CHAPTER 3 QUIZ
1. Which of the following is not a factor in cost-volume-profit analysis?
a. Units sold
b. Selling price
c. Total variable costs
d. Fixed costs of a product
2. Which of the following is not an assumption of cost-volume-profit analysis?
a. The time value of money is incorporated in the analysis.
b. Costs can be classified into variable and fixed components.
c. The behavior of revenues and expenses is accurately portrayed as linear over the
relevant range.
d. The number of output units is the only driver.
3. Contribution margin is calculated as
a. total revenue – total fixed costs.
b. total revenue – total manufacturing costs (CGS).
c. total revenue – total variable costs.
d. operating income + total variable costs.
Questions 4 through 6 are based on the following data.
Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The
company expects the following revenues and costs in 2004 for its Elite Quality golf club
sets:
Revenues (400 sets sold @ $600 per set) $240,000
Variable costs 160,000
Fixed costs 50,000
4. How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point?
a. 400
b. 250
c. 200
d. 150
5. How many sets of clubs must be sold to earn a target operating income of $90,000?
a. 700
b. 500
c. 400
d. 300
6. What amount of sales must Tee Times, Inc. have to earn a target net income of $63,000
if they have a tax rate of 30 percent?
a. $489,000
b. $429,000
c. $420,000
d. $300,000
7. One way for managers to cope with uncertainty in profit planning is to
a. use CVP analysis because it assumes certainty.
b. recommend management hire a futurist whose work is to predict business trends.
c. wait to see what does happen and prepare a report based on actual amounts.
d. use sensitivity analysis to explore various what-if scenarios in order to analyze changes
in revenues or costs or quantities.
8. The Beta Mu Omega Chi (BMOC) fraternity is looking to contract with a local band to
perform at its annual mixer. If BMOC expects to sell 250 tickets to the mixer at $10 each,
which of the following arrangements with the band will be in the best interest of the
fraternity?
a. $2500 fixed fee
b. $1000 fixed fee plus $5 per person attending
c. $10 per person attending
d. $25 per couple attending
Use the following information for questions 9 and 10.
LSB Company has the following income statement:
Revenues $100,000
Variable Costs 40,000
Contribution Margin 60,000
Fixed Costs 30,000
Operating Income 30,000
9. What is LSB’s DOL?
a. 3.33
b. 2.00
c. 0.50
d. 1.00
10. If LSB’s sales increase by $20,000, what will be the company’s operating profit?
a. $42,000
b. $12,000
c. $50,000
d. $30,000
11. Valley Company sells two products. Product M sells for $12 and has variable costs per
unit of $7. Product Q’s selling price and variable costs are $15 and $10, respectively. If
fixed costs are $60,000 and Valley sells twice as many units of Product M as Product Q,
what is the BEP in units for Product M?
a. 4,000
b. 6,000
c. 12,000
d. 8,000
CHAPTER 3 QUIZ SOLUTIONS
