lOMoARcPSD|19404562

Test 2 - CVP analysis - V1

Managerial Accounting (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Downloaded by Di?u Linh Lê Th? ([email protected])
 lOMoARcPSD|19404562

CVP analysis - - V1

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Fairfield Company management has budgeted the following amounts for its next fiscal year:

Total fixed expenses $832,500

Sale price per unit $40
Variable expenses per unit $25

If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the sale price per unit would
have to be:
A) decreased by 5.55%. B) increased by 3.75%.
C) increased by 3.61%. D) decreased by 10%.

2) Lightfoot Company sells its product for $55 and has variable costs of $30 per unit. Total fixed costs are $25,000.
What will be the effect on the breakeven point if variable costs increase by 10% due to an increase in the cost of
direct materials?
A) It will increase by 136 units. B) It will decrease by 136 units.
C) It will increase by 242 units. D) It will decrease by 242 units.

3) Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $3,000, occurred
in July when she washed 2,000 dogs and her lowest bill, $2,000, occurred in November when she washed 1,000
dogs. What was the fixed cost associated with Jenny's water bill?
A) $3,000 B) $1,000 C) $2,000 D) $1,500

4) If the sales price per unit decreases and variable costs remain the same, what will be the effect on the
contribution margin ratio?
A) It is impossible to determine with the given information.
B) It will remain the same.
C) It will increase.
D) It will decrease.

5) Pennell Company gathered the following information for the year ended December 31, 2009:

Fixed Costs:
Manufacturing $165,000
Marketing $52,000
Administrative $24,000
Variable costs:
Manufacturing $113,000
Marketing $39,000
Administrative $48,000

During the year, Pennell produced and sold 75,000 units of product at a sale price of $6.50 per unit. What is the
operating income (loss)?
A) $94,500 B) $18,500 C) ($28,500) D) $46,500

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

6) Which of the following is a characteristic of a contribution margin income statement?

A) Contribution margin is identified as the difference between sales revenue and total expenses.
B) When variable costs are less than sales revenue, there is a positive contribution margin.
C) Variable and fixed expenses are combined into total expenses.
D) The amount of gross margin is shown.

7) The Red Wing Company reported sales of $750,000, a contribution margin ratio of 25%, a variable cost of $150
per unit, and fixed costs totaling $125,000. What was the margin of safety in units?
A) 3,750 B) 1,250 C) 2,500 D) 1,000

8) Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is $10, unit
variable costs are $7, and total fixed costs are $3,300. What is the breakeven point in sales dollars?
A) $3,300 B) $4,714 C) $7,700 D) $11,000

9) Which of the following statements describes variable costs?

A) They are fixed in total throughout the relevant range of activity.
B) They are constant on a per unit basis but vary in total as production changes.
C) They decrease on a per unit basis as production volume increases.
D) They vary on a per unit basis but do not vary in total as production changes.

10) Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in
the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change
next year. Fixed expenses are $150,000. If fixed costs were to decrease 10% during the current year, contribution
margin would do what?
A) Impossible to determine with the given data B) Increase 10%
C) Decrease 10% D) Remain the same

11) A 15% increase in production will result in a 15% increase in:

A) the variable cost per unit. B) total variable costs.
C) total manufacturing costs. D) total mixed costs.

12) Which of the following is a characteristic of a variable cost?

A) Variable costs are variable per unit, and fixed in total.
B) Variable costs do not change in total over the relevant range.
C) Variable costs vary in total with production and sales.
D) All of the above are characteristics of variable costs.

13) Fairfield Company management has budgeted the following amounts for its next fiscal year:

Total fixed expenses $832,500

Sale price per unit $40
Variable expenses per unit $25

What will happen to the breakeven point in units if Fairfield can reduce fixed expenses by $22,500?
A) The breakeven point will decrease by 562 units.
B) The breakeven point will decrease by 900 units.
C) The breakeven point will increase by 562 units.
D) The breakeven point will decrease by 1,500 units.

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

14) Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in
the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change
next year. Fixed expenses are $150,000. If fixed costs were to increase 10% next year, and the new sales price
goes into effect, what is the breakeven point in units?
A) 9,429 units B) 22,000 units C) 7,333 units D) 7,858 units

15) Which of the following would explain why the margin of safety in dollars increased even though total

sales dollars did not change?

