Chapter 7—Cost-Volume-Profit Analysis Key
1. The traditional income statement focuses on:
2. Which of the following would you not find on a traditional income statement?
3. Which of the following would you not find on a contribution margin income statement?
4. The difference between sales and cost of goods sold is called:
5. The difference between sales and variable costs is called:
6. The contribution margin income statement is structured in such a way as to emphasize:
7. When preparing a contribution margin income statement, it is necessary to breakdown costs into what two
categories?
8. When preparing a traditional income statement, it is necessary to breakdown costs into what two categories?
9. Which of the following statements is true regarding the traditional income statement?
10. Which of the following statements is false regarding the contribution margin income statement?
11. Which of the following accounting system outputs is not needed for cost-volume-profit analysis?
12. Which of the following is usually not one of the factors that cost-volume-profit analysis focuses on?
13. All else being equal, which of the following would not cause the contribution margin to increase?
14. All else being equal, which of the following would not cause the contribution margin to decrease?
15. All else being equal, which of the following would cause the contribution margin to increase?
16. All else being equal, which of the following would cause net income to increase?
17. Assuming a company has net income, which of the following statements is true regarding the contribution
margin per unit?
18. Assuming a company has net income, with the sale of each additional unit, net income will increase by the
____.
19. For each additional unit sold, the contribution margin per unit:
20. The ____ represents the amount of each additional sales dollar that contributes towards the payment of fixed
costs and, ultimately, net profit.
21. If a company has a positive contribution margin but net income is low or negative, what are some ways of
increasing net income?
22. Assuming a company has a positive contribution margin, which of the following changes will cause net
income to increase?
23. All else being equal, which of the following changes would increase a company’s net income?
24. Hunter Inc.
Hunter Inc. sells a unique product with the following information available:
Sales price
$85 per unit
Variable costs
$25 per unit
Fixed Costs
$10,000
Units produced and sold
1,250
Refer to Hunter Inc. information above. If one more unit is sold, net income will:
25. Hunter Inc.
Hunter Inc. sells a unique product with the following information available:
Sales price
$85 per unit
Variable costs
$25 per unit
Fixed Costs
$10,000
Units produced and sold
1,250
Refer to Hunter Inc. information above. What is the contribution margin ratio?
26. Carolina Products
Carolina Products sells a unique item with the following information available:
Sales price
$40 per unit
Variable costs
$12 per unit
Fixed Costs
$2 per unit
Units produced and sold
2,000
Refer to the Carolina Products information above. If one more unit is sold, net income will:
27. Carolina Products
Carolina Products sells a unique item with the following information available:
Sales price
$40 per unit
Variable costs
$12 per unit
Fixed Costs
$2 per unit
Units produced and sold
2,000
Refer to the Carolina Products information above. What is the contribution margin per unit?
28. Carolina Products
Carolina Products sells a unique item with the following information available:
Sales price
$40 per unit
Variable costs
$12 per unit
Fixed Costs
$2 per unit
Units produced and sold
2,000
Refer to the Carolina Products information above. What is the contribution margin ratio?
29. Joe’s Coffee House
Joe’s Coffee House has the following information available for the month of July:
Sales (2,500 cups)
$7,500
Variable costs
3,250
Fixed costs
4,000
Net Income
$ 250
Refer to the Joe’s Coffee House information above. If Joe’s sells 500 more cups of coffee per month, net income will:
30. Joe’s Coffee House
Joe’s Coffee House has the following information available for the month of July:
Sales (2,500 cups)
$7,500
Variable costs
3,250
Fixed costs
4,000
Net Income
$ 250
Refer to the Joe’s Coffee House information above. Each additional cup of coffee sold will increase net income by:
31. Joe’s Coffee House
Joe’s Coffee House has the following information available for the month of July:
Sales (2,500 cups)
$7,500
Variable costs
3,250
Fixed costs
4,000
Net Income
$ 250
Refer to the Joe’s Coffee House information above. All else being equal, if Joe’s increases the sales price per unit by 10%, net income will:
32. Jazz Products has the following information available for the month of March:
Sales (4,000 units)
$40,000
Variable costs
18,000
Fixed costs
5,000
Net income
$17,000
The company’s manager is considering several options to increase net income. By what amount do sales dollars need to increase in order for net
income to increase to $25,000?
33. If sales revenue stays the same but the contribution margin ratio decreases, then:
34. Which of the following statements is true when making decisions using cost-volume-profit (CVP) analysis?
35. Haywood Inc. has the following information available for one of its products:
Sales price per unit
$15
Contribution margin ratio
60%
Total fixed costs
$5,000
Units produced and sold
1,000
In Haywood sells one more unit, net income will:
36. Laverne’s Soda Shop wishes to decrease variable costs. Which of the following options should she
consider?
37. Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are
expected to remain at $50,000 and sales are expected to increase by $90,000. What should the contribution
margin ratio be this year if the company wishes to increase net income by $31,500?
38. Stealth Software Inc.
Stealth Software Inc. has the following information available from last year for one of its software products:
Sales revenue
$30,000
Variable costs
4,950
Fixed costs
4,000
Net income
$21,050
Refer to the Stealth Software Inc. information above. If the software had a sales price of $30 per unit, what is the variable cost per unit?
