35. Refer to Figure 4-2. What is the variable cost ratio?
a.
50%
b.
40%
c.
33%
d.
67%
e.
60%
36. Refer to Figure 4-2. What is the budgeted operating income?
a.
$342,000
b.
$174,000
c.
$168,000
d.
$90,000
e.
$420,000
Figure 4-3.
Paney Company makes calendars. Information on cost per unit is as follows:
Direct materials
$1.50
Direct labor
1.20
Variable overhead
0.90
Variable marketing expense
0.40
Fixed marketing expense totaled $13,000 and fixed administrative expense totaled $35,000. The price
per calendar is $10.
37. Refer to Figure 4-3. What is the contribution margin per unit?
a.
$6.30
b.
$5.00
c.
$6.40
d.
$6.00
e.
$5.40
38. Refer to Figure 4-3. What is the variable product expense per unit?
a.
$5.00
b.
$4.00
c.
$3.60
d.
$1.30
e.
$4.60
39. Refer to Figure 4-3. What is the variable cost per unit?
a.
$5.00
b.
$4.00
c.
$3.70
d.
$1.30
e.
$4.60
40. Refer to Figure 4-3. What is the break-even point in units?
a.
2,167
b.
5,833
c.
8,000
d.
12,000
e.
2,800
41. Refer to Figure 4-3. What is the break-even point in sales dollars?
a.
$120,000
b.
$80,000
c.
$58,330
d.
$21,670
e.
$28,000
42. Refer to Figure 4-3. What is the variable expense ratio?
a.
40%
b.
36%
c.
50%
d.
60%
e.
46%
43. Refer to Figure 4-3. What is the contribution margin ratio?
a.
36%
b.
40%
c.
50%
d.
60%
e.
44%
44. Refer to Figure 4-3. How many units must be sold to yield targeted income of $36,000?
a.
6,000
b.
5,833
c.
8,167
d.
14,000
e.
12,000
Figure 4-7.
A company provided the following data:
Selling price per unit
$60
Variable cost per unit
$40
Total fixed costs
$400,000
45. Refer to Figure 4-7. What is the break-even point in units?
a.
20,000
b.
10,000
c.
6,667
d.
13,333
e.
12,000
46. Refer to Figure 4-7. How many units must be sold to earn a profit of $40,000?
a.
8,500
b.
23,333
c.
22,000
d.
2,000
e.
20,000
Figure 4-8.
A company provided the following data:
Sales
$540,000
Variable costs
$378,000
Fixed costs
$120,000
Expected production and sales in units
40,000
47. Refer to Figure 4-8. What is the break-even point in sales dollars?
a.
$498,000
b.
$400,000
c.
$171,429
d.
$112,500
e.
$150,000
48. Refer to Figure 4-8. How much sales in dollars is necessary to generate a profit of $30,000?
a.
$528,000
b.
$500,000
c.
$214,286
d.
$100,000
e.
$150,000
Figure 4-4.
Yerke Company makes jungle gyms and tree houses for children. For jungle gyms, the price is $120
and variable expenses are $90 per unit. For tree houses, the price is $200 and variable expenses are
$100. Total fixed expenses are $253,750. Last year, Yerke sold 12,000 gyms and 4,000 tree houses.
49. Refer to Figure 4-4. Using the lowest whole numbers, what is the sales mix of gyms and tree houses?
a.
4:1
b.
3:1
c.
3:2
d.
2:3
e.
1:4
50. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to
8,000 units. What is the new contribution margin ratio (rounded to two decimal places)?
a.
38%
b.
62%
c.
40%
d.
60%
e.
50%
51. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to
8,000 units. What is the number of jungle gyms sold at break-even?
a.
1,750
b.
668
c.
2,625
d.
1,002
e.
875
52. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to
8,000 units. What is the number of tree houses sold at break-even?
a.
1,750
b.
668
c.
2,625
d.
1,002
e.
