21–21
65. 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.
66. The budgeted income statement presented below is for Griffith Corporation for the
coming fiscal year. If Griffith Corporation’s income tax rate is 40%, compute the number of
units that must be sold in order to achieve a target pretax income of $130,000.
21–22
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.
67. The budgeted income statement presented below is for Griffith Corporation for the
coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales, its
margin of safety in dollars would be:
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.
68. 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.
69. The contribution margin ratio:
A. Is the percent of each sales dollar that remains after deducting total unit variable cost.
B. Is the percent of each sales dollar that remains after deducting total unit fixed cost.
C. Is the percent of each sales dollar that remains to cover fixed costs and contribute to the
managers’ incomes.
D. Cannot be used in conjunction with other analytical tools.
E. Is the same as the unit contribution margin.
70. 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.
71. 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.
72. A statistical method for deriving an estimated line of cost behavior is the:
A. Scatter diagram method.
B. High-low method.
C. Composite method.
D. CVP charting method.
E. Least-squares regression method.
73. The least-squares regression method is:
A. A graphical method to identify cost behavior.
B. An algebraic method to identify cost behavior.
C. A statistical method to identify cost behavior.
D. The only identify cost estimation method allowed by GAAP.
E. A cost estimation method that only uses the two extreme values.
74. A graph used to analyze past cost behaviors by displaying costs and volume levels for
each period as points on the diagram is called a:
A. Least-squares diagram.
B. Step-wise diagram.
C. Scatter diagram.
D. Break-even diagram.
E. Composite diagram.
75. A line on a scatter diagram that is intended to reflect the past relation between cost and
volume is the:
A. Margin of safety line.
B. Break-even line.
C. Contribution margin line.
D. Estimated line of cost behavior.
E. Standard cost line.
76. A method that estimates cost behavior by connecting the costs linked to the highest and
lowest volume is called the:
A. Scatter method.
B. High-low method.
C. Least-squares method.
D. Break-even method.
E. Step-wise method.
77. The sales level at which a company neither earns a profit nor incurs a loss is the:
A. Relevant range.
B. Margin of safety.
C. Step-wise variable level.
D. Break-even point.
E. Contribution margin.
78. A company’s product sells at $12 per unit and has a $5 per unit variable cost. The
company’s total fixed costs are $98,000.The contribution margin per unit is:
A. $ 5.00.
B. $ 7.00.
C. $ 8.17.
D. $12.00.
E. $17.00.
79. A company’s product sells at $12 per unit and has a $5 per unit variable cost. The
company’s total fixed costs are $98,000. The break-even point in units is:
A. 5,158.
B. 7,000.
C. 8,167.
D. 14,000.
E. 19,600.
80. Brown Company’s contribution margin ratio is 24%. Total fixed costs are $84,000. What
is Brown’s break-even point in sales dollars?
A. $20,160.
B. $110,526.
C. $350,000.
D. $240,000.
E. $84,000.
81. A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs
are $420,000. What is the break-even point in dollar sales?
A. $2,100.
B. $6,000.
C. $420,000.
D. $646,154.
E. $1,200,000.
82. A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are
$720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs
increase to $900,000, and the selling price does not change, break-even point in units would:
A. Increase by 20,000.
B. Equal 6,000.
C. Increase by 6,000.
D. Decrease by 20,000.
E. Not change.
83. The difference between sales price per unit and variable cost per unit is the:
A. Gross profit from sales.
B. Gross margin per unit.
C. Fixed cost per unit.
D. Margin of safety per unit.
E. Contribution margin per unit.
84. The contribution margin per unit expressed as a percentage of the product’s selling price is
the:
A. Volume variance.
B. Margin of safety.
C. Contribution margin ratio.
D. Break-even point.
E. Rate of return on sales.
85. A company manufactures and sells a product for $120 per unit. The company’s fixed costs
are $68,760, and its variable costs are $90 per unit. The company’s break-even point in units
is:
A. 2,292.
B. 573.
C. 764.
D. 327.
E. 840.
86. A company manufactures and sells a product for $120 per unit. The company’s fixed costs
are $68,760, and its variable costs are $90 per unit. The company’s break-even point in dollars
is:
A. $91,680.
B. $68,760.
C. $2,292.
D. $275,040.
E. $206,280.
87. A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the
product sells for $75 per unit. What is the company’s break-even point in dollar sales?
A. $ 60,000.
B. $128,571.
C. $180,000.
D. $210,000.
E. $300,000.
88. Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit
is $1.70. Lee’s total fixed costs are $10,500. How many widgets must Lee Company sell to
break even?