39. Stealth Software Inc.
Stealth Software Inc. has the following information available from last year for one of its software products:
Sales revenue
$30,000
Variable costs
4,950
Fixed costs
4,000
Net income
$21,050
Refer to the Stealth Software Inc. information above. If the software had a sales price of $30 per unit, what is the contribution margin per unit?
40. Stealth Software Inc.
Stealth Software Inc. has the following information available from last year for one of its software products:
Sales revenue
$30,000
Variable costs
4,950
Fixed costs
4,000
Net income
$21,050
Refer to the Stealth Software Inc. information above. If the sales price per unit is $30 and the company expects a 30% increase in sales volume this
year along with a 20% decrease in fixed costs. What will be expected net income this year?
41. A company’s manager estimates that in the upcoming year, total variable costs will increase by $5,000 and
total fixed costs will increase by $3,000. What will be the anticipated effect on net income?
42. A company’s manager estimates that in the upcoming year, total variable costs will increase by $20,000 and
total fixed costs will decrease by $14,000. What will be the anticipated effect on net income?
43. A company’s manager estimates that in the upcoming year, increasing advertising costs by $25,000 will
cause sales revenue to increase by $60,000. If the company’s contribution margin ratio is 35%, what will be
overall effect on net income?
44. A company’s manager estimates that in the upcoming year, decreasing advertising costs by $35,000 will
cause sales revenue to decrease by $80,000. If the company’s contribution margin ratio is 40%, what will be
overall effect on net income?
45. Bergman Inc.
Bergman Inc. has the following product information available:
Sales price
$12 per unit
Variable costs
$4 per unit
Fixed costs
$15,600
Units sold
10,400
Refer to the Bergman Inc. information above. What is the break-even point in units?
46. Bergman Inc.
Bergman Inc. has the following product information available:
Sales price
$12 per unit
Variable costs
$4 per unit
Fixed costs
$15,600
Units sold
10,400
Refer to the Bergman Inc. information above. How many units need to be sold in order to earn a target profit of $150,000?
47. Poole Products Inc.
Poole Products Inc. has the following product information available:
Sales price
$25 per unit
Variable costs
$10 per unit
Fixed costs
$36,000
Refer to the Poole Products Inc. information above. What is the break-even point in units?
48. Poole Products Inc.
Poole Products Inc. has the following product information available:
Sales price
$25 per unit
Variable costs
$10 per unit
Fixed costs
$36,000
Refer to the Poole Products Inc. information above. What is the break-even point in sales dollars?
49. Poole Products Inc.
Poole Products Inc. has the following product information available:
Sales price
$25 per unit
Variable costs
$10 per unit
Fixed costs
$36,000
Refer to the Poole Products Inc. information above. How many units need to be sold in order to earn a target profit of $249,000?
50. Harrison Manufacturing
Harrison Manufacturing has the following product information available:
Sales price
$50 per unit
Variable costs
$26 per unit
Fixed costs
$87,600
Refer to the Harrison Manufacturing information above. What is the break-even point in units?
51. Harrison Manufacturing
Harrison Manufacturing has the following product information available:
Sales price
$50 per unit
Variable costs
$26 per unit
Fixed costs
$87,600
Refer to the Harrison Manufacturing information above. What is the break-even point in sales dollars?
52. Harrison Manufacturing
Harrison Manufacturing has the following product information available:
Sales price
$50 per unit
Variable costs
$26 per unit
Fixed costs
$87,600
Refer to the Harrison Manufacturing information above. How many units need to be sold in order to earn a target profit of $175,000?
53. Harrison Manufacturing
Harrison Manufacturing has the following product information available:
Sales price
$50 per unit
Variable costs
$26 per unit
Fixed costs
$87,600
Refer to the Harrison Manufacturing information above. What do total sales dollars need to be in order to earn a target profit of $200,400?
54. Tucker Corp.
Tucker Corp. has the following product information:
Sales price
$12 per unit
Contribution margin ratio
40%
Fixed costs
$45,000
Refer to the Tucker Corp. information above. What is the break-even point in sales dollars?
55. Tucker Corp.
Tucker Corp. has the following product information:
Sales price
$12 per unit
Contribution margin ratio
40%
Fixed costs
$45,000
Refer to the Tucker Corp. information above. What is the break-even point in units?
56. Tucker Corp.
Tucker Corp. has the following product information:
Sales price
$12 per unit
Contribution margin ratio
40%
Fixed costs
$45,000
Refer to the Tucker Corp. information above. How many units need to be sold in order to earn a target profit of $542,400?
57. Cameron Corp.
Cameron Corp. has the following product information:
Sales price
$20 per unit
Contribution margin ratio
35%
Fixed costs
$59,500
Refer to the Cameron Corp. information above. What is the break-even point in sales dollars?
58. Cameron Corp.
Cameron Corp. has the following product information:
Sales price
$20 per unit
Contribution margin ratio
35%
Fixed costs
$59,500
Refer to the Cameron Corp. information above. What is the break-even point in units?
