Tietz Exam Prep Ch.7 Cost-Volume-Profit Analysis

Managerial Accounting, 6e (Braun et al.)

Chapter 7 Cost-Volume-Profit Analysis

7.1 Calculate the unit contribution margin and the contribution margin ratio

1) The contribution margin per unit is how much profit each unit contributes after fixed costs are considered.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

2) CVP stands for Company-Volume-Profit.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

3) CVP assumes that inventory levels will not change.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

4) When using the contribution margin ratio, managers project operating income based upon sales units.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

5) A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

6) The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

7) The contribution margin ratio is the unit contribution margin divided by the variable cost per unit.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

8) If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per unit is $9.25.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

9) Contribution margin on an income statement is equal to sales revenue minus fixed expenses.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

10) Gross margin is another term for net income.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

11) CVP analysis assumes that the only factor that affects costs is a change in sale price.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

12) Total contribution margin less total fixed expenses equals

A) contribution margin ratio.

B) operating income.

C) gross profit.

D) sales revenue.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

13) The unit contribution margin is computed by

A) subtracting the variable cost per unit from the sales price per unit.

B) dividing the sales revenue by variable cost per unit.

C) dividing the variable cost per unit by the sales revenue.

D) subtracting the sales price per unit from the variable cost per unit.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

14) The contribution margin ratio explains the percentage of each sales dollar that

A) contributes towards variable costs.

B) contributes towards sales revenue.

C) contributes towards period expenses.

D) contributes towards fixed costs and generating a profit.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

15) CVP analysis assumes all of the following except

A) the mix of products will not change.

B) revenues are linear throughout the relevant range.

C) inventory levels will increase.

D) a change in volume is the only factor that affects costs.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

16) ________ should be subtracted from the sales price per unit to compute the unit contribution margin.

A) All variable costs

B) Only variable product costs

C) Only variable period costs

D) All fixed costs

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

17) By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

A) projected sales units by the contribution margin ratio

B) projected sales revenue by the contribution margin ratio

C) projected sales revenue by the unit contribution margin

D) projected sales units by the variable cost ratio

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

18) Managers can quickly forecast the total contribution margin by multiplying the

A) projected sales units by the variable cost ratio.

B) projected sales units by the contribution margin ratio.

C) projected sales revenue by the unit contribution margin.

D) projected sales revenue by the contribution margin ratio.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

19) Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

A) Gross margin

B) Operating income

C) Net income

D) Unit contribution margin

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

20) Contribution margin ratio is computed by

A) dividing contribution margin by operating income.

B) dividing contribution margin by sales revenue.

C) dividing sales revenue by contribution margin.

D) dividing operating income by contribution margin.

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

21) What is contribution margin equal to on a contribution margin income statement?

A) Fixed expenses plus variable expenses

B) Fixed expenses minus variable expenses

C) Sales revenues minus variable expenses

D) Sales revenues minus fixed expenses

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

22) Rainbow Ice sells snow cones for $3 per customer. Variable costs are $1 per snow cone. Fixed costs are $2,900 per month. What is the company's contribution margin ratio?

A) 254%

B) 67%

C) 100%

D) 58%

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

23) Rainbow Ice sells snow cones for $3 per customer. Variable costs are $2 per snow cone. Fixed costs are $2,900 per month. What is the company's contribution margin per snow cone?

A) $1.00

B) $2.00

C) $0.33

D) $3.00

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

24) All About the Dough sells funnel cake for $4.25 per customer. Variable costs are $1.25 per cake. Fixed costs are $2,500 per month. What is the company's contribution margin ratio?

A) 29.41%

B) 3%

C) 240%

D) 70.59%

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

25) All About the Dough sells funnel cake for $4.75 per customer. Variable costs are $1.50 per cake. Fixed costs are $3,400 per month. What is the company's contribution margin per funnel cake?

A) $1.50

B) $3.25

C) $1.75

D) $4.75

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

26) Big Cat Rescue sells admission tickets for $14 per person. Variable costs are $4.50 per person and fixed costs are $19,000 per month. The company's relevant range extends to 34,000 people per month. What is the company's projected operating income if 22,000 people tour the facility during a month?

A) $209,000

B) $190,000

C) $308,000

D) $289,000

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

27) Wild Rides Park sells admission tickets for $50 per person for one visit. Variable costs are $15 per visitor and fixed costs are $4,000,000 per month. The company's relevant range extends to 240,000 visitors per month. What is the company's projected operating income if 195,000 visitors come to the park during the month?

A) $2,825,000

B) $6,825,000

C) $9,750,000

D) $5,750,000

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

28) Day Crusing operates a pontoon boat rental business. Assume the boats rent for $45 for 6 hours. The variable costs are $37 per 6-hour rental, and its fixed costs are $75,000 each month. What is the contribution margin per 6 hours boat rental?

A) $37

B) $0.18

C) $8

D) $5.63

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

29) Day Crusing operates a pontoon boat rental business. Assume the boat rent for $30 per 6 hours. The variable costs are $27 per 6 hours rental, and its fixed costs are $90,000 each month. What is the contribution margin ratio?

A) 10%

B) 90%

C) 100%

D) 3%

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

30) Who Done It Mystery Theater sells tickets for dinner and a show for $60 each. The cost of providing dinner is $28 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 14,000 patrons each month. What is the contribution margin per patron?

A) $1.88

B) $32

C) $0.53

D) $28

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

31) Who Done It Mystery Theater sells tickets for dinner and a show for $55 each. The cost of providing dinner is $40 per ticket and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 15,000 patrons each month. What is the contribution margin ratio?

A) 73%

B) 27%

C) 15%

D) 165%

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

32) Who Done It Mystery Theater sells tickets for dinner and a show for $60 each. The cost of providing dinner is $28 per ticket and the fixed cost of operating the theater is $90,000 per month. The company can accommodate 9,000 patrons each month. What is the projected monthly income if 5,000 patrons visit the theater each month?

A) $210,000

B) $288,000

C) $378,000

D) $70,000

Diff: 1

LO: 7-1

EOC: S7-2

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

33) Paint by Number sells admission tickets for a painting class for $35 each. The cost of providing the canvas and supplies is $34 per ticket and the fixed cost of operating the art gallery is $20,000 per month. The company can accommodate 5,400 patrons each month. What is the contribution margin per patron?

A) $35.00

B) $0.03

C) $1.00

D) $34.00

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

34) Paint by Number sells admission tickets for a painting class for $55 each. The cost of providing the canvas and supplies is $34 per ticket and the fixed cost of operating the art gallery is $25,000 per month. The company can accommodate 5,700 patrons each month. What is the contribution margin ratio?

A) 62%

B) 262%

C) 21%

D) 38%

Diff: 1

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

35) Paint by Number sells admission tickets for a painting class for $40 each. The cost of providing the canvas and supplies is $21 per ticket and the fixed cost of operating the art gallery is $50,000 per month. The company can accommodate 5,700 patrons each month. What is the projected monthly income if 4,200 patrons visit the theater each month?

A) $129,800

B) $79,800

C) $58,300

D) $29,800

Diff: 1

LO: 7-1

EOC: S7-2

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

36) Goodwin Corporation gathered the following information for the year just ended:

During the year, the company produced and sold 80,000 units of product at a selling price of $12.68 per unit. There was no beginning inventory of product at the start of the year.

What is the contribution margin for the year?

A) $740,400

B) $954,400

C) $1,014,400

D) $800,400

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

37) Goodwin Corporation gathered the following information for the year just ended:

During the year, the company produced and sold 80,000 units of product at a selling price of $5.38 per unit. There was no beginning inventory of product at the start of the year.

What is the operating income (loss) for the year?

A) $275,400

B) $430,400

C) $146,400

D) $301,400

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

38) The Swiss Group produces a single product selling for $10 per unit. Variable costs are $8 per unit and total fixed costs are $7,000. What is the contribution margin ratio?

A) 80%

B) 2%

C) 20%

D) 500%

Diff: 1

LO: 7-1

EOC: S7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

39) The following selected data relates to Purple Pride Corporation:

Assuming 8,600 units are sold, what is the contribution margin?

A) $215,000

B) $149,000

C) $129,000

D) $109,000

Diff: 1

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

40) The following selected data relates to Purple Pride Corporation:

If sales revenue per unit increases to $27 and 9,200 units are sold, what is the contribution margin?

A) $248,400

B) $89,600

C) $92,000

D) $119,600

Diff: 1

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

41) Trudy's Tutus provides the following information about its single product.

What is the contribution margin ratio?

A) 140%

B) 71%

C) 37%

D) 29%

Diff: 1

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

42) The Flower Shop sells bouquets for $55 each. The variable costs for each bouquet are $50. The total contribution margin for 35 bouquets is

A) $1,925.

B) $3,675.

C) $175.

D) $1,750.

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

43) Screentime Corp. has a product which sells for $130 and has a unit contribution margin of $50. It has fixed costs of $40/unit at the current production volume. The company's contribution margin ratio is

A) 31%.

B) 38%.

C) 8%.

D) 69%.

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

44) Twisty Dough sells pretzels for $7. The variable costs for each pretzel are $4, while the total fixed costs are $1,900. The contribution margin for 1,600 pretzels is

A) $1,900.

B) $4,800.

C) $13,300.

D) $9,300.

