Unit Sales Price
Unit Variable Costs
Unit Sales
Product A
$150
$100
8,000
Product B
100
60
2,000
Fixed costs are $480,000.
The weighted-average contribution margin is
a.
$42.
b.
$45.
c.
$48.
d.
$90.
55. Lakeside has gathered the following data in order to calculate the weighted-average contribution
margin:
Unit Sales Price
Unit Variable Costs
Unit Sales
Product A
$150
$100
8,000
Product B
100
60
2,000
Fixed costs are $480,000.
The weighted-average breakeven point is
a.
11,429 units.
b.
10,000 units.
c.
5,333 units.
d.
10,667 units.
56. Walton’s Warehouse reported sales of $640,000, a contribution margin of $8 per unit, fixed costs of
$314,000, and a profit of $30,000. How many units did Walton’s Warehouse sell?
a.
3,750 units
b.
23,375 units
c.
43,000 units
d.
62,625 units
57. For every unit that a company produces and sells above the breakeven point, its profitability is
improved (ignoring taxes) by the unit’s
a.
gross margin.
b.
selling price minus fixed cost.
c.
variable cost.
d.
contribution margin.
58. Which of the following is not an assumption underlying cost-volume-profit analysis?
a.
Product sales mix will not change during the period.
b.
The breakeven point will be reached and surpassed during the period.
c.
Cost behavior can be determined accurately.
d.
Productivity is constant within the relevant range.
59. Edward Cheezer’s makes and sells frozen four-cheese pizzas, New York–style. The expected selling
price is $10 per pizza. The projected variable cost per pizza is $6. The estimated fixed costs per month
are $10,000.
The number of pizzas that must be sold to obtain a monthly profit of $20,000 is
a.
2,000 pizzas.
b.
5,000 pizzas.
c.
2,500 pizzas.
d.
7,500 pizzas.
60. Edward Cheezer’s makes and sells frozen four-cheese pizzas, New York–style. The expected selling
price is $10 per pizza. The projected variable cost per pizza is $6. The estimated fixed costs per month
are $10,000.
If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000, the overall profit is
a.
$15,000.
b.
$19,000.
c.
$20,000.
d.
$9,000.
61. Excerpts from a cost-volume-profit analysis indicate fixed costs of $49,000, a contribution margin per
unit of $35, a selling price of $90, and a sales level of 4,000 units. What must be the targeted level of
profit?
a.
$81,000
b.
$106,000
c.
$140,000
d.
$91,000
62. If the contribution margin on a new product line is $15, fixed costs are $165,000, and the total market
for the product is 22,000 units, then the breakeven analysis would recommend that the company
a.
abandon the new product line.
b.
decrease the sales price per unit.
c.
increase fixed costs (such as advertising) to lower the breakeven units.
d.
adopt the new product line.
63. Breakeven analysis adjusted for a profit factor
a.
is a difficult computation that is not normally employed.
b.
will not necessarily increase the number of required units.
c.
is often adapted for different sales levels to aid in determining the possible levels of
potential profit.
d.
is a poor basis for evaluating the profitability of a venture.
64. Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000, a variable cost per unit of
$36, a selling price of $60, and a sales level of $125,000. The targeted level of profit must be
a.
$20,000.
b.
$50,000.
c.
$95,000.
d.
$75,000.
65. If fixed costs are $80,000, the contribution margin is $25 per unit, and the targeted profit is $30,000,
then the required unit sales are
a.
4,400 units.
b.
2,000 units.
c.
4,500 units.
d.
2,500 units.
66. The breakeven formula adjusted for profits may be stated as
a.
S = VC – FC + P.
b.
S = VC – FC – P.
c.
VC + FC – P = S.
d.
S = VC + FC + P.
67. Dick Sports, Inc.’s, income statement data for last year is as follows:
Sales revenue
$200,000
Variable costs
140,000
Fixed costs
30,000
Operating income
18,000
What is Dick’s breakeven point in dollars?
a.
$100,000
b.
$18,000
c.
$142,000
d.
$48,000
68. Tigor Enterprises has sales revenue of $340,000 for 20xx. Its product sells for $12 and has a 20
percent contribution margin. Fixed costs are $32,000. What is Tigor Enterprises’ operating income for
20xx?
a.
$45,000
b.
$29,000
c.
$41,000
d.
$36,000
69. SHARE is trying to determine how many clients must be serviced in order to cover its monthly service
overhead. Using the high-low method, it has determined that the variable cost per client is $800 and
that the monthly fixed overhead is $28,000.
Assuming an average fee of $1,200 per client, the breakeven point per month is
a.
35 clients.
b.
80 clients.
c.
70 clients.
d.
55 clients.
70. SHARE is trying to determine how many clients must be serviced in order to cover its monthly service
overhead. Using the high-low method, it has determined that the variable cost per client is $800 and
that the monthly fixed overhead is $28,000.
Assuming an average fee of $1,400 per client and a targeted profit of $26,000, the number of clients to
be serviced is
a.
80 clients.
b.
120 clients.
c.
47 clients.
d.
90 clients.
71. Using the contribution margin approach, find the contribution margin ratio for Consumer Products if
the selling price per unit is $12, the variable cost per unit is $3, and the fixed costs are $8,040.
a.
25%
b.
50%
c.
75%
d.