59. Cameron Corp.
Cameron Corp. has the following product information:
Sales price
$20 per unit
Contribution margin ratio
35%
Fixed costs
$59,500
Refer to the Cameron Corp. information above. How many units need to be sold in order to earn a target profit of $299,950?
60. Angelo’s is a locally run and operated pizza parlor. Last month, the restaurant broke-even when 400 pizzas
were served. The average variable costs per pizza are $2.50 and fixed costs for the month totaled $6,000. What
is the average selling price of a pizza?
61. Floyd’s Barbershop has fixed costs of $3,000 per month. Floyd currently breaks-even when it performs 400
haircuts a month. Floyd charges customers $10 per cut. What are Floyd’s variable costs per cut?
62. Floyd’s Barbershop has fixed costs of $3,000 per month. Floyd regularly performs 400 haircuts a month and
he does not anticipate this to change. Each haircut has a variable cost of $4.00. If Floyd would like to earn a
target profit of $2,000, what does he need to charge for each haircut?
63. Charlie’s Hotdog Stand
Charlie’s Hotdog Stand sells hotdogs for $2.50 each. The variable costs per hotdog are $.50. Charlie’s fixed
costs are currently $800 per month. Charlie is considering expanding his business to three hotdog stands which
will increase fixed costs per month by $1,200.
Refer to the Charlie’s Hotdog Stand information above. If Charlie does expand his business to three stands,
how many additional hotdogs will need to be sold per month in order to break even?
64. Charlie’s Hotdog Stand
Charlie’s Hotdog Stand sells hotdogs for $2.50 each. The variable costs per hotdog are $.50. Charlie’s fixed
costs are currently $800 per month. Charlie is considering expanding his business to three hotdog stands which
will increase fixed costs per month by $1,200.
Refer to the Charlie’s Hotdog Stand information above. If Charlie does expand his business to three stands,
how many hotdogs will need to be sold per month in order to earn a target profit of $5,000?
65. LMN Manufacturing produces two products – Product S and Product W. The following information is
available related to each product:
Product W
Sales price per unit
$40
Variable costs per unit
22
Product S accounts for 40% of total product sales and Product W accounts for the rest. LMN’s total fixed costs are $24,990. How many total number
of products need to be sold in order for the company to break even?
66. RET Manufacturing
RET Manufacturing produces two types of children’s products – Rubles and Twizzles. The following
information is available related to each product:
Twizzles
Sales price per unit
$24
Variable costs per unit
12
Rubles account for 60% of total product sales and Twizzles accounts for the rest. RET’s total fixed costs are $30,024.
Refer to the RET Manufacturing information above. How many total number of products need to be sold in order for the company to break even?
67. RET Manufacturing
RET Manufacturing produces two types of children’s products – Rubles and Twizzles. The following
information is available related to each product:
Twizzles
Sales price per unit
$24
Variable costs per unit
12
Rubles account for 60% of total product sales and Twizzles accounts for the rest. RET’s total fixed costs are $30,024.
Refer to the RET Manufacturing information above. How many Rubles need to be sold in order for the company to break even?
68. Crabtree Inc. produces two types of products – Gizmos and Gadgets. The following information is available
related to each product:
Gadgets
Sales price per unit
$60
Variable costs per unit
24
Percentage of total sales
33.33%
If total fixed costs are $36,000, how many total units need to be sold in order for the company to break even? (round computations to nearest
hundredth)
69. Crabtree Inc. produces two types of products – Gizmos and Gadgets. The following information is available
related to each product:
Gadgets
Sales price per unit
$50
Variable costs per unit
22
Three-fourths of the products sold are Gizmos and one-fourth are Gadgets. If total fixed costs are $50,000, how many total units need to be sold in
order for the company to break even?
70. Village Manufacturing
Village Manufacturing produces two types of products – Card Games and Puzzles. The following information is
available related to each product:
Card Games
Puzzles
Sales price per unit
$6.00
$15.00
Variable costs per unit
2.00
3.50
60% of the products sold are Card Games and 40% are Puzzles.
Refer to the Village Manufacturing information above. If total fixed costs are $24,500, how many Puzzles need to be sold in order for the company
to break even?
71. Village Manufacturing
Village Manufacturing produces two types of products – Card Games and Puzzles. The following information is
available related to each product:
Card Games
Puzzles
Sales price per unit
$6.00
$15.00
Variable costs per unit
2.00
3.50
60% of the products sold are Card Games and 40% are Puzzles.
Refer to the Village Manufacturing information above. If total fixed costs are $24,500, how many Card Games need to be sold in order for the
company to break even?
72. Which of the following statements is correct as it relates to a company that sells multiple products?
73. When calculating the break-even point in a multi-product environment, which of the following statements is
false?
74. When calculating the break-even point in a multi-product environment, which of the following pieces of
information would not be relevant?
75. In a multi-product environment:
76. Which of the following types of costs is not included in the numerator of the break-even equation in an
activity-based costing (ABC) environment?
77. Which of the following statements is true regarding activity-based costing (ABC) and cost-volume-profit
(CVP) analysis?