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

45) Flying High sells kites for $35 each. Variable costs are $7 per kite. Fixed costs are $2,100 per month. What is the contribution margin ratio for the kites?

A) 125%

B) 80%

C) 28%

D) 20%

Diff: 2

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

46) Flying High sells kites for $35 each. Variable costs are $3 per kite. Fixed costs are $1,800 per month. What is the contribution margin per kite?

A) $1.09

B) $0.91

C) $3.00

D) $32.00

Diff: 2

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

47) The following information for the past year for the Magic Corporation has been provided:

During the year, the company produced and sold 70,000 units of product at a selling price of $11.25 per unit. There was no beginning inventory of product at the beginning of the year.

What is the contribution margin for the year?

A) $453,500

B) $787,500

C) $606,500

D) $634,500

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

48) The following information for the past year for the Magic Corporation has been provided:

During the year, the company produced and sold 80,000 units of product at a selling price of $17.83 per unit. There was no beginning inventory of product at the beginning of the year.

What is the operating income (loss) for the year?

A) $1,276,400

B) $1,426,400

C) $1,250,400

D) $1,100,400

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

49) The following information for the past year for the Magic Corporation has been provided:

During the year, the company produced and sold 70,000 units of product at a selling price of $17.98 per unit. There was no beginning inventory of product at the beginning of the year.

What is the contribution margin ratio for the company (round to 1 decimal)?

A) 74.3%

B) 85.5%

C) 86.8%

D) 11.3%

Diff: 3

LO: 7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

50) The following information for the past year for the Magic Corporation has been provided:

During the year, the company produced and sold 10,000 units of product at a selling price of $19.45 per unit. There was no beginning inventory of product at the beginning of the year.

What is the contribution margin per unit for the company? (Round any intermediary calculations and your final answer to the nearest cent.)

A) $1.75

B) $2.55

C) $17.70

D) $34.60

Diff: 3

LO: 7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

51) The managerial accountant at Cotton Tees T-Shirt Company reported the following information:

Cotton Tees T-Shirt Company

Contribution Margin Income Statement

How many units did the company sell to achieve the above listed revenue and what is the total company's contribution margin?

A) 5 units; $1.98

B) 950 units; $9,400

C) 1 units; $28,600

D) 480 units; $9,400

Diff: 3

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

52) Fancy Scarf Factory Contribution Margin

The managerial accountant at Fancy Scarf Factory reported the price per scarf is $26. The only variable cost is $13 per scarf. The managerial accountant also reported that the sales goals were increased to 1,200 scarves during the next quarter. First, compute the unit contribution margin per scarf. If fixed expenses are $11,000, what is the forecasted operating income if 1,200 scarves are sold in the next quarter?

A) $10; $4,300

B) $13; $4,600

C) $12; $4,500

D) $11; $4,400

Diff: 2

LO: 7-1

EOC: S7-1

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

53) In the last reporting period, Global Tech Company recorded 150,000 units sold for the first time in the history of the company. The price per unit was $90.25 and variable costs per unit at $38.40. Compute the contribution margin. Next, compute the fixed costs if the operating income is $4,480,000.

A) $7,777,500; $3,297,500

B) $13,537,500; $13,089,500

C) $5,760,000; $5,312,000

D) $5,760,000; $6,208,000

Diff: 2

LO: 7-1

EOC: S7-2; E7-18A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

54) Neeley Incorporated had the following fixed costs:

The company also had the following variable costs:

Variable manufacturing costs $124,000

Variable marketing costs $ 30,000

Variable administrative costs $ 28,000

The company produced and sold 55,000 units of the product during the year at a selling price of $9.00 per unit. The company had no inventory at the beginning of the year.

Required: Prepare a contribution margin income statement for the year.

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

55) William's Steel had the following fixed costs:

The company also had the following variable costs:

Variable manufacturing costs $1,980,000

Variable marketing costs $ 60,000

Variable administrative costs $ 95,000

During the year, the company produced and sold 55,000 units of the product at a selling price of $100.00 per unit. The company had no inventory at the beginning of the year.

Required: Prepare a contribution margin income statement for the year.

Diff: 2

LO: 7-1

EOC: E7-17A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

7.2 Use CVP analysis to find the volume needed to break even or earn a target profit

1) The breakeven point is the sales level where operating income is positive.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

2) Only the income statement approach may be used to calculate the breakeven point.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

3) The breakeven point represents the minimum number of units a company must sell before it earns a profit.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

4) On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the variable expenses.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

5) On a CVP graph, total fixed costs are shown as a horizontal line.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

6) The breakeven point on a CVP graph is the point where the sales revenue line intersects the total expense line.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

7) Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield the dollar amount of breakeven sales as $31,500.

Diff: 2

LO: 7-2

EOC: S7-5

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

8) The breakeven point can either be calculated in terms of number of units or in terms of sales revenue.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

9) A company that sells one product would be more likely to calculate breakeven in terms of sales units, rather than sales revenue.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

10) When calculating the breakeven point in terms of units, fixed costs should be divided by the contribution per unit.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

11) When calculating the breakeven point in terms of sales revenue, variable costs should be divided by the contribution margin ratio.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

12) If total fixed expenses are $65,000, the target operating income is $15,000 and the contribution margin is $25 per unit, the sales needed to achieve the target operating income will be 3,200 units.

Diff: 2

LO: 7-2

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

13) To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line represents which of the following?

A) Operating loss

B) Operating income

C) Slope of variable costs per unit

D) Slope of fixed costs per unit

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

14) To find the number of units that need to be sold in order to break even or generate a target profit, the formula used is

A) (fixed expenses + operating income) ÷ contribution margin per unit.

B) (fixed expenses + operating income) ÷ contribution margin ratio.

C) (fixed expenses - operating income) ÷ contribution margin ratio.

D) (fixed expenses - operating income) ÷ contribution margin per unit.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

15) To find the sales revenue (sales in dollars) needed in order to break even or generate a target profit, the formula used is

A) (fixed expenses + operating income) ÷ contribution margin per unit.

B) (fixed expenses + operating income) ÷ contribution margin ratio.

C) (fixed expenses - operating income) ÷ contribution margin ratio.

D) (fixed expenses - operating income) ÷ contribution margin per unit.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

16) To find the breakeven point using the shortcut formulas, you use

A) zero for the contribution margin per unit.

B) zero for the fixed expenses.

C) zero for the contribution margin ratio.

D) zero for the operating income.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

17) To find the sales revenue needed to break even, the formula used could be

A) fixed expenses ÷ contribution margin ratio.

B) contribution margin per unit ÷ fixed expenses.

C) contribution margin ratio ÷ fixed expenses.

D) fixed expenses ÷ contribution margin per unit.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

18) To find the number of units that need to be sold to break even, the formula used could be

A) fixed expenses ÷ contribution margin per unit.

B) contribution margin per unit ÷ fixed expenses.

C) fixed expenses ÷ contribution margin ratio.

D) contribution margin ratio ÷ fixed expenses.

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

19) When using the income statement approach to finding breakeven, which of the following is true?

A) (variable expenses × number of units) - fixed expenses = operating income

B) sales revenue - variable expenses - fixed expenses = operating income

C) fixed expenses + variable expenses + sales revenue = operating income

D) fixed expenses + variable expenses - sales revenue = operating income

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

20) On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

A) The breakeven point

B) The level of the variable costs

C) The level of the fixed costs

D) The level of target profit

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

21) Which of the following is not an approach used to calculate the breakeven point?

A) The income statement approach

B) The shortcut approach using the unit contribution margin

C) The balance sheet approach

D) The shortcut approach using the contribution margin ratio

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

22) The breakeven point may be defined as the number of units a company must sell to do which of the following?

A) Generate a net loss

B) Generate a zero profit

C) Earn more net income than the previous accounting period

D) Generate a net income

Diff: 1

LO: 7-2

EOC: S7-3

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

23) Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________.

A) loss; loss

B) loss; profit

C) profit; profit

D) profit; loss

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

24) The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents

A) total costs.

B) total variable costs.

C) total fixed costs.

D) breakeven point.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

25) The line that begins at the origin on a CVP graph represents

A) total fixed expenses.

B) total sales revenues.

C) total expenses.

D) total variable expenses.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

26) Which of the following is an underlying assumption of the cost-volume-profit graph?

A) Total fixed expenses will change during the accounting period.

B) The sales mix of products is constantly changing.

C) Volume is the only cost driver.

D) Inventory levels are constantly changing.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

27) The area to the right of the breakeven point and between the total revenue line and the total expense line represents

A) expected profits.

B) expected losses.

C) variable expenses.

D) fixed expenses.

Diff: 1

LO: 7-2

EOC: S7-6

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

28) The following information pertains to the Yellow Dog Corporation:

What is the breakeven in units? (Round your final calculation to the nearest unit.)

A) 1,333 units

B) 1,867 units

C) 4,000 units

D) 533 units

Diff: 3

LO: 7-2

EOC: S7-6

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

29) The following information pertains to the Yellow Dog Corporation:

What is the breakeven in sales dollars? (Round any intermediary calculations and your final answer to the nearest whole number.)

A) $450,000

B) $825,000

C) $375,000

D) $900,000

Diff: 3

LO: 7-2

EOC: S7-6

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

30) The following information pertains to the Yellow Dog Corporation:

How many units need to be sold in order to reach the target profit? (Round your final calculation to the nearest unit.)

