are presented in the table below.
Product A Product B Product C
Sales Price $16.00 $48.00 $103.00
Variable Cost $8.00 $30.00 $85.00
Sales Mix 40% 50% 10%
a. What is the weighted average unit contribution margin?
b. At the break-even point, how many units of Product A must be sold?
c. To make a profit of $910,000, how many units of Product B must be sold?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-06 Perform multiproduct cost-volume-profit analysis and explain how the product or sales mix affects
the analysis.
Topic: Weighted-average contribution margin
6-57
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McGraw-Hill Education.