A) The sales price per unit increased B) The variable cost per unit increased
C) The breakeven point increased D) Fixed costs increased

16) The McPherson Company is facing an increase in the variable cost of producing and selling one of its products
for the upcoming year. As a result, the sales manager has made a proposal to increase the selling price of the
product while increasing the advertising budget at the same time. McPherson has provided the following
information regarding the current year results and the proposal made by the sales manager:

Current Year Proposal

Unit sales 27,000 18,000
Sales price per unit $48 $58
Variable cost per unit $30 $36
Fixed costs $76,000 $96,000

Relative to the current year, the sales manager’s proposal will:

A) increase contribution margin by $90,000. B) decrease the unit breakeven point.
C) decrease operating income by $90,000. D) decrease operating income by $110,000.

17) Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The breakeven
point in units is 3,000 and budgeted sales in units are 4,300. What is the margin of safety in dollars?
A) $4,500 B) $1,950 C) $2,580 D) $780

18) Which of the following costs changes in direct proportion to a change in volume?
A) Average variable cost B) Total variable cost
C) Average mixed cost D) Total fixed cost

19) Fairfield Company management has budgeted the following amounts for its next fiscal year:

Total fixed expenses $832,500

Sale price per unit $40
Variable expenses per unit $25

If Fairfield Company spends an additional $30,000 on advertising, sales volume should increase by 2,500 units.
What effect will this decision have an operating income?
A) Operating income will decrease $62,500. B) Operating income will increase $7,500.
C) Operating income will increase $37,500. D) Operating income will increase $70,000

20) Marino Company's average manufacturing cost was $5.40 when 50,000 units were manufactured and was $5.25
when 80,000 units were manufactured. How much was Marino's variable cost per unit?
A) $5.00 B) $5.32 C) $5.40 D) $5.25

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

21) Which of the following statements is correct if both fixed expenses and sale price increase while variable costs
per unit are unchanged?
A) The breakeven point remains unchanged.
B) The breakeven point could increase, decrease, or remain the same.
C) The breakeven point increases.
D) The breakeven point decreases.

22) The contribution margin is:

A) sales revenues minus variable expenses. B) sales revenues minus manufacturing expenses.
C) gross margin minus variable expenses. D) gross margin minus operating expenses.

23) Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in
the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change
next year. Fixed expenses are $150,000. What is the breakeven point in units at the current sales price?
A) 20,000 units B) 8,572 units C) 10,650 units D) 6,667 units

24) The long distance company that you use charges $5.00 per month and $0.10 per minute per call. If your current
bill is $25.00, how many minutes did you use?
A) 200 minutes B) 150 minutes C) 250 minutes D) 100 minutes

25) Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in
the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change
next year. Fixed expenses are $150,000. What is the breakeven point in units at the anticipated sales price next
year?
A) 16,667 units B) 6,667 units C) 8,571 units D) 7,143 units

26) Which of the following statements is NOT correct?

A) The breakeven point increases and the margin of safety decreases when the contribution margin ratio
decreases.
B) The breakeven point decreases and the margin of safety increases when fixed costs decrease.
C) The breakeven point increases and the margin of safety decreases when fixed costs increase.
D) The breakeven point decreases and the margin of safety increases when the variable cost per unit
increases.

27) Which of the following statements is correct with respect to variable cost per unit, within the relevant range?
A) They will decrease as production decreases.
B) They will increase as production decreases.
C) They will remain the same as production levels change.
D) They will decrease as production increases.

28) Which of the following statements is NOT correct?

A) The breakeven point increases if variable costs increase.
B) The mixed cost per unit is constant throughout the relevant range of activity.
C) The margin of safety increases if fixed costs decrease.
D) The total fixed cost is constant throughout the relevant range of activity.