A) 3,500 units

B) 4,500 units

C) 1,000 units

D) 2,000 units

Diff: 3

LO: 7-2

EOC: S7-6

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

31) Muffin Mania produces and sells a variety of muffins. The selling price per dozen is $11, variable costs are $4 per dozen, and total fixed costs are $4,900. How many dozen muffins must the company sell to break even?

A) 7,700

B) 700

C) 446

D) 327

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

32) Muffin Mania produces and sells a variety of muffins. The selling price per dozen is $17, variable costs are $7 per dozen, and total fixed costs are $7,000. What are breakeven sales in dollars?

A) $11,900

B) $4,964

C) $700

D) $4,900

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

33) Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $4.25, variable costs are $2.75 per dozen, and total fixed costs are $750.00. How many dozens of ears of corn must Corny and Sweet sell to break even? (Round your final answer to the nearest unit amount.)

A) 2,125

B) 176

C) 500

D) 107

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

34) Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $2.50, variable costs are $2.25 per dozen, and total fixed costs are $150.00. What are breakeven sales in dollars?

A) $2,850

B) $600

C) $1,350

D) $1,500

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

35) If the selling price per unit is $10, the unit contribution margin is $5, and total fixed expenses are $17,500, what are the breakeven sales in units?

A) 87,500

B) 175,000

C) 1,750

D) 3,500

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

36) If the selling price per unit is $80, the variable expense per unit is $50, and total fixed expenses are $210,000, what are the breakeven sales in dollars?

A) $336,000

B) $79,800

C) $560,000

D) $129,231

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

37) A product is sold at $15 per unit, the unit contribution margin is $3, and total fixed expenses are $2,400, what are the breakeven sales in units?

A) 36,000

B) 800

C) 160

D) 7,200

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

38) A product is sold at $80 per unit, the variable expense per unit is $10, and total fixed expenses are $264,000, what are the breakeven sales in dollars? (Do not round intermediary calculations and round your final calculation to the nearest dollar.)

A) $23,232

B) $232,320

C) $255,552

D) $301,714

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

39) Assume the following amounts:

If sales revenue per unit increases to $17 and 9,000 units are sold, what is the operating income?

A) $153,000

B) $37,000

C) $71,000

D) $54,000

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

40) If the selling price per unit is $36, the unit contribution margin is $17, and total fixed expenses are $629,000, what will the breakeven sales in units be?

A) 37,000

B) 10,693,000

C) 33,105

D) 17,472

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

41) If the selling price per unit is $45, the variable expense per unit is $40, and total fixed expenses are $50,000 what will the breakeven sales in units be?

A) 10,000

B) 1,250

C) 588

D) 1,111

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

42) If total fixed costs are $175,000, the contribution margin per unit is $10.00, and targeted operating income is $25,000, how many units must be sold to break even?

A) 2,500

B) 20,000

C) 17,500

D) 250,000

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

43) Umstead Company provides the following information about its single product.

What is the contribution margin per unit?

A) $0.29

B) $10.60

C) $1.80

D) $4.40

Diff: 1

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

44) Umstead Company provides the following information about its single product.

What is the breakeven point in units? (Round intermediary calculations to the nearest cent.)

A) 21,289

B) 10,951

C) 43,400

D) 5,372

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

45) Umstead Company provides the following information about its single product.

How many units must be sold to earn the targeted operating income? (Round the final answer up to the nearest unit.)

A) 14,718

B) 62,835

C) 42,900

D) 19,935

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

46) Green Company provides the following information about its single product.

What is the contribution margin per unit?

A) $3.30

B) $11.80

C) $0.44

D) $4.25

Diff: 1

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

47) Green Company provides the following information about its single product.

What is the breakeven point in units?

A) 234,971

B) 13,393

C) 57,400

D) 54,827

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

48) Green Company provides the following information about its single product.

How many units must be sold to earn the targeted operating income? (Round the final answer up to the nearest unit.)

A) 221,895

B) 57,400

C) 63,136

D) 279,295

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

49) Given breakeven sales in units of 39,000 and a unit contribution margin of $5, how many units must be sold to reach a target operating income of $9,000?

A) 37,200

B) 45,000

C) 40,800

D) 1,800

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

50) Given breakeven sales in units of 41,000 and a unit contribution margin of $9, how many units must be sold to reach a target operating income of $42,300?

A) 4,700

B) 36,300

C) 45,700

D) 380,700

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

51) If the selling price per unit is $71, variable expenses per unit are $41, target operating income is $37,000, and total fixed expenses are $24,000, how many units must be sold to reach the target operating income? (Round the final answer up to the nearest unit.)

A) 800

B) 2,034

C) 1,234

D) 522

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

52) If the contribution margin ratio is 35%, target operating income is $35,000, and the sales revenue needed to achieve the target operating income is $500,000, what are total fixed expenses?

A) $12,250

B) $140,000

C) $210,000

D) $175,000

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

53) If target sales in units is 100,000, total fixed expenses are $8,000, and the unit contribution margin is $0.20, what is the target operating income?

A) $28,000

B) $12,000

C) $20,000

D) $16

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

54) Moore Incorporated has a predicted operating income of $66,000. Its total variable expenses are $18,000 and its total fixed expenses are $14,000. It has a unit contribution margin of $5. The company's breakeven sales in units is

A) 12,400 units.

B) 2,800 units.

C) 10,400 units.

D) 19,600 units.

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

55) Moore Incorporated desires an operating income of $70,000. Its variable expenses are $22,000 and its total fixed expenses have increased from $16,000 to $63,000. Its unit contribution margin is $5. Its sales in units to achieve the target profit is

A) 31,000.

B) 1,400.

C) 26,600.

D) 22,200.

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

56) OPB Corporation has fixed expenses of $230,000, and a unit sales price of $70. Its variable cost per unit is $45. If it sells 10,100 posters, its operating income is a

A) gain of $252,500.

B) gain of $22,500.

C) gain of $482,500.

D) gain of $224,500.

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

57) Sweet Stuff Chocolates produces and sells assorted boxed chocolates. The unit selling price is $50, unit variable costs are $35, and total fixed costs are $1,350. How many boxes of chocolates must the company sell to break even?

A) 4,500

B) 27

C) 16

D) 90

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

58) Sweet Stuff Chocolates produces and sells assorted boxed chocolates. The unit selling price is $45, unit variable costs are $15, and total fixed costs are $2,700. What are breakeven sales in dollars?

A) $4,050

B) $8,100

C) $90

D) $2,700

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

59) The fixed expenses of Greg's Snowboards are $800,000. The selling price for one snowboard is $180. The variable cost per unit is $66. If the company sells 9,100 snowboards, its operating income is a

A) gain of $1,438,600.

B) loss of $199,400.

C) gain of $237,400.

D) gain of $1,837,400.

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

60) The selling price of a Road King bicycle is $850, unit variable costs are $350, and total fixed costs are $16,500. How many bicycles will Road King need to sell to break even?

A) 28,050

B) 14

C) 33

D) 20

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

61) The selling price of a Road King bicycle is $750, unit variable costs are $350 and total fixed costs are $12,800. What are breakeven sales in dollars?

A) $8,727

B) $32

C) $11,200

D) $24,000

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

62) Custom Framing Company provides the following information about its single product.

What is the contribution margin per unit?

A) $40

B) $0.73

C) $190

D) $110

Diff: 1

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

63) Custom Framing Company provides the following information about its single product.

What is the breakeven point in units?

A) 2,300

B) 458

C) 196

D) 986

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

64) Custom Framing Company provides the following information about its single product.

How many units must be sold to earn the targeted operating income? (Round the final answer up to the nearest unit.)

A) 1,657

B) 3,858

C) 2,200

D) 1,174

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

65) Perry Enterprises has a predicted operating income of $160,000. Its total variable expenses are $70,000 and its total fixed expenses are $21,000. The unit contribution margin for the company's sole product is $19. The number of units that Perry Enterprises needs to sell to achieve the predicted operating income would be ________. (Round the final answer up to the nearest unit.)

A) 7,316

B) 13,211

C) 5,842

D) 9,527

Diff: 2

LO: 7-2

EOC: S7-3

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

66) Perry Enterprises has a predicted operating income of $140,000. Its total variable expenses are $55,000 and its total fixed expenses have doubled from $22,000 to $44,000. The unit contribution margin for the company's sole product is $5. The number of units that Perry Enterprises needs to sell to achieve the predicted operating income would be ________. (Round the final answer up to the nearest unit.)

A) 19,200

B) 25,800

C) 47,800

D) 36,800

Diff: 2

LO: 7-2

EOC: S7-3

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

67) If the selling price per unit is $35.00, the variable expense per unit is $7.00, and the breakeven sales in dollars is $466,000, what are total fixed expenses? (Round unit amounts up to the nearest unit and round your final answer to the nearest dollar.)

A) $13,315

B) $476

C) $372,820

D) $1,864,000

Diff: 2

LO: 7-2

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

68) If the selling price per unit is $65, total fixed expenses are $95,000, and the breakeven sales in dollars is $380,000, what will the variable expense per unit be?

