23) Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per
unit. How much is the total contribution margin? (Please round to nearest whole dollar.)
A) $9,500
B) $7,700
C) $39,200
D) $6,750
24) Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per
unit. Fixed costs are $6,900 per month. How much is the operating income?
A) $9,500
B) $32,300
C) $800
D) $750
25) A company’s contribution margin ratio is 8%. Fixed costs are $2,400 per month. How much sales revenue is
needed to break even?
A) $28,000
B) $36,000
C) $32,000
D) $30,000
26) A company’s product sells for $240 per unit. Variable cost is $208 per unit. Fixed costs run at $150,400 per
month. How many units need to be sold to break even?
A) 4,700
B) 4,250
C) 3,800
D) 4,900
27) A company’s product sells for $240 per unit. Variable cost is $210 per unit. Fixed costs run at $141,000 per
month. How many dollars of sale revenue are required to break even?
A) $1,290,000
B) $1,128,000
C) $956,000
D) $1,050,000
28) A company’s product sells for $240 per unit. The contribution margin ratio is 12.5%. Fixed costs run at
$141,000 per month. How many dollars of sale revenue are required to break even?
A) $1,129,000
B) $1,128,000
C) $956,000
D) $1,050,000
29) A company’s contribution margin is $9 per unit. Fixed costs are $14,850 per month. How many units must be
sold to break even?
A) 1,700
B) 1,425
C) 850
D) 1,650
30) Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per
unit. Fixed costs are $6,900 per month. Please prepare a contribution margin income statement in the format
provided here.
Revenues
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Learning Objective 19-3
1) The breakeven point on a CVP graph is the point where the sales revenue line intersects the total cost line.
2) CVP graphs can help managers quickly estimate the profit or loss earned at different levels of sales volume.
3) On a CVP graph, in the area where the revenue line appears above the total cost line, the vertical distance
separating the two lines represents what?
A) Contribution margin
B) Operating loss
C) Operating income
D) Variable costs
4) On a CVP graph, in the area where the revenue line appears below the total cost line, the vertical distance
separating the two lines represents what?
A) Contribution margin
B) Operating loss
C) Operating income
D) Variable costs
5) In a CVP graph, what does the line which begins at the lower left corner represent?
A) Total sales revenue
B) Total variable cost
C) Total fixed cost
D) Both the total variable cost and the total sales revenue
6) On a CVP graph, the intersection of the sales line and the total cost line is known as the:
A) total cost point.
B) breakeven point.
C) unit contribution margin.
D) margin of safety point.
7) On a CVP graph, there is a point where the two diagonal lines intersect. Which of the following statements
accurately describes that point?
A) It is the point where total revenues equal total variable costs.
B) It is the point where fixed costs equal variable costs.
C) It is the point where total revenues equal fixed costs.
D) It is the point where total costs equal total revenues.
8) Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of
product is $50, and the variable cost per unit is $30. If Jurassic managers create a CVP graph from volume levels of
zero to 400 units, where will the revenue and total cost lines intersect?
A) 250 units
B) 190 units
C) 240 units
D) 275 units
9) Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of
product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $2,000, how
many units need to be sold?
A) 270
B) 300
C) 320
D) 350
10) Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit
of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $5,000,
how many units need to be sold?
A) 500
B) 300
C) 450
D) 350
11) Chambers Company sells glass vases at a wholesale price of $2.50 per unit. Variable cost is $1.75 per unit.
Chambers’ fixed costs are $6,500 per month. If Chambers wishes to make operating income of $2,500, how many
units must be sold?
A) 11,500
B) 11,750
C) 12,000
D) 12,500
12) Chambers Company sells glass vases at a wholesale price of $2.50 per unit. Variable cost is $1.75 per unit.
Chambers’ fixed costs are $6,500 per month. Chambers is currently selling 15,000 units per month. If Chambers
wants to increase operating income by 20%, how many more units, over and above the current volume, must they
sell? (Please round to nearest whole number.)
A) 1,166
B) 1,333
C) 1,267
D) 5,666
13) Runnymeade Products makes a racing bicycle tire. Cost and volume data are below.
Price per unit
$18.00
Variable cost per unit
$14.50
Fixed cost per month
$28,000
Current sales volume (units)
10,000
How much is current monthly operating income?
A) $7,000
B) $6,850
C) $5,900
D) $7,250
14) Runnymeade Products makes a racing bicycle tire. Cost and volume data are below.
Price per unit
$18.00
Variable cost per unit
$14.50
Fixed cost per month
$28,000
Current sales volume (units)
10,000
If management wants to earn $9,000 of operating income, how many units must be sold? (Please round to nearest
whole number.)