875
53. Refer to Figure 4-4. Now suppose that Yerke expects tree house demand to increase from 4,000 to
8,000 units. What is the sales revenue at break-even?
a.
$411,250
b.
$253,700
c.
$1,076,250
d.
$665,000
e.
$140,000
Figure 4-5.
Standlar Company makes wireless speakers. The standard model price is $360 and variable expenses
are $210. The deluxe model price is $500 and variable expenses are $300. The superior model price is
$1,600 and variable expense per unit is $600. Total fixed expenses are $300,000. Generally, Standlar
sells 8 standard models and 4 deluxe models for every superior model sold.
54. Using the sales mix stated in the facts from Figure 4-5 to form a package, what is the total package
contribution margin?
a.
$2,000
b.
$1,110
c.
$3,000
d.
$900
e.
$1,200
55. Refer to Figure 4-5. What is the number of standard models sold at break-even?
a.
100
b.
800
c.
180
d.
1,000
e.
250
56. Refer to Figure 4-5. What is the number of deluxe models sold at break-even?
a.
250
b.
500
c.
400
d.
100
e.
1,000
57. Refer to Figure 4-5. What is the number of superior models sold at break-even?
a.
200
b.
800
c.
400
d.
1,600
e.
100
58. Refer to Figure 4-5. What is the overall sales revenue at break-even?
a.
$778,800
b.
$387,200
c.
$648,000
d.
$550,000
e.
$480,000
59. Melody Company sells a product for $14, variable costs are $10 per unit, and total fixed costs are
$5,040. If Melody wants to earn an operating profit of $880, how many units must it sell?
a.
1,480
b.
1,260
c.
1,040
d.
62
e.
247
60. The formula used to calculate the number of units needed in order to earn a target income is
a.
(Fixed costs + Variable costs)/Sales.
b.
(Fixed costs + Target income)/Sales.
c.
(Fixed costs + Target income)/Contribution margin per unit.
d.
(Fixed costs + Variable costs)/Contribution margin per unit.
e.
(Fixed costs + Target income)/Contribution margin ratio.
61. The formula that can be used to calculate sales dollars necessary in order to earn a target income is
a.
(Fixed costs + Contribution margin)/(Contribution margin ratio).
b.
(Fixed costs + Target income)/(Contribution margin ratio).
c.
(Fixed costs + Variable costs)/(1 − Variable cost ratio).
d.
(Fixed costs + Target income )/(1 − Sales ratio).
e.
All of these are correct.
62. Assume the following information:
Selling price per unit
$150
Contribution margin ratio
40%
Total fixed costs
$225,000
How many units must be sold to generate a profit of $45,000?
a.
3,000 units
b.
2,500 units
c.
4,500 units
d.
3,750 units
63. Which is the equation for operating income?
a.
(Price Units sold) − (Unit variable cost Units sold) − Fixed cost
b.
(Price Units sold) + (Unit variable cost Units sold) + Fixed cost
c.
(Price + Units sold) − (Unit variable cost + Units sold) − Fixed cost
d.
(Price − Units sold) + (Unit variable cost − Units sold) + Fixed cost
e.
(Price Units sold) + (Unit variable cost Units sold) − Fixed cost
64. Rachel Company sells office chairs at $350 each, incurs variable cost per unit of $100, and has a total
fixed expense of $30,000. How many units must be sold to achieve a target operating income of
$55,000?
a.
200
b.
340
c.
180
d.
450
e.
275
65. A graph that depicts the relationships among cost, volume and profits (operating income) is the
a.
Cost graph.
b.
Volume graph.
c.
Cost-volume-profit graph.
d.
Profit-volume graph.
e.
break-even graph.
66. A profit-volume graph differs from a cost-volume-profits graph in that a profit-volume graph displays
only
a.
costs associated with units produced.
b.
operating income associated with expected sales.
c.
revenues and costs associated with sales volume.
d.
revenues expected at targeted sales levels.
e.
All of these are correct.