A) $48.75

B) $16.25

C) $81.25

D) $195.00

Diff: 2

LO: 7-2

EOC: S7-7

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

69) If the selling price per unit is $250, total fixed expenses are $300,000, and the breakeven sales in dollars is $500,000, what is the variable expense per unit?

A) $66.67

B) $400.00

C) $150.00

D) $100.00

Diff: 2

LO: 7-2

EOC: S7-7

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

70) If the selling price per unit is $28, the variable expense per unit is $19.00, and the breakeven sales in dollars is $56,000, what are total fixed expenses?

A) $26,526

B) $18,000

C) $2,000

D) $222

Diff: 2

LO: 7-2

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

71) The selling price of a particular product is $7.00 per unit, the variable expense is $4.00 per unit, and the breakeven sales in dollars is $25,368, what are total fixed expenses?

A) $12,684

B) $1,208

C) $3,624

D) $10,872

Diff: 2

LO: 7-2

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

72) The selling price of a particular product is $31.00 per unit, fixed costs total $177,000, and the breakeven sales in dollars is $885,000, what will the variable expense per unit be?

A) $124.00

B) $6.2

C) $37.20

D) $24.80

Diff: 2

LO: 7-2

EOC: S7-7

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

73) The selling price of a particular product is $11.00 per unit, fixed costs total $13,650, and the breakeven sales in dollars is $21,000. What would be the variable expense per unit?

A) $5.92

B) $7.15

C) $3.85

D) $18.15

Diff: 2

LO: 7-2

EOC: S7-7

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

74) The selling price of a particular product is $81.00 per unit, the variable expense is $55.00 per unit, and the breakeven sales in dollars is $243,000, what are total fixed expenses?

A) $115

B) $78,000

C) $3,000

D) $114,873

Diff: 2

LO: 7-2

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

75) Braced Incorporated has a targeted operating income of $518,000 for the upcoming year. The selling price of its single product is $40.50 each, while the variable cost per unit is $12.50. Fixed costs total $182,000.

Calculate the following:

a. Contribution margin per unit

b. Breakeven point in units

c. Units to be sold to earn the targeted operating income

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

76) Knit Corporation has a predicted operating income of $80,000. The managerial accountant reported that total variable expenses are $25,000 and its total fixed expenses are $24,000. The company has a unit contribution margin of $20 on its sole product. Calculate the number of units needed to reach the operating income of $80,000.

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

77) Randolph runs a lemonade stand and wants to make $150 in the next week. He sells each cup of lemonade for $0.75, while the variable cost is $0.15 for the cups and ingredients. Fixed costs such as posters and signs are $15.00.

Calculate the following:

a. Contribution margin per unit sold

b. Contribution margin ratio

c. Breakeven point in units

d. Units to be sold to earn the targeted operating income

Diff: 2

LO: 7-2

EOC: E7-19A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

78) Run Around Delivery Service charges a $53 service fee. The variable cost per service run is $18. The company's fixed expenses amount to $5600. If the operating income equals fixed expenses, what is the breakeven point in sales revenue for the company?

A) $16,960

B) $2880

C) $5600

D) $8480

Diff: 2

LO: 7-2

EOC: S7-3; E7-18A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

7.3 Use CVP analysis to measure the impact of changing business conditions

1) CVP analysis helps managers prepare for and respond to economic changes, such as increasing costs and pressure to drop sales price.

Diff: 1

LO: 7-3

EOC: S7-7

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

2) If all other factors are constant, any decrease in fixed costs will decrease the breakeven point.

Diff: 1

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

3) Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes.

Diff: 1

LO: 7-3

EOC: S7-8

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

4) The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

5) Whenever the company makes changes to fixed costs, the breakeven point will never change.

Diff: 1

LO: 7-3

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

6) A company's breakeven point is only affected when the company makes changes to contribution margin.

Diff: 1

LO: 7-3

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

7) When ABC, Inc. changes the selling price per unit, it will not affect how many units they must sell to break even.

Diff: 1

LO: 7-3

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

8) Which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant?

A) The contribution margin increases and the breakeven point decreases.

B) The contribution margin decreases and the breakeven point decreases.

C) The contribution margin increases and the breakeven point increases.

D) The contribution margin decreases and the breakeven point increases.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

9) If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true?

A) The contribution margin decreases and the breakeven point decreases.

B) The contribution margin increases and the breakeven point decreases.

C) The contribution margin increases and the breakeven point increases.

D) The contribution margin decreases and the breakeven point increases.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

10) If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true?

A) The contribution margin decreases and the breakeven point increases.

B) The contribution margin decreases and the breakeven point decreases.

C) The contribution margin increases and the breakeven point increases.

D) The contribution margin increases and the breakeven point decreases.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

11) If the fixed costs increase while the sales price per unit and variable costs per unit remain constant, which of the following statements is true?

A) The contribution margin stays the same and the breakeven point increases.

B) The contribution margin decreases and the breakeven point increases.

C) The contribution margin stays the same and the breakeven point decreases.

D) The contribution margin increases and the breakeven point decreases.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

12) What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same?

A) It will decrease.

B) It will increase.

C) It will remain the same.

D) It is impossible to determine with the given information.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

13) If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true?

A) Breakeven point in units remains the same.

B) Breakeven point in units decreases.

C) Breakeven point in units increases.

D) Contribution margin ratio increases.

Diff: 2

LO: 7-3

EOC: S7-7

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

14) If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true?

A) Contribution margin increases.

B) Contribution margin decreases.

C) Breakeven point in units increases.

D) Breakeven point in units decreases.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

15) If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged, which of the following statements is true?

A) Breakeven point in units increases.

B) Breakeven point in units could increase, decrease, or remain the same.

C) Breakeven point in units decreases.

D) Breakeven point in units remains unchanged.

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

16) Assuming no other changes in the cost-volume-profit relationship, which of the following will decrease the breakeven point in units?

A) A decrease in the selling price per unit

B) An increase in the selling price per unit

C) An increase in total fixed costs

D) An increase in the variable costs per unit

Diff: 2

LO: 7-3

EOC: S7-8

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

17) The difference between sales dollars and total costs after breakeven point on a CVP graph is the representation of

A) operating loss.

B) slope of variable costs per unit.

C) operating income.

D) slope of fixed costs per unit.

Diff: 1

LO: 7-3

EOC: S7-7

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

18) Trudy Manufacturing produces and sells a product with a price of $100/unit. The following data has been prepared for its estimated upper and lower levels of activity.

The fixed expenses for this company are

A) depreciation, office salaries, and advertising.

B) indirect materials, indirect labor, and depreciation.

C) direct materials, direct labor, and depreciation.

D) sales salaries, office salaries, and advertising.

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

19) Trudy Manufacturing produces and sells a product with a price of $100/unit. The following data has been prepared for its estimated upper and lower levels of activity.

The only variable expenses for this company are

A) indirect materials, direct materials, and direct labor.

B) all categories of selling and administrative expenses.

C) indirect materials, indirect labor, direct materials, and direct labor.

D) None of the above.

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

20) Jeffrey Enterprises has budgeted the following amounts for its next fiscal year:

If Jeffrey Enterprises can reduce fixed expenses by $26,565, how will breakeven sales in units be affected?

A) Decrease by 759 units

B) Increase by 483 units

C) Increase by 759 units

D) Decrease by 483 units

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

21) Jeffrey Enterprises has budgeted the following amounts for its next fiscal year:

If Jeffrey Enterprises can reduce fixed expenses by $3,570, how will breakeven sales in units be affected?

A) Decrease by 119 units

B) Increase by 45 units

C) Increase by 119 units

D) Decrease by 45 units

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

22) Winthrop Corporation produces and sells a single product. Data for that product are:

Upper management is considering using a biodegradable packaging which costs $7 more per unit but it produces less waste in the long run. Management plans to increase advertising by $10,000 in the first month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,500 units per month.

What should be the overall effect on the company's monthly operating income in the first month if this change is implemented?

A) Increase of $11,500

B) Increase of $31,500

C) Decrease of $11,500

D) Decrease of $31,500

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

23) Winthrop Corporation produces and sells a single product. Data for that product are:

Upper management is considering using a biodegradable packaging which costs $10 more per unit but it produces less waste in the long run. Management plans to increase advertising by $5,000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 3,500 units per month.

What is the effect to the company's breakeven point if these changes are implemented?

A) They would have to sell 443 fewer units to break even.

B) They would have to sell 2,771 more units to break even.

C) They would have to sell 3,500 fewer units to break even.

D) They would have to sell 443 more units to break even.

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

24) Winthrop Corporation produces and sells a single product. Data for that product are:

Upper management is considering using a biodegradable packaging which costs $12 more per unit but it produces less waste in the long run. Management plans to increase advertising by $5,000 per month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 5,000 units per month.

How many units would the company have to sell to maintain current operating income if these changes are implemented? Round up to the nearest whole unit.

A) 7,784 units

B) 11,989 units

C) 10,550 units

D) Cannot be determined from the information given

Diff: 3

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

25) Keegan Corporation produces and sells a single product. Data for that product are:

Management is discussing increasing the price to $540 to cover an increase in fixed expenses of $87,000. Management believes they might lose 2% of sales per month.

What should be the overall effect on the company's monthly operating income if this change is implemented?