A. 5,250.
B. 6,176.
C. 35,000.
D. 52,500.
E. 61,760.
89. The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the
variable cost per unit is $16.25. Haskin’s total fixed costs are $25,000, and budgeted sales are
8,000 units. What is the contribution margin per unit?
A. $7.50.
B. $16.25.
C. $23.75.
D. $60,000.
E. $1.25
90. Ginger Company’s product has a contribution margin per unit of $11.25 and a contribution
margin ratio of 22.5%. What is the selling price of the product?
A. $ 5.
B. $20.
C. $30.
D. $40.
E. $50.
91. Yamaguchi Company’s break even point in units is 1,000. The sales price per unit is $10
and variable cost per unit is $7. If the company sells 2,500 units, what will net income be?
A. $ 4,500
B. $ 7,500
C. $17,000
D. $35,000
E. Fixed costs must be known in order to predict net income.
92. Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and
variable costs are $3.60 per unit. Mueller can buy a newer production machine that will
increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit.
What effect would the purchase of the new machine have on Mueller’s break-even point in
units?
A. 4,444 unit increase.
B. 9,850 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
93. At Flint Company’s break-even point of 9,000 units, fixed costs are $180,000 and variable
costs are $540,000 in total. The unit sales price is:
A. $ 20.
B. $ 40.
C. $ 60.
D. $ 80.
E. $100.
94. Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500,
and a net loss of $250 is anticipated. The break-even point in sales dollars is:
A. $1,750.
B. $2,500.
C. $4,000.
D. $4,250.
E. $4,375.
95. During a recent fiscal year, Dawson Company reported pretax income of $125,000, a
contribution margin ratio of 25% and total contribution margin of $400,000. Total variable
costs must have been:
A. $1,100,000.
B. $1,200,000.
C. $500,000.
D. $1,600,000.
E. $2,100,000.
96. In Davis Corporation’s most recent fiscal year, the company reported pretax earnings of
$215,000.
Fixed costs totaled $325,800, the unit selling price of the firm’s only product was $60, and the
variable costs per unit were 40% of the selling price. Based on this information, the firm’s
break-even point in units was:
A. 13,575 units.
B. 15,023 units.
C. 13,750 units.
D. 9,050 units.
E. 8,750 units.
97. A cost-volume-profit chart is also known as a(n)
A. Operating profit chart.
B. Operating leverage chart.
C. Break-even chart.
D. Margin of safety chart.
E. Sales chart.
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98. When graphing cost-volume-profit data on a CVP chart:
A. Units are plotted on the horizontal axis; costs on the vertical axis.
B. Units are plotted on the vertical axis; costs on the horizontal axis.
C. Both units and costs are plotted on the horizontal axis.
D. Both units and cost are plotted on the vertical axis.
E. Data points always represent expected future points.
99. A CVP graph presents data on:
A. Profit and loss on a per unit basis.
B. Profit, loss, and break-even on a total dollar basis.
C. Profit, loss, and break-even on a per unit basis.
D. Only profit and loss on a total basis.
E. Profit and loss on a budget and actual basis.
100. A firm sells two products, A and B. For every unit of A the firm sells, two units of B are
sold. The firm’s total fixed costs are $1,612,000. Selling prices and cost information for both
products follow. The contribution margin per composite unit is:
Unit Variables
Sales Costs
Product Price Per Unit
A…. $20 $8
B…. 24 4
A. $12.
B. $20.
C. $32.
D. $44.
E. $52.
101. A firm sells two products, A and B. For every unit of A the firm sells, two units of B are
sold. The firm’s total fixed costs are $1,612,000. Selling prices and cost information for both
products follow. What is the firm’s break-even point in units of A and B?
Unit Variables
Sales Costs
Product Price Per Unit
A…. $20 $8
B…. 24 4
A. 31,000 of A and 31,000 of B.
B. 31,000 of A and 62,000 of B.
C. 10,333 of A and 20,667 of B.
D. 36,167 of A and 72,333 of B.
E. 62,000 of A and 31,000 of B.
102. The ratio of the sales volume for the various products sold by a company is called the:
A. Current product mix.
B. Relevant mix.
C. Sales mix.
D. Inventory cost ratio.
E. Production ratio.
103. Baker Company’s sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices
for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and
$24, respectively. Fixed costs are $320,000. What is the break-even point in composite units?
A. 1,111.
B. 1,600.
C. 2,666.
D. 4,000.
E. 5,000.