68) Which of the following costs are most likely to be classified as fixed?
A) Shipping costs
B) Sales commissions
C) Direct labor
D) Direct materials
E) Property taxes
69) A company’s normal operating range, which excludes extremely high or low operating levels
that are not likely to occur, is called the:
A) Margin of safety.
B) Contribution range.
C) Break-even point.
D) Relevant range.
E) High-low point.
70) A term describing a firm’s normal range of operating activities is:
A) Relevant range of operations.
B) Break-even level of operations.
C) Margin of safety of operations.
D) Relevant operating analysis.
E) High-low level of operations.
71) Cost-volume-profit analysis is based on necessary assumptions. Which of the following is
not one of these assumptions?
A) Costs can be classified as variable or fixed.
B) Relevant range includes all possible levels of activity that a company might experience.
C) Sales price and variable costs per unit of output remain constant as volume changes.
D) A constant sales mix in a multiproduct company.
E) Total fixed costs are held constant.
72) Target income refers to:
A) Income at the break-even point.
B) Income from the most recent period.
C) Income planned for a future period.
D) Income only in a multiproduct environment.
E) Income at the minimum contribution margin.
73) The margin of safety is the excess of:
A) Break-even sales over expected sales.
B) Expected sales over variable costs.
C) Expected sales over fixed costs.
D) Fixed costs over expected sales.
E) Expected sales over break-even sales.
74) If a firm’s forecasted sales are $250,000 and its break-even sales are $190,000, the margin of
safety in dollars is:
A) $60,000.
B) $250,000.
C) $190,000.
D) $440,000.
E) $24,000.
75) The excess of expected sales over the sales level at the break-even point is known as the:
A) Sales turnover.
B) Profit margin.
C) Contribution margin.
D) Relevant range.
E) Margin of safety.
76) A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted
to be $60,000. If the variable costs per unit are $5, total fixed costs must be:
A) $65,000.
B) $90,000.
C) $125,000.
D) $215,000.
E) $275,000.
77) During March, a firm expects its total sales to be $160,000, its total variable costs to be
$95,000, and its total fixed costs to be $25,000. The contribution margin for March is:
A) $65,000.
B) $90,000.
C) $120,000.
D) $40,000.
E) $25,000.
78) A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs
per unit of $6. Total fixed costs are $70,000. The total contribution margin is:
A) $55,000.
B) $90,000.
C) $125,000.
D) $150,000.
E) $380,000.
79) A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs
per unit of $6. Total fixed costs are $70,000. The pretax net income is:
A) $55,000.
B) $90,000.
C) $125,000.
D) $150,000.
E) $380,000.
80) Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio.
If the company has set a target monthly income of $15,000, what dollar amount of sales must be
made to produce the target income?
A) $245,000
B) $207,500
C) $37,300
D) $170,000
E) $39,200
81) During its most recent fiscal year, Raphael Enterprises sold 200,000 electric screwdrivers at
a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What
amount should have been reported as variable costs in the company’s contribution margin income
statement for the year in question?
A) $2,400,000.
B) $1,600,000.
C) $3,000,000.
D) $2,000,000.
E) $1,000,000.
82) During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution
margin amounted to $1,500,000 and pretax income was $400,000. What amount should have
been reported as variable costs in the company’s contribution margin income statement for the
year?
A) $1,900,000.
B) $2,800,000.
C) $1,300,000.
D) $1,100,000.
E) $1,700,000.
83) During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution
margin amounted to $1,500,000 and pretax income was $400,000. What amount should have
been reported as fixed costs in the company’s contribution margin income statement for the year?
A) $1,900,000.
B) $2,800,000.
C) $1,300,000.
D) $1,100,000.
E) $1,700,000.
84) Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If
expected sales are $200,000, what is the margin of safety as a percent of sales?
A) 6%.
B) 25%.
C) 33%.
D) 50%.
E) 75%.
85) Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break
even sales are $300,000. What is the margin of safety as a percent of sales, rounded to the
nearest whole percent?
A) 9%.
B) 108%.
C) 52%.
D) 8%.
E) 92%.
86) A product sells for $200 per unit, and its variable costs per unit are $130. Total fixed costs
are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?
A) 6,500.
B) 6,000.
C) 500.
D) 5,000.
E) 5,500.
87) A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the
company wants to earn a target $40,000 pretax income, how many units must be sold (rounded to
the nearest whole unit)?
A) 24,000.
B) 21,333.
C) 18,666.
D) 2,667.
E) 20,000.