A) Increase of $12,400

B) Increase of $87,000

C) Decrease of $12,400

D) Decrease of $87,000

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

26) Keegan Corporation produces and sells a single product. Data for that product are:

Management is discussing increasing the price to $630 to cover an increase in fixed expenses of $81,000. Management believes they might lose 2% of sales per month.

What effect would these changes have on the company's breakeven point?

A) Breakeven would increase by 158 units

B) Breakeven would increase by 3,611 units

C) Breakeven would decrease by 158 units

D) Breakeven would decrease by 3,769 units

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

27) Keegan Corporation produces and sells a single product. Data for that product are:

Management is discussing increasing the price to $575 to cover an increase in fixed expenses of $86,000. Management believes they might lose 2% of sales per month.

How many units per month would the company have to sell to maintain its current level of operating income? Round up to the nearest whole unit.

A) 5,500 units

B) 10,874 units

C) 5,366 units

D) 3,600 units

Diff: 3

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

28) Fletcher Inc. currently has a contribution margin of $26 on its only product. Fletcher Inc. is considering spending $8,400 more on advertising this year to generate an increase in sales of 5,500 units. How will this change affect its operating income?

A) It will increase operating income by $134,600.

B) It will increase operating income by $151,400.

C) It will decrease operating income by $8,400.

D) It will increase operating income by $143,000.

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

29) Grapple Inc. currently has a contribution margin of $24 on its only product and sells 40,000 units. Grapple Inc. is considering cutting its sales price by $4 to generate an increase in sales of 9,000 units. How will this change affect its operating income?

A) It will increase operating income by $160,000.

B) It will decrease operating income by $160,000.

C) It will decrease operating income by $20,000.

D) It will increase operating income by $20,000.

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

30) Sweet Pea Corporation currently has a sales price of $4.00 per can of organic pea with a variable cost of $0.50 per can. The company currently sells 54,000 cans a month and hopes that increased advertising of $5,500 will increase its sales by 7,500 cans. The company currently has $21,500 in fixed costs per month. How will this change affect its breakeven point in terms of cans?

A) The company will have to sell 7,500 more cans to break even.

B) The company will have to sell 1,571 more cans to break even.

C) The company will have to sell 5,929 more cans to break even.

D) The company will have to sell 7,714 more cans to break even.

Diff: 2

LO: 7-3

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

31) Fossil LLC has budgeted the following amounts for its next fiscal year:

If the company spends an additional $12,800 on advertising, sales volume should increase by 1,000 units. What effect will this have on operating income?

A) Increase of $42,200

B) Increase of $55,000

C) Decrease of $55,000

D) Decrease of $42,200

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

32) Field Corporation management has budgeted the following amounts for its next fiscal year:

If the company can reduce fixed expenses by $18,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

A) $49.10

B) $265.90

C) $0.90

D) $50.00

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

33) Glass Incorporated has been in business for several months. Because of increased competition in the region for part adapters, the managers at Scott Incorporated is considering cutting sales price from $27 per adapter to $23 per adapter.

If the variable expenses remain at $16 per adapter and the fixed expenses remain at $6,800, how many adapters will the managers need to sell to break even? Compute the breakeven sales in units.

A) 946 units

B) 952 units

C) 972 units

D) 1,026 units

Diff: 3

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

34) Reese Enterprises currently sells its products for $90 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $432,000 per year.

What is the breakeven point in units at the current selling price?

A) 8,000 units

B) 3,429 units

C) 54 units

D) 12,000 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

35) Pux Company currently sells its products for $30 per unit. Management is contemplating a 10% increase in the selling price for the next year. Variable costs are currently 50% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year). Fixed expenses are $58,500 per year.

What is the breakeven point in units at the anticipated selling price per unit next year?

A) 1,219 units

B) 3,250 units

C) 3,900 units

D) 1,950 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

36) Xavier Incorporated has fixed expenses of $212,000 per year. Right now, Xavier Incorporated is selling its products for $300 per unit. Management is contemplating a 30% increase in the selling price for the next year. Variable costs are currently 30% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will pay the same amount for variable costs next year).

If fixed costs increase 30% next year, and the new selling price per unit goes into effect, how many units will need to be sold to break even?

A) 574 units

B) 707 units

C) 275,600 units

D) 919 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

37) Management at the Giant Company currently sells its products for $175 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 30% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $147,500 per year.

If fixed costs were to decrease 20% during the current year and the new selling price goes into effect, how many units will need to be sold to break even?

A) 613 units

B) 482 units

C) 675 units

D) 165,200 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

38) Maxwell Company sells its product for $13 per unit and has variable costs of $5 per unit. Total fixed costs are $136,000. Suppose variable costs increase by 20% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

A) Increase from 17,000 units to 19,429 units

B) Decrease from 7,556 units to 7,158, units

C) Decrease from 17,000 units to 2,429 units

D) Decrease from 27,200 units to 22,667 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

39) Oil Producers sells its core product for $10 per unit and has variable costs of $3 per unit. Total fixed costs are $70,000. Suppose variable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units?

A) Decrease from 5,385 units to 5,264 units

B) Decrease from 10,000 units to 4,118 units

C) Increase from 10,000 units to 10,448 units

D) Decrease from 23,333.333,3 units to 21,213 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

40) Gotham Enterprises' management has budgeted the following amounts for its next fiscal year:

If Gotham Enterprises can reduce fixed expenses by $27,200, how will breakeven sales in units be affected?

A) Increase by 735 units

B) Increase by 1,600 units

C) Decrease by 735 units

D) Decrease by 1,600 units

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

41) Pita Corporation's management has budgeted the following amounts for its next fiscal year:

If Pita Corporation spends an additional $15,000 on advertising, sales volume should increase by 2,500 units. What effect will this have on operating income?

A) Increase of $50,000

B) Increase of $35,000

C) Decrease of $35,000

D) Decrease of $50,000

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

42) Polyside Inc. has budgeted the following amounts for its next fiscal year:

If the company can reduce fixed expenses by $66,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

A) $2.00

B) $15.00

C) $13.00

D) $37.00

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

43) Boone Manufacturing has budgeted the following amounts for its next fiscal year:

To maintain the original breakeven sales in units if fixed expenses were to increase by 10%, the selling price per unit would have to be

A) increased by 20.00%.

B) increased by 5.71%.

C) decreased by 5.71%.

D) decreased by 20.00%.

Diff: 3

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

44) Wilkinson Incorporated sells its products for $530 per unit. Variable costs are currently 40% of sales revenue. Fixed expenses are $136,740 per year.

What is the breakeven point in units at the current selling price?

A) 185 units

B) 318 units

C) 430 units

D) 645 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

45) OC Supply Co. has budgeted the following amounts for its next fiscal year:

To maintain the original breakeven sales in units if fixed expenses were to increase by 10%, the selling price per unit would have to be

A) increased by 0.67%.

B) increased by 86.00%.

C) decreased by 0.67%.

D) decreased by 86.00%.

Diff: 2

LO: 7-3

EOC: E7-35A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

46) Cool Cars sells its cars for $55,623 per unit (car). Variable costs are currently 40% of sales revenue. Fixed expenses are $200,242,800 per year.

What is the breakeven point in units at the current selling price?

A) 33,374 units

B) 2,571 units

C) 6,000 units

D) 9,000 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

47) Glor Enterprises currently sells its products for $1,300 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 50% of sales revenue and are not expected to change next year (the company will still pay the same variable cost per unit). Fixed expenses are $109,200 per year.

What is the breakeven point in units at the anticipated selling price per unit next year?

A) 120 units

B) 49 units

C) 650 units

D) 280 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

48) Martin Company currently sells its products for $230 per unit. Management is contemplating a 20% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year (the company will still pay the same variable cost per unit). Fixed expenses are $150,000 per year.

If fixed costs increase 10% next year, and the new selling price per unit goes into effect, how many units will need to be sold to break even?

A) 897 units

B) 1,793 units

C) 165,000 units

D) 448 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

49) Oscar Incorporated currently sells its products for $330 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 20% of sales revenue, and the dollar amount of variable costs are not expected to change next year. Fixed expenses are $170,000 per year.

If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to break even?

A) 2,318 units

B) 354 units

C) 387 units

D) 187,000 units

Diff: 2

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

50) Stallworth Enterprises management has budgeted the following amounts for its next fiscal year:

Requirements:

a. If Stallworth Enterprises can reduce fixed expenses by $25,000, how will breakeven sales in units be affected?

b. If Stallworth Enterprises spends an additional $1,000 on advertising, sales volume should increase by 1,000 units. What effect will this have on operating income?

c. If Stallworth Enterprises can reduce fixed expenses by $40,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

d. If fixed expenses increase by 25%, to maintain the original breakeven sales in units, what would be the selling price per unit have to be?

Diff: 3

LO: 7-3

EOC: E7-36A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

51) The Suit Emporium carries brand name business attire. Each suit sells for the set price of $59.99. The variable cost per suit is $43.91 and the contribution margin is $16.08. The fixed expenses at Suit Emporium are $16,300. A new business apparel outlet has opened fifteen miles from the emporium's location and sales have decreased because local competition offers consumers similar products at lower price per unit. As a result of this decrease, the management at Suit Emporium is considering reducing the sales price per unit to attract the consumer base back to the emporium. The forecasted price per unit is $49.99.