A) 11,667
B) 10,571
C) 9,667
D) 10,333
15) Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as
follows:
Price per unit
$25.00
Variable cost per unit
$20.00
Fixed cost per month
$8,000
Current sales volume (units)
3,000
How much is Bell’s current monthly operating income?
A) $1,000
B) $5,000
C) $6,750
D) $7,000
16) Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as
follows:
Price per unit
$25.00
Variable cost per unit
$20.00
Fixed cost per month
$8,000
Current sales volume (units)
3,000
If Bell wishes to earn $10,000 of operating income, what volume of sales is needed?
A) 3,150
B) 3,200
C) 3,500
D) 3,600
17) Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as
follows:
Price per unit
$25.00
Variable cost per unit
$20.00
Fixed cost per month
$8,000
Current sales volume (units)
3,000
If Bell wishes to increase their current operating income by 10%, what volume of sales is needed?
A) 3,140
B) 3,200
C) 3,500
D) 3,625
18) Bell Products manufactures packs of pesticides which are sold to farmers. Cost, volume and price data are as
follows:
Price per unit
$25.00
Variable cost per unit
$20.00
Fixed cost per month
$8,000
Current sales volume (units)
3,000
If Bell wishes to double their current operating income, what volume of sales is needed?
A) 3,140
B) 4,400
C) 3,500
D) 3,625
19) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
How many guitars does Juan have to sell each month to break even?
A) 6
B) 5
C) 12
D) 8
20) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
How many dollars of revenue does Juan have to make each month to break even?
A) $3,950
B) $4,800
C) $3,360
D) $5,200
21) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
Juan wishes to make $2,500 of operating profit each month. If so, how many guitars will Juan have to sell?
A) 12
B) 14
C) 18
D) 9
22) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
Juan wishes to make $2,500 of operating profit each month. If so, how much sales revenue will Juan have to make?
A) $8,760
B) $8,140
C) $8,400
D) $7,960
Learning Objective 19-4
1) If variable costs go up, and all other factors remain the same, the business will have to sell more units to break
even.
2) If variable costs go up, and all other factors remain the same, the margin of safety will shrink.
3) If variable costs go down, and all other factors remain the same, the company will have to sell more units to break
even.
4) If variable costs go down, and all other factors remain the same, the margin of safety will become larger.
5) If fixed costs go up and all other factors remain the same, the company will have to sell fewer units to break even.
6) If fixed costs go up and all other factors remain the same, the margin of safety will become smaller.
7) If a company reduces its fixed costs, the operating income will increase in the exact same amount as the cost
reduction.
8) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
Juan knows his breakeven point is now 8 units per month, but he is considering raising his price to $660. If he does
so, how will that affect the contribution margin ratio?
A) It will stay the same.
B) It will go up 70% to 75%.
C) It will go up from 70% to approximately 73%.
D) It will go down from 70% to approximately 67%.
9) Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long
months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that
makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:
Rent and utilities $960
Wages and benefits of luthier $1,500
Other $900
Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for
every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
Juan knows his breakeven point is now 8 units per month, but he is considering raising his price to $660. If he does
so, how will that affect the breakeven point?
A) It will stay the same.
B) It will go up from 8 to 10 units.
C) It will up from 8 to 12 units.
D) It will go down from 8 to 7 units.
10) Fairfield Company management has budgeted the following amounts for its next fiscal year:
Total fixed expenses
Sale price per unit
Variable expenses per unit
What will happen to the breakeven point in units if Fairfield can reduce fixed expenses by $22,500?
A) The breakeven point will decrease by 1,500 units.
B) The breakeven point will decrease by 562 units.
C) The breakeven point will decrease by 900 units.
D) The breakeven point will increase by 562 units.
11) Fairfield Company management has budgeted the following amounts for its next fiscal year:
Total fixed expenses
Sale price per unit
Variable expenses per unit
If Fairfield Company spends an additional $30,000 on advertising, sales volume should increase by 2,500 units.
What effect will this decision have on operating income?
A) Operating income will decrease $62,500.
B) Operating income will increase $7,500.
C) Operating income will increase $70,000
D) Operating income will increase $37,500.
12) Which of the following statements is CORRECT if the variable cost per unit increases while the sale price per
unit and total fixed costs remain constant?
A) The breakeven point decreases.
B) The contribution margin increases.
C) The breakeven point remains the same.
D) The breakeven point increases.
13) Which of the following statements is CORRECT if total fixed costs decrease while the sales price per unit and
variable costs per unit remain constant?
A) The contribution margin increases.
B) The breakeven point increases.
C) The contribution margin decreases.
D) The breakeven point decreases.