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

29) Fairfield Company management has budgeted the following amounts for its next fiscal year:

Total fixed expenses $832,500

Sale price per unit $40
Variable expenses per unit $25

If Fairfield Company can reduce fixed expenses by $41,625, by how much can variable expenses per unit
increase and still allow the company to maintain the original breakeven point in units?
A) $2.78 B) $0.25 C) $0.75 D) $0.53

30) Carrasco Corporation has a contribution margin ratio of 40% and annual fixed costs of $600,000. The sales
manager has proposed that one additional sales person be hired at a salary of $50,000 annually. How much
would sales have to increase to justify hiring the additional sales person?
A) $83,333 B) $100,000 C) $125,000 D) $50,000

31) Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is $10, unit
variable costs are $7, and total fixed costs are $3,300. How many dog treats must Canine Company sell to
breakeven?
A) 194 B) 471 C) 330 D) 1,100

32) Which of the following statements is correct with respect to fixed costs per unit?
A) They will remain the same as production levels change.
B) They will decrease as production decreases.
C) They will increase as production increases.
D) They will increase as production decreases.

33) Which of the following statements is correct?

A) The contribution margin income statement can be used for external reporting purposes.
B) The contribution margin equals gross profit for most all firms.
C) If a company has a positive contribution margin, its operating income will also be positive.
D) The contribution margin income statement is relevant for managing a business operation.

34) Leggins Company sells two products, X and Y. Product X sells for $20 per unit with variable costs of $15.
Product Y sells for $24 with variable costs of $20. Total fixed costs for the company are $38,000. Leggins
Company typically sells three units of Product X for every unit of Product Y. What is the breakeven point in
total units?
A) 6,333 units B) 6,000 units C) 8,000 units D) 2,000 units

35) Dakota Company provides the following information about its single product:

Targeted operating income $40,000

Selling price per unit $3.50
Variable cost per unit $1.05
Total fixed costs $90,000

What is the contribution margin ratio?

A) 0.44 B) 0.70 C) 0.56 D) 0.39

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

36) If total fixed costs are $95,000, contribution margin per unit is $8.00, and targeted operating income is $30,000,
how many units must be sold to breakeven?
A) 8,125 B) 5,625 C) 3,750 D) 11,875

37) Which of the following changes would normally increase the contribution margin per unit the most?
A) A 25% decrease in the variable cost per unit B) A 25% increase in the sales price per unit
C) A 25% increase in the variable cost per unit D) A 20% decrease in fixed costs

38) Which of the following will decrease the breakeven point assuming no other changes in the cost- volume- profit
relationship?
A) A decrease in the sales price per unit B) An increase in total fixed costs
C) An increase in the variable costs per unit D) An increase in the sales price per unit

39) Which of the following statements is correct if the variable cost per unit increases while the sale price per unit
and total fixed costs remain constant?
A) The breakeven point remains the same. B) The contribution margin increases.
C) The breakeven point decreases. D) The breakeven point increases.

40) 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) Volume is the only cost driver.
C) Inventory levels are constantly changing.
D) The sales mix of products is constantly changing.

41) The Hawk Company reported sales of $960,000, a contribution margin ratio of 30%, a variable cost of $210 per
unit, and fixed costs totaling $270,000. What was the breakeven point in units?
A) 1,372 B) 386 C) 3,000 D) 1,286

42) If the sales price per unit is $8.50, the variable expenses per unit is $6.75, and the breakeven point in sales
dollars is $331,500, what are total fixed costs?
A) $39,000 B) $68,250 C) $22,286 D) $26,325

43) Which of the following statements is correct if total fixed costs decrease while the sales price per unit and
variable costs per unit remain constant?
A) The breakeven point decreases. B) The contribution margin decreases.
C) The contribution margin increases. D) The breakeven point increases.

44) On a CVP graph, what does the horizontal line intersecting the dollar axis at the level of total cost represent?
A) Breakeven point B) Total fixed costs
C) Total costs D) Total variable costs

45) Which of the following statements is correct with respect to total variable costs, within the relevant range?
A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will increase as production decreases.
D) They will decrease as production decreases.