1. What is the unit contribution margin using the forecasted sales price?

2. What is the new breakeven point in units?

A) $6.08; 2,681 units

B) $93.90; 174 units

C) $16.08; 1,014 units

D) $27.83; 586 units

Diff: 2

LO: 7-3

EOC: E7-26A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

52) The manager at the Yarn Factory changed the price of spools to increase sales. The current price per unit is $13.91 per box of 500 spools; and, the forecasted lower price per unit to increase sales is $9.88 per box of 500 spools. If the variable expenses remain at $9.19 and the fixed expenses remain $4,000 how many units must be sold at the new price to break even?

Compute the contribution margin per unit using the old sales price. Next, compute the contribution margin per unit using the new sales price. Use the new unit contribution margin to compute breakeven sales in units. What is the breakeven sales in units?

A) 5,798 units

B) 288 units

C) 405 units

D) 435 units

Diff: 3

LO: 7-3

EOC: E7-26A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

53) Clover Corporation has the following information available for their current level 4,500 units sold a month:

The company is considering increasing monthly advertising by $2,500 in order to increase sales by 530 units per month. What effect would this change have on operating income?

A) Decrease operating income by $2,500

B) Increase operating income by $2,500

C) Increase operating income by $29,300

D) Decrease operating income by $31,800

Diff: 2

LO: 7-3

AACSB: Analytical thinking

54) Clover Corporation has the following information available for their current level 5,000 units sold a month:

The company is considering changing vendors where they can obtain the direct materials for $5 cheaper per unit. The company is also considering an increase to monthly advertising by $12,000 in order to increase sales by 570 units per month. What affect would this change have on operating income?

A) Decrease operating income by $12,000

B) Increase operating income by $52,900

C) Increase operating income by $52,330

D) Decrease operating income by $39,850

Diff: 3

LO: 7-3

AACSB: Analytical thinking

55) When Bumper Inc sells a bumper car, the contribution margin is $540 per car. The company is thinking about increasing fixed costs due to expanding production by $940,000 next year. Currently the company sells 27,000 bumper cars a year. How will operating income be affected by this proposed change for next year if the company plans to sell 36,000 bumper cars in the coming year?

A) Decrease by $940,000

B) Increase by $3,920,000

C) Decrease by $4,860,000

D) Cannot be determined with the information given

Diff: 3

LO: 7-3

AACSB: Analytical thinking

56) When Bumper Inc sells a bumper car, the contribution margin is $570 per car. The company is thinking about increasing fixed costs due to expanding production by $920,000 next year as well as reducing the selling price per car by $50. Currently the company sells 21,000 bumper cars a year. How will operating income be affected by this proposed change for next year if the company plans to sell 29,000 bumper cars in the coming year?

A) Decrease by $920,000

B) Increase by $2,190,000

C) Decrease by $520,000

D) Cannot be determined with the information given

Diff: 3

LO: 7-3

AACSB: Analytical thinking

7.4 Use CVP analysis at multiproduct companies

1) All else being equal, a company earns more income by selling low-contribution margin products than by selling an equal number of high-contribution margin products.

Diff: 2

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

2) Gray Company sells two products, X and Y. For the coming year, Gray predicts the sale of 10,000 units of X and 20,000 units of Y. The contribution margins of the two products are $4 and $6, respectively. The weighted average contribution margin per unit would be $5.00.

Diff: 2

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

3) The sales mix cannot significantly affect CVP relationships.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

4) To calculate the weighted average contribution margin, divide the sum of the individual product contribution margins by the sales mix in units.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

5) If unit sales prices, unit variable costs and total fixed costs all remain the same, but the sales mix changes, there is an effect on the breakeven point.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

6) A breakeven mix is the combination of products that are available for sale.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

7) All else being equal, a company earns more income by selling high-contribution margin products than by selling an equal number of low-contribution margin products.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

8) The same CVP formulas that are used to perform CVP analysis for a company with a single product can be used for any company that sells more than one product, as long as a company uses the weighted average contribution margin of all products, rather than the contribution margin of a sole product.

Diff: 2

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

9) To find the weighted average contribution margin, a company adds up the individual unit contribution margins of the different products and then divides by the number of different products.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

10) When a company sells more than one product, it does not have a unique breakeven point.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

11) The weighted average contribution margin will always be the same as the contribution margin of the highest-volume product.

Diff: 1

LO: 7-4

EOC: S7-9

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

12) If a company sells 12 of Product A for every 2 of Product B that it sells, the sales mix can be stated as

A) 12:2.

B) 12/14 A and 2/14 B.

C) both "12:2" and "12/14 A and 2/14 B" are correct.

D) neither "12:2" nor "12/14 A and 2/14 B" is correct.

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

13) If a company sells 16 of Product A for every 5 of Product B that it sells, the sales mix can be stated as

A) 16:5.

B) 16/21 A and 5/21 B.

C) neither "16:5" nor "16/21 A and 5/21 B" is correct.

D) both "16:5" and "16/21 A and 5/21 B" are correct.

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

14) Fixed costs divided by weighted average contribution margin per unit equals

A) breakeven sales in units.

B) margin of safety ratio.

C) breakeven sales in dollars.

D) contribution margin ratio.

Diff: 1

LO: 7-4

EOC: E7-31A

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

15) Contribution margin less fixed costs yields

A) sales.

B) operating income.

C) variable costs.

D) none of the above

Diff: 1

LO: 7-4

EOC: E7-31A

AACSB: Reflective thinking

Learning Outcome: Perform fundamental CVP calculations.

16) Soapy Company makes and sells 2 models of dishwashers, Model ABC and Model XYZ. For every 2 Model ABC sold, 3 Model XYZ are sold. The following information is also provided:

What is the weighted average contribution margin?

A) $398

B) $470

C) $290

D) $580

Diff: 1

LO: 7-4

AACSB: Analytical thinking

Learning Outcome: Distinguish between relevant and irrelevant costs.

17) Soapy Company makes and sells 2 models of dishwashers, Model ABC and Model XYZ. For every 2 Model ABC sold, 3 Model XYZ are sold. The company incurs $1,130,000 in fixed costs per month. The following information is also provided:

How many units of Model XYZ would the company need to sell at its breakeven point? (Round intermediary calculations to two decimal places and the final answer to the nearest unit.)

A) 1,747 units

B) 2,912 units

C) 3,054 units

D) 1,832 units

Diff: 2

LO: 7-4

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

18) Model Industries sells two products, Basic models and Deluxe models. Basic models sell for $39 per unit with variable costs of $30 per unit. Deluxe models sell for $48 per unit with variable costs of $40 per unit. Total fixed costs for the company are $546. Model Industries typically sells four Basic models for every Deluxe model. What is the breakeven point in total units?

A) 62 units

B) 50 units

C) 14 units

D) 11 units

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

19) Model Industries sells two products, Basic models and Deluxe models. Basic models sell for $37 per unit with variable costs of $25 per unit. Deluxe models sell for $50 per unit with variable costs of $20 per unit. Total fixed costs for the company are $900. Model Industries typically sells five Basic models for every Deluxe model. What is the breakeven point for Basic models and Deluxe models? (Round any intermediary calculations to the nearest cent and your final answers to the nearest whole unit.)

A) 42 units of Basic; 25 units of Deluxe

B) 25 units of Basic; 42 units of Deluxe

C) 50 units of Basic; 10 units of Deluxe

D) 10 units of Basic; 50 units of Deluxe

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

20) Placid Company sells two products, Blue models and Plaid models. Blue models sell for $40 per unit with variable costs of $20 per unit. Plaid models sell for $46 per unit with variable costs of $20 per unit. Total fixed costs for the company are $22,770. The company typically sells four Blue models for every three Plaid models. What is the breakeven point in total units? (Round any intermediary calculations to the nearest whole number.)

A) 144 units

B) 292 units

C) 990 units

D) 3,253 units

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

21) London Company sells two products, red cups and black mugs. The company predicts that it will sell 2,400 red cups and 600 black mugs in the next period. The unit contribution margins for red cups and black mugs are $2.40 and $3.60, respectively. What is the weighted average unit contribution margin? (Round the final answer to the nearest cent.)

A) $3.30

B) $9.60

C) $2.64

D) $0.72

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

22) Silver & Gold Enterprises sells two products, Silver models and Gold models. The company predicts that it will sell 5,900 Silver models and 4,000 Gold models in the next period. The unit contribution margins for Silver models and Gold models are $85 and $130, respectively. What is the weighted average unit contribution margin?

A) $173.14

B) $125.38

C) $103.18

D) $52.53

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

23) Fresh Spuds sells five large fries for every four small ones. A small fry sells for $3 with a variable cost of $1.25. A large fry sells for $4 with a variable cost of $1.50 What is the weighted average contribution margin?

A) $4.59

B) $7.09

C) $4.94

D) $2.17

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

24) Systems Incorporated sells two products, larges and smalls. Larges sell for $87 per unit with variable costs of $65 per unit. Smalls sell for $34 per unit with variable costs of $15 per unit. Total fixed costs for the company are $14,000. Systems Incorporated typically sells five larges for every four smalls. What is the breakeven point in total units? (Round the final answer up to the nearest unit.)