67. On a cost-volume-profit graph, the break-even point is where
a.
the revenue line intersects the profit line.
b.
the revenue line intersects the total cost line.
c.
the fixed cost line intersects the variable cost line.
d.
the contribution margin line intersects the fixed cost line.
e.
All of these are correct.
68. Which of the following is not an assumption used to prepare a cost-volume-profit graph?
a.
linear costs within the relevant range
b.
units produced equals units sold
c.
constant sales mix
d.
constant cost fluctuation
e.
All of these are assumptions used in preparing cost-volume-profit graphs.
69. Which of the following is not an assumption of a cost-volume-profit analysis?
a.
Selling price and costs can be accurately identified.
b.
Selling price and costs remain constant within the relevant range.
c.
Inventory levels can increase or decrease.
d.
Selling price and costs behave in a linear manner.
70. A profit-volume graph visually portrays the relationship between
a.
total sales and fixed cost.
b.
profits and units sold.
c.
total sales and margin of safety.
d.
total sales and variable costs.
e.
profits and degree of operating leverage.
71. The profit-volume graph
a.
is difficult to interpret.
b.
fails to reveal how costs change as sales volume changes.
c.
can be only plotted using the break-even point.
d.
can be only plotted using fixed costs.
e.
shows the relationship between operating income and variable costs.
72. The cost-volume-profit graph
a.
plots three separate lines.
b.
plots the total revenue line and the total cost line.
c.
the vertical axis is measured in units sold and the horizontal axis in dollars.
d.
All of these are correct.
73. Fixed expenses that cannot be directly traced to individual segments are called
a.
cost structure.
b.
direct fixed expenses.
c.
operating leverage.
d.
common fixed expenses.
e.
indifference point.
74. Sales mix is the relative combination of
a.
inputs required to produce a product.
b.
outputs produced by a firm.
c.
products sold by a firm.
d.
distribution channels used by a firm.
e.
resources used to produce a product.
75. Sales mix can be expressed in terms of
a.
units but not revenues.
b.
either revenues or units.
c.
revenues but not units.
d.
neither units nor revenue.
76. In order for the break-even computation to be meaningful to management, sales mix should be
computed using the
a.
expected mix.
b.
most desirable mix.
c.
least desirable mix.
d.
traditional mix.
e.
average mix over the past 5 years.
77. If sales remain the same and the margin of safety increases, which of the following is true?
a.
The break-even point has decreased.
b.
The common fixed costs have increased.
c.
The break-even point has remained constant.
d.
Variable costs have increased.
78. Information about the Harmon Company’s two products includes:
Product X
Product Y
Unit selling price
$9.00
$9.00
Unit variable costs:
Manufacturing
$5.25
$6.75
Selling
.75
.75
Total
$6.00
$7.50
Monthly fixed costs are as follows:
Manufacturing
$ 82,500
Selling and administrative
45,000
Total
$127,500
What is the total monthly sales volume in units required to break even when the sales mix in units is
70% Product X and 30% Product Y?
a.
8,333 units
b.
50,000 units
c.
16,667 units
d.
56,667 units
79. Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a contribution margin of
$7.50 per unit. Total fixed costs are $300,000. Sales mix and total volume varies from one period to
another. Which of the following is true?
a.
At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be
profitable.
b.
The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total
sales for 1.
c.
Variable costs are $1.50 more for 2 than for 1.
d.
The ratio of contribution margin to total sales always will be larger for 1 than for 2.
80. The following data pertain to the three products produced by Alberts Corporation:
A
B
C
Selling price per unit
$5.00
$7.00
$6.00
Variable costs per unit
4.00
5.00
3.00
Contribution margin per unit
$1.00
$2.00
$3.00
Fixed costs are $90,000 per month.
60% of all units sold are Product A, 30% are Product B, and 10% are Product C.
What is the monthly break-even point for total units?
a.
45,000 units
b.
36,000 units
c.
60,000 units
d.
