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Multiple Choice
1. The breakeven point occurs where total revenues intersect with ____.
a.
market returns
b.
the risk-free rate
c.
total costs
d.
total interest and taxes
c
2. Breakeven analysis is normally performed for a planning period of ____.
a.
one month
b.
one year or less
c.
five years
d.
ten years
b
3. An example of a noncash outlay is ____.
a.
property
b.
marketing costs
c.
advertising
d.
depreciation
d
4. Breakeven analysis can be used to assess ____ risk.
a.
financial
b.
operating
c.
sales
d.
volume
b
5. Breakeven analysis can be used when planning ____.
a.
renovations
b.
expansions
c.
financial resources
d.
new product development
c
6. The uses of breakeven analysis includes all except which of the following?
a.
Forecasting the profitability of the firm
b.
Forecasting the impact of certain economic conditions on the firm’s profitability
c.
Analyzing the impact of substituting fixed costs for variable costs in production
d.
Analyzing the profit impact of a firm’s restructuring efforts
b
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7. The difference between the selling price per unit and the variable cost per unit is the contribution ____.
a.
to the bottom line
b.
to revenue
c.
margin
d.
to EBIT
c
8. Another name for breakeven analysis is ____.
a.
cost-volume-profit analysis
b.
graphic analysis
c.
EBIT-EPS analysis
d.
degree of operating leverage
a
9. In a graphic breakeven analysis, the point where total revenue is less than total cost indicates the firm has ____.
a.
net operating capital
b.
cash flow from investing
c.
a negative EBIT
d.
a positive return on capital
c
10. The contribution margin per unit is the difference between the ____.
a.
selling price per unit and fixed costs
b.
fixed costs and the variable costs
c.
selling price per unit and the variable cost per unit
d.
variable costs and the number of units sold
c
11. The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted
weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per
unit of $21. The company has operating costs of $1,050,000. What is the firm’s breakeven point in units?
a.
75,000
b.
50,000
c.
80,000
d.
65,000
a
12. The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted
weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per
unit of $21. The company has operating costs of $1,050,000. The company has operating costs of $1,050,000. What is the
firm’s breakeven point in dollars?
a.
$1,750,000
b.
$4,670,000
c.
$2,625,000
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d.
$3,875,566
c
13. The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted
weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per
unit of $21. The company has operating costs of $1,050,000. Using 100,000 units as a base, what is the degree of
operating leverage?
a.
6.2
b.
5.7
c.
7.9
d.
4.0
d
14. The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted
weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35, with a variable cost per
unit of $21. The company has operating costs of $1,050,000. What is the probability of the firm having operating losses if
the firm expects to sell 80,000 almanacs, with a standard deviation of 4,000 units? (A normal distribution table, for
example, Table V from the text, must accompany this problem.)
a.
10.56%
b.
11.12%
c.
14.92%
d.
13.57%
a
15. Bouncy Bungee Rubber Band Company has fixed costs of $2,760,000 per year, it sells its rubber bands for $3.75 per
pack, and the variable cost of these packs is $0.75. They estimate they will sell 1,000,000 packs this year, with a standard
deviation of 40,000 units. Find the probability of the company incurring a loss. (A normal distribution table, for example,
Table V from the text, must accompany this problem.)
a.
3.22%
b.
6.71%
c.
5.48%
d.
2.87%
c
16. Kettle of Fish Hatcheries provides a stocked pond for fishing enthusiasts. They have fixed costs of $525,000, they
charge $50 per person for pond access, and the variable costs of stocking the pond average about $15 per person. How
many people need to fish the pond annually to break even?
a.
45,000
b.
15,000
c.
32,000
d.
10,000
b
17. What is the breakeven point for Rough and Tough Clothiers, maker of heavy-duty dungarees? It has the following
costs:
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Raw materials:
$15 per pair
Labor costs:
$ 8 per pair
Commissions:
$ 2 per pair
Utilities:
$ 50,000
Rent:
$ 96,000
Taxes:
$ 30,000
Salaries:
$150,000
The price of the dungarees is $55 per pair.
a.
13,040
b.
10,867
c.
25,000
d.
17,650
b
18. The Fanny Nanny Weight Monitors Corporation offers an annual diet plans for sale each year with information about
nutrition, diet tips, and food substitutes. The finished product sells for $60, with a variable cost per unit of $27. The
company has fixed operating costs of $1,250,000. What is its breakeven point?
a.
22,187
b.
37,879
c.
56,124
d.
48,961
b
19. What is the breakeven point, in dollars, for Zippy Dippy Swimwear, maker of bathing suits and accessories? It has the
following costs:
Raw materials:
$25 per bathing suit
$ 8 per towel
$16 per beach umbrella
$37 per swimsuit cover-up
Labor costs:
$18 average per suit
$10 per umbrella
$ 3 per towel
$20 per cover-up
Commissions:
$12 per item
Utilities:
$150,000
Rent:
$196,000
Taxes:
$230,000
Salaries:
$550,000
The price of each suit is $85.
The price of each towel is $25.
The price of each umbrella is $40.
The price of each cover-up is $81.
a.
$3,172,023
b.
$4,947,196
c.
$7,887,259
d.
$6,425,583
a
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Essay
20. What are the possible uses for breakeven analysis?
profits.
3.
21. List the limitations of breakeven analysis:
products
output
22. How can a firm have more than one breakeven output point?
23. Explain the composition of operating costs and why they can cause an inaccurate breakeven analysis.