A) 17 units

B) 45 units

C) 678 units

D) 4 units

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

25) Bottom Half Company sells two products, green camouflage pants and orange camouflage pants. The company predicts that it will sell 1,100 pairs of green pants and 1,200 pairs of orange pants in the next period. The unit contribution margins for green pants and orange pants are $9.00 and $7.75, respectively. What is the weighted average unit contribution margin? (Round the final answer to the nearest cent.)

A) $1.46

B) $8.35

C) $6.68

D) $192.00

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

26) The Winning Edge sells two products, medals and trophies. The company predicts that it will sell 30,000 medals and 4,900 trophies in the next period. The unit contribution margins for medals and trophies are $5.25 and $14.00, respectively. What is the weighted average unit contribution margin? (Round the final answer to the nearest cent.)

A) $9.63

B) $9.01

C) $6.48

D) $19.25

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

27) Beef Patty Co. sells three cheeseburgers for every four regular hamburgers. A cheeseburger sells for $3.50 with a variable cost of $2.75. A regular hamburger sells for $2.75 with a variable cost of $1.00. What is the weighted average contribution margin?

A) $1.48

B) $1.32

C) $3.70

D) $9.25

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

28) Forklifts R Us sells two products, large forklifts and small forklifts. A large forklift sells for $65,000 per unit with variable costs of $30,000 per unit. Small forklifts sell for $55,000 per unit with variable costs of $15,000 per unit. Total fixed costs for the company are $1,950,000. The company typically sells one large forklift for every four smalls. What is the breakeven point in total units?

A) 50 units

B) 78 units

C) 26 units

D) 12 units

Diff: 2

LO: 7-4

EOC: E7-29A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

29) Jackie's Creamery sells fudge, cookies, and popcorn to patrons in the local community. The manager at the creamery sold 9,000 total boxes of merchandise last year. The popcorn outsold fudge by a margin of 2 to 1. The sales of caramels equaled the sales of popcorn. Total fixed costs for Jackie's Creamery total $11,000. The managerial accountant at Jackie's Creamery reported the following information:

Which formula should the managerial accountant use to determine the number of boxes of each different snack sold?

A) 3x + 2x + x = 9,000

B) x + y + z = 9,000

C) x + 2x + 2x = 9,000

D) none of the above

Diff: 3

LO: 7-4

EOC: E7-30A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

30) Jackie's Creamery sells fudge, caramels, and popcorn to consumers in the local community. The manager at the creamery sold 7,000 units last year. Popcorn outsold fudge by a ratio of 2 to 1. Sales of caramels equaled sales of popcorn. Total fixed costs for Jackie's Creamery are $12,000. The managerial accountant reported the following information:

The sales mix percentage of caramel corn based upon units is

A) 20%.

B) 40%.

C) 75%.

D) 44%.

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

31) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 7,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $13,000. Additional information follows:

The weighted average contribution margin for the three products of Jackie's Snacks is

A) $11.80.

B) $1.00.

C) $3.00.

D) $45.00.

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

32) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 9,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $10,000. Additional information follows:

The breakeven sales volume in units for Jackie's Snacks is ________. (Round the final answer up to the nearest unit.)

A) 30,000

B) 3,000

C) 3,334

D) 27,000

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

33) Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $11,000. Additional information follows:

Breakeven sales in dollars for Jackie's Snacks is ________. (Round unit amounts up to the nearest whole unit.)

A) $23,477

B) $5,869

C) $7,826

D) $8,802

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

34) Jersey Cow Creamery sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 19,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for the company are $13,500 and additional information follows:

The sales mix percentage of Fruity Tooty based upon gallons is

A) 71%.

B) 40%.

C) 75%.

D) 20%.

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

35) Jersey Cow Creamery sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 12,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for the company are $37,375 and additional information follows:

The weighted average contribution margin per gallon for the three products of the company is

A) $81.25.

B) $0.55.

C) $16.25.

D) $3.25.

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

36) Jersey Cow Creamery sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 17,000 gallons last year. For every five gallons of ice cream sold, one gallon is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for the company are $45,675 and additional information follows:

The breakeven sales volume in gallons for the company is

A) 9,135.

B) 5,397.

C) 4,938.

D) 14,500.

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

37) Jersey Cow Creamery sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 14,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for the company are $15,750 and additional information follows:

Breakeven sales in dollars for the company is

A) $75,000.

B) $45,000.

C) $87,000.

D) $71,250.

Diff: 3

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

38) Papa's Pastries sells regular donuts and large donuts. For every six regular donuts sold, the manager at Papa's Pastries sells four large donuts.

Calculate the weighted average contribution margin per unit.

Diff: 2

LO: 7-4

EOC: E7-31A

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

39) Fiesta Supply Company compiled the following data in order to assess the weighted average contribution margin per unit of two of the company's best-selling party items: the dome tent and the portable gazebo.

1. What is the contribution margin of the dome tent?

2. What is the weighted-average contribution margin per unit?

A) $1,760; $526.67

B) $360; $3,160

C) $400; $440

D) $1,400; $6

Diff: 2

LO: 7-4

EOC: S7-9

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

40) Geneva Bottled Water Co. is assembling a weighted average contribution margin chart to better analyze differences between sales on 36 oz. and the 20 oz. bottled water. The sales price per unit of the 36 oz. bottled water is $3.00 while the sales price per unit of the 20 oz. bottled water is $1.90. The contribution margin per unit for the 36 oz. bottle is $1.96 and the contribution margin of the 20 oz. bottle is $0.18. The 20 oz. bottle outsells the 36 oz. bottle by a 4:1 relationship.

What is the weighted average contribution margin per unit on these two products? (Round the final answer to the nearest cent.)

A) $2.68

B) $1.60

C) $0.54

D) $2.01

Diff: 2

LO: 7-4

EOC: S7-9

AACSB: Analytical thinking

Learning Outcome: Perform fundamental CVP calculations.

7.5 Determine a firm's margin of safety, operating leverage, and most profitable cost structure

1) The margin of safety is the "cushion," or drop in sales, a company can absorb without incurring a loss.

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

2) The margin of safety is the excess of expected sales over breakeven sales.

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

3) The margin of safety can be expressed in units, in sales dollars, or as a percentage.

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

4) Companies with high operating leverages generally have lower fixed costs than variable costs.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

5) Operating leverage refers to the relative amount of fixed and variable costs that make up total costs for a company.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

6) The operating leverage factor indicates the percentage change in operating income that will occur from a 5% change in volume.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

7) The operating leverage factor will be exactly "1" only if a company has no fixed costs.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

8) Companies with low operating leverage have relatively higher variable costs and lower fixed costs.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

9) A hotel would be an example of a company with high operating leverage.

Diff: 1

LO: 7-5

EOC: S7-12; E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

10) Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ________ Company B when considering only margin of safety.

A) more risky than

B) less risky than

C) to have the same level of risk as

D) Unable to judge based on margin on safety.

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

11) A company's margin of safety can be stated

A) in units.

B) in dollars.

C) as a percentage of sales.

D) any of the above

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

12) A company's margin of safety is computed as

A) actual sales - expected sales.

B) expected sales - actual sales.

C) expected sales - sales at breakeven.

D) sales at breakeven - expected sales.

Diff: 1

LO: 7-5

EOC: S7-11; E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

13) All else being equal, a company with a high operating leverage will have

A) relatively low fixed costs.

B) relatively high variable costs.

C) relatively high contribution margin ratio.

D) relatively low risk.

Diff: 2

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

14) All else being equal, a company with a low operating leverage will have

A) relatively high fixed costs.

B) relatively high contribution margin ratio.

C) relatively high risk.

D) relatively high variable costs.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

15) To find a firm's operating leverage factor at a given level of sales, you

A) divide the contribution margin by fixed expenses.

B) divide the contribution margin by operating income.

C) divide variable expenses by fixed expenses.

D) divide operating income by contribution margin.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

16) By multiplying the operating leverage factor by the anticipated percentage change in volume, one can find

A) the anticipated change in operating income.

B) the anticipated change in contribution margin.

C) the anticipated change in fixed expenses.

D) the anticipated change in sales revenue.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

17) The higher the operating leverage factor, the

A) less the impact of volume on operating income.

B) greater the impact of volume on operating income.

C) more likely operating income is to stay constant.

D) none of the above

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

18) All of the following would be considered a company with high operating leverage, except

A) retailer.

B) golf course.

C) theme park.

D) hotel.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

19) Total predicted sales (in units) minus total breakeven sales in units divided by total predicted sales (in units) yields

A) contribution margin ratio.

B) contribution margin per unit.

C) percent of sales mix.

D) margin of safety percentage.

Diff: 1

LO: 7-5

EOC: E7-32A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

20) The lowest possible operating leverage factor for a company is

A) zero.

B) -1.

C) +1.

D) somewhere between zero and +1.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

21) The lowest possible operating leverage factor for a company is 1 and only occurs when

A) variable costs are zero.

B) a company has the same amount of variable and fixed costs.

C) fixed costs are zero.

D) the company is at breakeven.

Diff: 1

LO: 7-5

EOC: E7-33A

AACSB: Reflective thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

22) Sweet Sounds Headphones sells deluxe headphones for $85 each. Unit variable expenses total $60. The breakeven sales in units is 1,600 and budgeted sales in units is 3,950. What is the margin of safety in dollars?

