Chapter 7
e. total sales equals operating income.
46. Total contribution margin divided by total sales is the
a. indifference point.
b. margin of safety.
c. sales ratio.
d. target income.
e. contribution margin ratio.
47. At the break-even point,
a. total revenue equals variable cost.
b. total fixed cost equals variable cost.
c. total contribution margin equals total fixed cost.
d. total sales equals total fixed cost.
Chapter 7
e. total margin of safety equals variable cost.
48. If variable costs per unit decrease, sales volume at the break-even point will
a. decrease.
b. stay constant.
c. double.
d. increase.
49. Contribution margin ratio can be calculated in all of the following ways except
a. fixed costs / Contribution margin per unit.
b. 1 − Variable cost ratio.
c. contribution margin per unit / price.
Chapter 7
d. total contribution margin / Total sales.
e. All of these are correct.
50. Assume the following information:
Variable cost ratio 80%
Total fixed costs $60,000
What volume of sales dollars is needed to break even?
a. $75,000
b. $300,000
c. $48,000
d. $12,000
Chapter 7
51. Which of the following equations is true?
a. Contribution margin = Sales revenue × Variable cost ratio
b. Contribution margin ratio = Contribution margin / Variable costs
c. Contribution margin = Fixed costs
d. Contribution margin ratio = 1 − Variable cost ratio
52. If the selling price per unit increases, the break-even point in units will
a. decrease.
b. increase.
c. remain the same.
d. remain the same; however, contribution per unit will decrease.
Chapter 7
53. Taylor Company produces two products, X and Y, which account for 70% and 30%, respectively, of total sales
dollars. Contribution margin ratios are 60% for X and 30% for Y. Total fixed costs are $140,000. What is Taylor’s break-
even point in sales dollars? (Note: Round answer to the nearest dollar.)
a. $274,510
b. $328,767
c. $342,856
d. $375,000
54. Learner Company sells its product for $100. It has a variable cost ratio of 70% and total fixed costs of $9,000. What is
the break-even point in sales dollars for Learner Company?
a. $4,800
b. 32,000
c. $30,000
d. $8,000
Chapter 7
55. John Wilson, a sole proprietor, has the following projected figures for next year:
Selling price per unit $ 200.00
Contribution margin per unit 50.00
Total fixed costs 700,000
What is the contribution margin ratio? (Note: Round answer to three decimal places.)
a. 0.250
b. 1.429
c. 0.429
d. 3.333
e. 0.700
Chapter 7
56. The ratio of fixed expenses to the contribution margin ratio is the
a. indifference point.
b. break-even point in units.
c. fixed cost ratio.
d. break-even point in sales.
e. sensitivity analysis.
57. If the contribution margin per unit decreases, the break-even point in units
a. will increase.
b. will decrease.
c. will remain the same.
d. cannot be determined from the information given.
Chapter 7
58. The income statement for Elite Manufacturing Company for the current year is as follows:
Sales (15,000 units) $180,000
Variable expenses 100,000
Contribution margin $ 80,000
Fixed expenses 60,000
Operating income $ 20,000
What is the contribution margin per unit? (Note: Round answer to two decimal places.)
a. $7.20
b. $1.20
c. $5.33
d. $6.56
59. Noel & Vang Company sells only one product at a regular price of $9.00 per unit. Variable expenses are 55% of sales,
and fixed expenses are $40,000. Management has decided to decrease the selling price to $8.00 in the hope of increasing
its volume of sales. What is the contribution margin ratio when the selling price is reduced to $8.00 per unit? (Note:
Round answer to two decimal places.)
a. 38.13%
b. 40.50%
c. 75.46%
d. 60.50%
Chapter 7
60. If the contribution margin ratio increases, the break-even point in sales dollars will
a. increase.
b. decrease.
c. remain the same.
d. double.
61. Atlas Company sells only one product at a regular price of $10.00 per unit. Variable expenses are 70% of sales, and
fixed expenses are $50,000. Management has decided to decrease the selling price to $9.00 in the hope of increasing its
volume of sales. What is the sales dollars level required to break even at the old price of $10.00? (Note: Round answer to
two decimal places.)
a. $166,666.67
b. $126,000.50
c. $180,000.30
d. $150,000.25
Chapter 7
62. If fixed costs increase, the break-even point in units will
a. increase.
b. decrease.
c. remain the same.
d. remain the same; however, contribution per unit will decrease.