88) A company has fixed costs of $270,000, a unit contribution margin of $14, and a
contribution margin ratio of 55%. If the company wants to earn a target $60,000 pretax income,
what amount of sales must it make (rounded to the nearest whole dollar)?
A) 490,909.
B) 330,000.
C) 109,090.
D) 381,818.
E) 600,000.
89) Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales.
What will pretax income equal if sales are $325,000?
A) $57,500.
B) $122,500.
C) $130,000.
D) $181,250.
E) $252,500.
90) Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit and
variable costs amount to $25 per unit. Next year Locus Company wishes to earn a pretax income
that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A) 1,120.
B) 8,214.
C) 11,200.
D) 12,320.
E) 14,080.
91) Raven Company has a target of $70,000 pre-tax income. The contribution margin ratio is
30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?
A) $23,333.
B) $36,000.
C) $300,000.
D) $353,333.
E) $420,000.
92) Use the following information to determine the margin of safety in dollars:
Unit sales
50,000 Units
Dollar sales
$
500,000
Fixed costs
$
204,000
Variable costs
$
187,500
A) $88,500.
B) $108,500.
C) $173,600.
D) $326,400.
E) $500,000.
93) Use the following information to determine the break-even point in sales dollars:
Unit sales
50,000 Units
Dollar sales
$
500,000
Fixed costs
$
204,000
Variable costs
$
187,500
A) $88,500.
B) $108,500.
C) $173,600.
D) $326,400.
E) $500,000.
94) Use the following information to determine the break-even point in units (rounded to the
nearest whole unit):
50,000 Units
$
14.50
$
7.50
$
186,000
A) 12,828
B) 26,571
C) 8,455
D) 46,667
E) 24,800
95) Use the following information to determine the contribution margin ratio:
50,000 Units
$
14.50
$
7.50
$
204,000
A) 6.9%.
B) 48.3%.
C) 24.5%.
D) 51.7%.
E) 34.1%.
96) The budgeted income statement presented below is for Burkett Corporation for the coming
fiscal year. Compute the number of units that must be sold in order to achieve a target pretax
income of $130,000.
Sales (50,000 units)
$
1,000,000
Costs:
Direct materials
$
270,000
Direct labor
240,000
Fixed factory overhead
100,000
Variable factory overhead
150,000
Fixed marketing costs
110,000
Variable marketing costs
50,000
920,000
Pretax income
$
80,000
A) 53,165.
B) 81,250.
C) 36,207.
D) 50,000.
E) 58,621.
37
97) The budgeted income statement presented below is for Burkett Corporation for the coming
fiscal year. If Burkett Corporation achieves the budgeted level of sales, what will be its margin of
safety in dollars?
Sales (50,000 units)
$
1,000,000
Costs:
Direct materials
$
270,000
Direct labor
240,000
Fixed factory overhead
100,000
Variable factory overhead
150,000
Fixed marketing costs
110,000
Variable marketing costs
50,000
920,000
Pretax income
$
80,000
A) $172,420.
B) $150,000.
C) $262,500.
D) $275,862.
E) $310,115.
98) In cost-volume-profit analysis, the unit contribution margin is:
A) Sales price per unit less cost of goods sold per unit.
B) Sales price per unit less unit fixed cost per unit.
C) Sales price per unit less total variable cost per unit.
D) Sales price per unit less unit total cost per unit.
E) The same as the contribution margin ratio.
99) The contribution margin ratio:
A) Is the percent of each sales dollar that remains after deducting the total unit variable cost.
B) Is the percent of each sales dollar that remains after deducting the total unit fixed cost.
C) Is the percent of each sales dollar that remains to cover the variable and fixed costs.
D) Cannot be used in conjunction with other analytical tools.
E) Is the same as the unit contribution margin.
100) Total contribution margin in dollars divided by pretax income is the:
A) Degree of operating leverage.
B) Contribution margin ratio.
C) Margin of safety.
D) Sales mix.
E) Break-even point in units.
101) Which of the following is the correct interpretation of a degree of operating leverage of 5?
A) Operating leverage of 5 means that sales can decrease by 5% before the firm’s current level of
sales will hit the break-even point.
B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even
point.
C) Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the
firm’s pretax profit.
D) Operating leverage of 5 measures the degree of debt employed by the firm’s debt structure.
E) Operating leverage of 5 means that the company would need to increase sales by 5 times in
order to hit its break-even point.
102) A statistical method for identifying cost behavior is the:
A) Scatter diagram method.
B) High-low method.
C) Composite method.
D) CVP charting method.
E) Least-squares regression method.