100%
SHORT ANSWER
1. The graph below depicts two different types of costs. Questions related to the graph should be
answered in the spaces provided.
a. The line H-B represents what type of cost? ______________________
b. Production at point J versus point L would __________ total variable costs.
c. Production at point J versus point L would __________ per unit fixed costs.
d. What is a possible reason that line G-A increases at point A to a new horizontal line?
e. What kind of cost is depicted by the line from point G to point A?
2. Identify the following as fixed costs, variable costs, or mixed costs:
_____________a. Direct materials
_____________b. Electricity
_____________c. Factory building rent
_____________d. Advertising expense
_____________e. Shipping expense
_____________f. Insurance on the factory building
_____________g. Cost of goods sold
_____________h. Direct labor
3. Listed below are selected costs of sports car manufacturer at a production level of 4,000 cars. (a)
Identify three variable costs. (b) Support your answer by illustrating the cost behavior pattern per unit
and in total as the annual volume of motorcycles produced increases from 4,000 cars to 8,000 cars for
one variable cost.
Monthly machine rental charge
$ 8,000
Monthly insurance premiums on the plant
800
Sports car tire cost (per tire)
100
Salaried employees’ weekly payroll cost
51,000
Manufacturing hourly employees’ weekly payroll
88,000
Depreciation on the equipment for the month
6,000
Car battery (one battery)
70
4. Listed below are selected costs of sports car manufacturer at a production level of 4,000 cars. (a)
Identify three fixed costs. (b) Support your answer by illustrating the cost behavior pattern per unit and
in total as the annual volume of motorcycles produced increases from 4,000 cars to 8,000 cars for one
fixed cost. (Note: The production increase is within the relevant range.)
Monthly machine rental charge
$ 8,000
Monthly insurance premiums on the plant
800
Sports car tire cost (per tire)
100
Salaried employees’ weekly payroll cost
51,000
Manufacturing hourly employees’ weekly payroll
88,000
Depreciation on the equipment for the month
6,000
Car battery (one battery)
70
Monthly insurance premiums
1,144
70
5. The following are monthly totals taken from the log of a color photocopying machine used by the
Kinlo’s Printing Company. Cost was based on a flat fee plus a declining cost per copy made after a
minimum number of copies had been made each month.
Month
Number of Copies
Made
Total Cost
January
35,200
$10,800
February
30,400
9,600
March
32,900
10,225
April
40,300
12,075
May
38,400
11,600
June
48,900
14,225
To differentiate the variable and fixed costs in the use of this machine for future planning, use the
high-low method to (a) determine the variable cost per copy and (b) compute the fixed and variable
costs for the months of February and June.
6. Denapasa Manufacturing leases a vacuum cleaning system for a basic monthly fee plus an additional
cost per hour used above a given minimum for each month. Given below is the information for the
most recent six-month period on the number of machine hours of use and the total cost under this
lease.
Month
Machine Hours
Total Cost
7
6,300
$58,200
8
4,400
49,935
9
4,700
52,390
10
5,200
54,440
11
5,600
56,620
12
5,000
53,800
High
$14,225
Low
Difference
Month
June
Month
February
June
You are to provide information for planning on the variable and fixed cost elements in this lease. Use
the high-low method to (a) determine the variable cost per machine hour and (b) compute the fixed and
variable costs for months 7 and 8.
7. Explain what cost-volume-profit analysis is and how managers use it. Give examples of some purposes
for which it might be used.
8. Ditex is a manufacturer of digital cameras and is preparing production and sales forecasts for the
coming fiscal year. The company needs to determine the point at which the projected sales revenue
will equal the total of all fixed and variable costs. Fixed costs are estimated to be $314,390, and
variable costs are expected to be maintained at $150 per camera. Each camera will sell for $299.
Compute (a) the breakeven point in sales units and (b) the breakeven point in sales dollars.
9. Neverlate is world famous for its precision pocket watches. The company has estimated that variable
manufacturing costs and variable selling costs per watch will be $72 and $43, respectively, for 20xx.
Also during 20xx, the company is expecting fixed manufacturing costs to total $291,600 and fixed
general and administrative expenses to amount to $253,175. The anticipated selling price of each
watch is $500. Compute (a) the breakeven point in sales units and (b) the breakeven point in sales
dollars.
10. The following graphical breakeven analysis is for Nicronea’s new line of desktop computers.
Questions related to the graph should be answered in the spaces provided.
a. Production at point J would be at a __________.
b. The area depicting profitable operations is __________.
c. The fixed costs area is within letters __________.
d. The total revenue area is within letters ___________.
e. The breakeven point for sales units is at letter __________.
f. Letter A represents __________.
g. The line H-B represents what C-V-P element? ___________.
h. Total cost of operations is reflected in line __________.
11. Campground, Inc., is considering the production and sale of propane lamps. Annual fixed costs
associated with the project are expected to total $60,000. In addition, each lamp would sell for $12 and
would require $7 in variable costs. Calculate (a) the breakeven point in units, (b) the breakeven point
in dollars, (c) the number of lamps that must be sold to earn a profit of $120,000, and (d) the operating
income or loss at a sales volume of 16,000 lamps.
12. The Raquet Business is considering the manufacture of a new type of tennis ball. Each tennis ball
would sell for $3.75 and would require $1.75 in variable costs. In addition, annual fixed costs
associated with the project would total $64,000.
a. Use the contribution margin approach to calculate:
(1) the breakeven point in units
(2) the breakeven point in dollars
b. Determine the operating income or loss at a sales volume of 30,000 tennis balls.
c. Determine the number of tennis balls that must be sold to earn a profit of $80,000.