Chapter 7
63. Total variable cost divided by price is
a. variable cost ratio.
b. revenue ratio.
c. contribution ratio.
d. sales ratio.
e. degree of operating leverage.
64. Which statement is true about cost-volume profit (CVP) analysis?
a. CVP analysis is a powerful tool for planning and decision making.
b. CVP analysis allows managers to do sensitivity analysis by examining the impact of various prices or cost levels
on profit.
c. CVP analysis shows how revenues, expenses, and profits behave as volume changes.
d. CVP analysis can be used in both single-product and multi-product firms.
e. All of these statements are true.
Chapter 7
65. Planet Company sells a product for $16 per unit, variable cost is $12 per unit, and the total fixed cost is $6,000. What
is the break-even point in units?
a. 640 units
b. 1,500 units
c. 1,210 units
d. 1,360 units
e. 1,700 units
66. Greenwood Company sells a product for $17 per unit, variable cost is $12 per unit, and the total fixed cost is $6,000.
What is the per unit contribution margin?
a. $4
b. $15
c. $20
d. $5
Chapter 7
67. Which of the following is true of a contribution margin ratio?
a. If the contribution margin ratio increases, the variable cost ratio decreases
b. It is the proportion of each sales dollar available to cover variable costs.
c. It is complementary to the net profit ratio.
d. If the contribution margin ratio increases, the price must have decreased.
e. If the contribution margin ratio increases, more units must be sold to break even.
68. Rocha & Noel Company makes and sells dolls. The price is $15 and the variable expense per unit is $10. What is the
contribution margin ratio? (Note: Round answer to two decimal places.)
a. 62.55%
b. 37.45%
c. 55.67%
d. 33.33%
e. 60.27%
Chapter 7
69. The contribution margin is
a. the difference between sales and variable costs.
b. the difference between target income and operating income.
c. the difference between operating income and margin of safety.
d. equal to sales.
e. when total sales equals total costs.
70. Thompson Company makes and sells power tools. The budgeted sales are $450,000, the budgeted variable costs are
$150,000, and the budgeted total fixed cost is $230,000. What is the budgeted operating income?
a. $73,000
b. $227,500
c. $70,000
d. $84,500
e. $567,000
Chapter 7
71. Thompson Company makes and sells power tools. The budgeted sales are $450,000, the budgeted variable costs are
$150,000, and the budgeted fixed cost is $230,000. What is the budgeted variable cost ratio? (Note: Round answer to two
decimal places.)
a. 54.66%
b. 33.33%
c. 89.50%
d. 19.23%
e. 50.50%
Chapter 7
72. Foster Company makes power tools. The budgeted sales are $420,000, budgeted variable costs are $147,000, and
budgeted fixed costs are $227,500. What is the break-even point in sales dollars?
a. $350,000
b. $420,000
c. $650,000
d. $780,000
e. $567,000
73. Full Serve Company makes and sells power tools. The budgeted sales are $460,000, the budgeted variable costs are
$160,000, and the budgeted fixed cost is $240,000. What is the budgeted contribution margin?
a. $190,000
b. $200,000
c. $136,000
d. $300,000
e. $273,000
Chapter 7
74. Forward Company makes and sells power tools. The budgeted sales are $480,000, budgeted variable costs are
$175,000, and budgeted fixed costs are $260,000. What is the budgeted contribution margin ratio? (Note: Round answer
to two decimal places.)
a. 35.64%
b. 63.54%
c. 54.45%
d. 89.50%
e. 50.20%
75. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the break-even point in hours? (Round to the nearest whole hour.)
a. 2,229
b. 1,393
c. 3,714
d. 5,571
e. 12,000
Chapter 7
76. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the break-even point in sales dollars?
a. $130,000
b. $195,000
c. $252,000
d. $420,000
e. $342,000
77. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the contribution margin ratio?
a. 67%
b. 60%
Chapter 7
c. 40%
d. 33%
e. 50%
78. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the contribution margin per hour?
a. $21
b. $35
c. $14
d. $56
e. $6.50
Chapter 7
79. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the variable cost ratio?
a. 50%
b. 40%
c. 33%
d. 67%
e. 60%
80. Pauley Company provides home health care. Pauley charges $35/hour for professional care. Variable costs are
$21/hour and fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of home health care. What is
the budgeted operating income?
a. $342,000
b. $174,000
c. $168,000
d. $90,000
e. $420,000