180,000 units
81. If actual sales equal break-even sales
a.
the margin of safety is negative.
b.
the margin of safety is positive.
c.
it is impossible to say anything about the margin of safety.
d.
the margin of safety equals zero.
e.
the margin of safety is negative or positive.
82. The units sold or expected to be sold or sales revenue earned or expected to be earned above the break–
even volume is called
a.
variable cost ratio.
b.
degree of operating leverage.
c.
break-even point.
d.
margin of safety.
e.
contribution margin ratio.
83. The margin of safety in dollars is
a.
expected sales minus expected profit.
b.
expected sales minus sales at break-even.
c.
costs at break-even minus expected profit.
d.
expected costs minus costs at break-even.
e.
expected profit minus actual profit.
84. ____ can be measured for a given level of sales by taking the ratio of contribution margin to operating
income.
a.
Contribution margin ratio
b.
Degree of operating leverage
c.
Break-even point
d.
Sensitivity analysis
e.
Contribution margin
85. Which of the following can be considered a measure of risk in cost-volume-profit analysis?
a.
margin of safety
b.
contribution margin
c.
break-even point
d.
sales mix
86. Sales can decline by how much before losses are incurred?
a.
contribution margin ratio
b.
variable cost ratio
c.
sales ratio
d.
common fixed costs
e.
margin of safety
87. Firm X and Firm Y are competitors within the same industry. Firm X produces its product using large
amounts of direct labor. Firm Y has replaced direct labor with investment in machinery. Projected
sales for both firms are 15% less than in the prior year. Which statement regarding projected profits is
true?
a.
Firm X will lose more profit than Firm Y.
b.
Firm Y will lose more profit than Firm X.
c.
Firm X and Firm Y will lose the same amount of profit.
d.
Neither Firm X nor Firm Y will lose profit.
88. Operating leverage is
a.
the difference between sales and variable expense.
b.
the use of fixed costs to extract higher percentage changes in profits as sales activity
changes.
c.
the portion of each sales dollar available to cover fixed costs and provide for profit.
d.
visually portrays the relationship between profits and units sold.
e.
none of these
89. A “what-if” technique that examines the impact of changes in underlying assumptions on an answer is
a.
margin of safety.
b.
sales mix.
c.
indifference point.
d.
cost structure.
e.
sensitivity analysis.
90. Biggers Company expects the following results for the next accounting period:
Sales
$240,000
Variable costs
$135,000
Fixed costs
$ 40,000
Expected production and sales in units
3,000
The sales manager believes sales could be increased by 400 units if advertising expenditures were
increased by $10,000. If advertising expenditures are increased and sales increase by 400 units, the
effect on operating income will be a(n)
a.
decrease of $4,000.
b.
increase of $22,000.
c.
increase of $4,000.
d.
increase of $30,000.
e.
cannot be determined from data given.
91. Degree of operating leverage is calculated as
a.
Variable costs/Sales
b.
Total sales/Common fixed costs
c.
Fixed costs/Variable costs
d.
Contribution margin/Operating income
e.
Operating income/Contribution margin
92. Operating leverage is the relative mix of
a.
revenues earned and manufacturing costs.
b.
fixed and variable costs.
c.
high-volume and low-volume products.
d.
manufacturing costs and period costs.
e.
revenues earned and variable costs.
Figure 4-6.
Shorter Company had originally expected to earn operating income of $130,000 in the coming year.
Shorter’s degree of operating leverage is 2.4. Recently, Shorter revised its plans and now expects to
increase sales by 20% next year.
93. Refer to Figure 4-6. What is the percent change in operating income expected by Shorter in the coming
year?
a.
8.33%
b.
48.0%
c.
20.0%
d.
54.17%
e.
30.0%
94. Refer to Figure 4-6. What is Shorter’s revised expected operating income for the coming year?
a.
$192,400
b.
$156,000
c.
$312,000
d.
$130,000
e.
$62,400