A) $58,750

B) $199,750

C) $471,750

D) $2,350

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

23) Moe's Pizza Shop sells a large pizza for $12.75. Unit variable expenses total $4.50. The breakeven sales in units is 2,000 and budgeted sales in units is 9,500. What is the margin of safety in dollars?

A) $95,625

B) $588

C) $146,625

D) $7,500

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

24) Pretty Pictures Co. has a monthly target operating income of $6,600. Variable expenses are 70% of sales and monthly fixed expenses are $1,290. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

A) $26,300

B) $22,000

C) $30,600

D) $18,410

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

25) Pretty Pictures Co. has a monthly target operating income of $7,400. Variable expenses are 80% of sales and monthly fixed expenses are $820. What is the monthly margin of safety as a percentage of target sales in dollars?

A) 109.98%

B) 20.00%

C) 90.02%

D) 902.44%

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

26) Pretty Pictures Co. has a monthly target operating income of $6,600. Variable expenses are 60% of sales and monthly fixed expenses are $1,960. What is the company's operating leverage factor at the target level of operating income?

A) 0.70

B) 1.3

C) 4.37

D) 0.77

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

27) Tom's Taxidermy expects to sell 500 units of its specialty preservation product. The managerial accountant reported that manager must sell 400 units of specialty product to break even. Compute the margin of safety in units.

A) 900 units

B) 200 units

C) 300 units

D) 100 units

Diff: 1

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

28) The manager at Tom's Taxidermy expects to sell 1,100 units at $70 each unit. In order for the manager to break even, the manager must sell 1,000 units. What is the margin of safety in dollars?

A) $7,000

B) $144,900

C) $147,000

D) $77,000

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

29) Tom's Taxidermy has a monthly target operating income of $30,000. Variable expenses are 75% of sales and monthly fixed expenses are $14,000. What is Tom's operating leverage factor at the target level of operating income?

A) 0.53

B) 0.68

C) 1.47

D) 3.14

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

30) Fancy Pasty Puffs is considering building a new plant in Europe. It predicts sales at the new plant to be 45,000 units at $10.00/unit. Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 30% of the sales price. No U.S. home office expenses will be allocated to the new facility.

How much does the European contractor expect to make in commissions?

A) $120,000

B) $36,000

C) $330,000

D) $135,000

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

31) Fancy Pasty Puffs is considering building a new plant in Europe. It predicts sales at the new plant to be 36,000 units at $7.00/unit. Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The unit variable cost for the company is

A) $4.17.

B) $1.11.

C) $4.46.

D) $3.06.

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

32) Fancy Pasty Puffs is considering building a new plant in Europe. It predicts sales at the new plant to be 39,000 units at $8.00/unit. Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility. (Round intermediary dollar calculations to the nearest whole dollar and round percentages to one-tenth percent.)

The margin of safety percentage for the company is

A) 80.0%.

B) 56.0%.

C) 120.0%.

D) 11.2%.

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

33) Fancy Pasty Puffs is considering building a new plant in Europe. It predicts sales at the new plant to be 39,000 units at $8.00/unit. Below is a listing of estimated expenses.

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The contribution margin ratio for the company is

A) 285.71%.

B) 35.00%.

C) 65.00%.

D) 75.00%.

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

34) Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal?

A) $100,000

B) $600,000

C) $500,000

D) $300,000

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

35) Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is the monthly margin of safety as a percentage of target sales in dollars?

A) 1.80%

B) 25.00%

C) 20.00%

D) 60.00%

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

36) Light Me Up Lamps has variable expenses of 30% of sales and monthly fixed expenses of $140,000. The monthly target operating income is $80,000. What is Light Me Up Lamps' operating leverage factor at the target level of operating income?

A) 0.36

B) 2.75

C) 1.75

D) 1.57

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

37) Whitewater Company's variable expenses are 30% of sales and have monthly fixed expenses of $21,000. The monthly target operating income is $4,200. What is the monthly margin of safety in dollars if the company achieves its operating income goal?

A) $25,200

B) $66,000

C) $6,000

D) $36,000

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

38) Whitewater Company's variable expenses are 20% of sales and have monthly fixed expenses of $16,000. The monthly target operating income is $15,200. What is the monthly margin of safety as a percentage of target sales in dollars?

A) 48.72%

B) 151.28%

C) 80.00%

D) 95.00%

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

39) Whitewater Company's variable expenses are 30% of sales and have monthly fixed expenses of $21,000. The monthly target operating income is $2,800. What is the company's operating leverage factor at the target level of operating income?

A) 1.13

B) 0.12

C) 5.95

D) 8.50

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

40) Crisp Corporation has a monthly target operating income of $33,600. Variable expenses are 30% of sales and monthly fixed expenses are $8,400. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

A) $60,000

B) $48,000

C) $72,000

D) $21,600

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

41) Crisp Corporation has a monthly target operating income of $38,500. Variable expenses are 30% of sales and monthly fixed expenses are $10,500. What is the monthly margin of safety as a percentage of target sales in dollars?

A) 12.73%

B) 78.57%

C) 70.00%

D) 36.67%

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

42) Crisp Corporation has a monthly target operating income of $25,600. Variable expenses are 20% of sales and monthly fixed expenses are $14,400. What is the company's operating leverage factor at the target level of operating income?

A) 0.36

B) 1.56

C) 0.28

D) 2.78

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

43) Bluff Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 60,000 units at $5.00/unit. Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price. No U.S. home office expenses will be allocated to the new facility.

How much does the Canadian contractor expect to make in commissions?

A) $30,000

B) $300,000

C) $250,000

D) $6,000

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

44) Bluff Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 60,000 units at $5.00/unit. Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The unit variable cost for the company is

A) $4.83.

B) $2.62.

C) $3.62.

D) $1.62.

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

45) Bluff Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $7.00/unit. Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The margin of safety percentage for the company is: (Round any intermediary percentage calculations to the nearest whole percent.)

A) 3.61%.

B) 27.68%

C) 172.32%.

D) 1.91%.

Diff: 3

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

46) Bluff Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 50,000 units at $5.00/unit. Below is a listing of estimated expenses.

A Canadian firm was contracted to sell the product and will receive a commission of 30% of the sales price. No U.S. home office expenses will be allocated to the new facility.

The contribution margin ratio for the company is

A) 1.60%.

B) 69.51%.

C) 101.63%.

D) 68.40%.

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

47) Famous Prints has a monthly target operating income of $12,000. Variable expenses are 40% of sales and monthly fixed expenses are $8,000.

Requirements:

a. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

b. What is the monthly margin of safety as a percentage of target sales in dollars?

c. What is Famous Prints' operating leverage factor at the target level of operating income?

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

48) Fast as Lightning is an oil change service drive-through that charges each customer $24.00 for an oil and filter change service. Fast as Lightning has found that it costs its business $16.00 per oil and filter change. Monthly fixed costs are $44,000; current sales are 8,000 services.

a. Compute the breakeven sales in units.

b. Compute the margin of safety in units and sales dollars.

c. Compute the margin of safety as a percentage.

d. Compute the operating leverage factor.

e. Compute the percentage of operating income decline if sales fall by 18%.

Diff: 2

LO: 7-5

EOC: E7-37A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

49) Sally Phee is the managerial accountant at the Seaside Motel. Sally advised the Sales Manager that budgeted sales at the motel were 80 rooms, and the motel's breakeven point is 18 units. What is the margin of safety in units at the Seaside Motel?

A) 60

B) 61

C) 62

D) 63

Diff: 1

LO: 7-5

EOC: S7-11; S7-13

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

50) Mississippi Mile Travel Company is conducting a sensitivity analysis in order to assess the company's margin of safety in units and in dollars. Predicted data indicate that 4,750 travel package sales can be expected while 2,600 package sales are necessary to meet the company's breakeven point. Each travel package sells for $2,700. Calculate the company's margin of safety in package units and dollars.

A) 2,600 travel package units; $5,590,000

B) 2,150 travel package units; $5,805,000

C) 7,350 travel package units; $19,845,000

D) 4,750 travel package units; $12,825,000

Diff: 2

LO: 7-5

EOC: E7-32A

AACSB: Analytical thinking

Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes.

7.6 Analyze cost, volume, and profit using data analytics tools

1) A company can determine changes to operating income by creating a pivot table in Excel for changes in sales price, volume, or cost.

Diff: 1

LO: 7-6

AACSB: Reflective thinking

2) A company can determine changes to operating income by creating a data table using What if Analysis in Excel for changes in cost, sales price, or volume.

Diff: 1

LO: 7-6

AACSB: Reflective thinking

3) In order to use What if Analysis in Excel, all values must be hard keyed in and no formulas can be used.

Diff: 1

LO: 7-6

AACSB: Reflective thinking

4) The What If Analysis icon is found in Excel under what tab on the ribbon?

A) Insert

B) Review

C) Formulas

D) Data

Diff: 1

LO: 7-6

AACSB: Reflective thinking

5) The conditional formatting icon is found under which tab on the ribbon in Excel?

A) Insert

B) Home

C) Formulas

D) Data

Diff: 1

LO: 7-6

AACSB: Reflective thinking

6) Describe how to use the What If Analysis in order to create a data table showing changes in volume and sales price.

Diff: 3

LO: 7-6

AACSB: Reflective thinking

7) Describe how to use the Conditional Formatting to shade specific cells within a What If Analysis data table.

Diff: 2

LO: 7-6

AACSB: Reflective thinking