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

46) An electric bill for corporate headquarters is an example of what type of cost?
A) Fixed cost B) Mixed cost C) Conversion cost D) Variable cost

47) If the sales price per unit is $7, the unit contribution margin is $3, and total fixed expenses are $19,500, what is
the breakeven point in units?
A) 4,875 B) 2,786 C) 5,850 D) 6,500

48) Fixed Company produces a single product selling for $30 per unit. Variable costs are $12 per unit and total
fixed costs are $4,000. What is the contribution margin ratio?
A) 2.50 B) 0.40 C) 1.67 D) 0.60

49) The Prentice Corporation has provided the following information pertaining to its most recent year of
operations:

Margin of safety $250,000

Contribution margin ratio 40%
Fixed costs $50,000

How much were Prentice’s total sales during the most recent year?
A) $750,000 B) $500,000 C) $375,000 D) $625,000

50) On a CVP graph, the intersection of the sales line and the total cost line is known as the:
A) breakeven point. B) total cost point.
C) margin of safety point. D) unit contribution margin.

51) Pennell Company gathered the following information for the year ended December 31, 2009:

Fixed Costs:
Manufacturing $165,000
Marketing $52,000
Administrative $24,000
Variable costs:
Manufacturing $113,000
Marketing $39,000
Administrative $48,000

During the year, Pennell produced and sold 75,000 units of product at a sale price of $6.50 per unit. What is the
contribution margin?
A) $246,500 B) $209,500 C) $287,500 D) $122,500

52) The Pearson Company has a contribution margin ratio of 25%. Pearson's operating income was $100,000 when
sales totaled $1,000,000. What were Pearson's fixed expenses?
A) $150,000 B) $250,000 C) $225,000 D) $350,000

53) Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $3,000, occurred
in July when she washed 2,000 dogs and her lowest bill, $2,000, occurred in November when she washed 1,000
dogs. What was the variable cost per dog wash associated with Jenny's water bill?
A) $2.00 B) $.67 C) $0.50 D) $1.00

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

54) If the sale price per unit is $24.50, the variable expense per unit is $17, and total fixed expenses are $324,000,
what is the breakeven point in sales dollars?
A) $1,058,400 B) $734,400 C) $466,946 D) $224,808

55) Which of the following statements is correct with respect to total fixed costs, within the relevant range?
A) They will decrease as production decreases.
B) They will remain the same as production levels change.
C) They will increase as production decreases.
D) They will decrease as production increases.

56) In a CVP graph, what does the line which begins at the lower left corner represent?
A) Total sales revenue
B) Total fixed cost
C) Total variable cost
D) Both the total variable cost and the total sales revenue

57) If the sales price per unit is $32, total fixed expenses are $45,000 and the breakeven sales in dollars is $180,000,
what is the variable expense per unit?
A) $8.00 B) $24.00 C) $4.20 D) $4.00

58) Which of the following is NOT a fixed cost?

A) Indirect materials B) Salary of plant manager
C) Property taxes D) Straight- line depreciation

59) During the most recent year, RDJ Company reported sales of $1,200,000, variable expenses of $720,000, and a
margin of safety of $450,000. How much were RDJ's fixed expenses?
A) $48,000 B) $27,000 C) $30,000 D) $18,000

60) Which of the following will result in an increase in the breakeven point, a decrease in the margin of safety, and a
decrease in the contribution margin per unit?
A) An increase in the selling price per unit.
B) An increase in the unit cost of direct materials.
C) A decrease in the hourly wage paid to direct laborers.
D) A decrease in fixed costs.

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

Answer Key
Testname: UNTITLED1

1) B
2) A
3) B
4) D
5) D
6) B
7) B
8) D
9) B
10) D
11) B
12) C
13) D
14) D
15) A
16) D
17) B
18) B
19) B
20) A
21) B
22) A
23) B
24) A
25) D
26) D
27) C
28) B
29) C
30) C
31) D
32) D
33) D
34) C
35) B
36) D
37) B
38) D
39) D
40) B
41) C
42) B
43) A
44) B
45) D
46) B
47) D
48) D
49) C
50) A
9

Downloaded by Di?u Linh Lê Th? ([email protected])

 lOMoARcPSD|19404562

Answer Key
Testname: UNTITLED1

51) C
52) A
53) D
54) A
55) B
56) A
57) B
58) A
59) C
60) B

10

Downloaded by Di?u Linh Lê Th? ([email protected])