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CHAPTER 8
THE CVP APPROACH TO DECISIONS
TRUE OR FALSE QUESTIONS
(Correct answer indicated by T for True and F for False answers)
fixed and variable elements.
sales revenue and fixed and variable costs.
possible.
intersection of the horizontal and vertical axes upward and to the right.
fixed cost and the sales revenue lines intersect.
answer will be in dollars.
multi-point graph.
has to go up to cover an increased fixed cost will be the amount of that fixed cost
increase if net income is to remain unchanged.
variable cost) is changed at a time.
by the average sales revenue per unit, and multiplying by 100.
check is $3.33, the variable cost is 33.1/3%.
dollars.
terms.
offset by a 10% increase in number of units sold.
loss position.
needs to sell 50 more units a month to break even.
joint costs.
increase in sales revenue in one department will not give the same amount of addi-
tional contributory income as the same sales revenue increase in the other department.
yield a contribution margin of $0.70.
revenue mix, or ratio of sales revenue, for each department.
a figure weighted by the sales revenue mix.
changes.
25. Decisions made as a result of CVP analysis are not guaranteed to be the correct ones.
T
desired profit before tax is calculated by dividing the after-tax net income by (1 – Tax
rate).
MULTIPLE CHOICE QUESTIONS
(Correct answer indicated by asterisk)
1. An assumption under CVP analysis is that:
2. Sales revenue is $250,000, fixed costs are $90,000, profit is $50,000, and sales price per unit
is $25.00. Variable cost per unit is:
3. On a breakeven graph, the breakeven point is the point where the:
4. When dealing with a problem using the CVP equation for a motel that receives rent from
leasing out its restaurant, the rent income in the equation is:
5. Fixed costs are $90,000, profit required is $10,000, and variable costs are 40%. Sales revenue
will have to be (to nearest $1,000):
6. Fixed costs are $85,000, operating income required is $25,000, rent income is $5,000, and
7. In using the CVP equation, the sales level required in units to breakeven is determined by
dividing:
8. A college’s food operation has an average meal price of $6.00. Variable costs are $3.75 per
meal and fixed costs total $75,000. How many meals must be sold to provide an operating
income of $30,000?
9. Given the facts in the Question 8, how many meals would have to be sold if variable costs
increased 20%?
10. Given the facts in Question 8, how many meals would have to be sold if fixed costs declined
by 20%?
11. An establishment has three departments with variable costs as a percentage of sales revenue
of 30%, 40%, and 50%, respectively. Each department has the same level of sales revenue.
12. A restaurant has a food operation with a 30% variable cost and a bar operation with a 25%
variable cost. The food operation produces 60% of total sales revenue and the bar 40%. If the
restaurant wanted an extra $7,500 in operating income, by how much would bar sales
revenue only have to increase to provide this added profit?
13. Using the data from the previous question, by how much would sales revenue have to
increase if the added operating income had to be provided by a joint increase in sales
revenue, keeping the sales revenue mix the same?
14. When a company incorporates its tax rate into the calculations for CVP analysis, the desired
operating income (before tax) is calculated by:
15. A restaurant has sales revenue of $500,000, variable costs of $200,000, and fixed costs of
$200,000. The owner wants net income after tax of $40,000. The tax rate is 30%. What is the
operating income (before tax)?
16. A restaurant specializes in a seafood buffet serving dinner only, at a price of $15.75 per
person. Its average variable cost is $6.30 per person. The fixed cost is $6,000 per month.
How many buffet meals must be served monthly to break even if they are open 20 days per
month?
