Test Bank Practice

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21. Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management make operating decisions. Which of the following does not represent a potential use of CVP analysis?

A. Ability to compute the break-even point.

B. Ability to determine optimal sales volumes.

C. Aids in evaluating tax planning alternatives.

D. Aids in determining optimal pricing policies.

C. Aids in evaluating tax planning alternatives.

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22. Which of the following would not cause the break-even point to change?

A. Sales price increases.

B. Fixed cost decreases.

C. Sales volume decreases.

D. Variable costs per unit increases.

E. Product mix shifts towards the cheaper products.

C. Sales volume decreases.

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23. If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point respectively?

A. a

B. b

C. c

D. d

B. b (Increased/Decreased)

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24. The Blue Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Blue increases its selling price by 10%, its variable cost ratio will

A. not change

B. decrease

C. increase

B. decrease

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25. Expense A is a fixed cost expense, B is a variable cost. During the current year the volume of output has decreased. In terms of cost per unit of output, we would expect that

A. expense A has remained unchanged.

B. expense B has decreased.

C. expense A has decreased.

D. expense B has remained unchanged.

D. expense B has remained unchanged.

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26. If both the variable cost per unit and the selling price per unit decrease, the new contribution margin ratio in relation to the old contribution margin ratio will be:

A. Lower.

B. Higher.

C. Unchanged.

D. Not enough information to tell.

D. Not enough information to tell.

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27. A company's break-even point will not be increased by:

A. an increase in total fixed costs.

B. a decrease in the selling price per unit.

C. an increase in the variable cost per unit.

D. a decrease in the contribution margin ratio.

E. an increase in the number of units produced and sold.

E. an increase in the number of units produced and sold.

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28. Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars)?

A. Sales price increases by 10%.

B. Sales price decreases by 5%.

C. Variable costs increase by 10% and fixed costs decrease by 5%.

D. Variable costs decrease by 5% and fixed costs increase by 10%.

A. Sales price increases by 10%.

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29. Operating leverage refers to the extent to which an organization's cost structure is made up of:

A. differential costs.

B. opportunity costs.

C. fixed costs.

D. relevant costs.

E. product costs.

C. fixed costs.

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30. A decrease in the margin of safety would be caused by a(n):

A. increase in the total fixed costs.

B. increase in total revenue (sales).

C. decrease in the break-even point.

D. decrease in the variable cost per unit.

A. increase in the total fixed costs.

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31. At a break-even point of 400 units, variable costs were $400 and fixed costs were $200. What will the 401st unit sold contribute to operating profits before income taxes?

A. $.50

B. $1.00

C. $1.50

D. $2.00

A. $.50

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32. Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

The break-even point (rounded to the nearest dollar) for Barnes Corporation for the current year is

A. $146,341.

B. $636,364.

C. $729,730.

D. $181,818.

E. $658,537.

B. $636,364.

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33. Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

For the coming year, the management of Barnes Corporation anticipates a 10 percent increase in sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed expenses.

The break-even point for next year would be

A. $729,027.

B. $862,103.

C. $214,018.

D. $474,000.

E. $700,000.

A. $729,027.

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34. You have been provided with the following information:

If sales decrease by 500 units, how much will fixed expenses have to be reduced by to maintain the current operating profit of $6,000?

A. $9,000.

B. $7,500.

C. $6,000.

D. $3,000.

D. $3,000.

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35. XYZ Company's sales are $750,000 with operating profits of $130,000. If the contribution margin ratio is 40%, what did the fixed costs amount to?

A. $370,000.

B. $300,000.

C. $270,000.

D. $170,000.

E. $130,000.

D. $170,000.

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36. The following costs have been estimated based on sales of 30,000 units:

What selling price will yield a contribution margin of 40%?

A. $59.38

B. $43.75

C. $39.58

D. $33.25

C. $39.58

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37. Fowler Manufacturing Company has a fixed cost of $225,000 for the production of tubes. Estimated sales are 150,000 units. A before tax profit of $125,000 is desired by the controller. If the tubes sell for $5 each, what unit contribution margin is required to attain the profit target?

A. $3.00.

B. $2.33.

C. $1.47.

D. $.90.

B. $2.33.

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38. JJ Motors Inc. employs 45 sales personnel to market their line of luxury automobiles. The average car sells for $23,000, and a 6 percent commission is paid to the salesperson. JJ Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2 percent of the sales made by that salesperson. The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is

A. $2,250,000.

B. $3,000,000.

C. $1,500,000.

D. $1,250,000.

E. $4,500,000.

A. $2,250,000.

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39. Given the following information:

What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?

A. $1,750.

B. $1,550.

C. $1,250.

D. $1,375.

D. $1,375.

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40. Given the following data:

If sales decrease by 500 units, by what % would fixed expenses have to be reduced by to maintain current net income?

A. 50.0%.

B. 33.3%.

C. 25.0%.

D. 16.7%.

C. 25.0%.

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41. The Dooley Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year:

How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used and the sales mix will remain constant?

A. 9,900

B. 8,800

C. 6,600

D. 5,000

E. 3,300

C. 6,600

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42. Breakeven analysis assumes that over the relevant range (CPA adapted):

A. Total Fixed Costs are nonlinear.

B. Total Costs are unchanged.

C. Unit Variable Costs are unchanged.

D. Unit Revenues are nonlinear.

C. Unit Variable Costs are unchanged.

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43. At the break-even point the total contribution margin equals total: (CPA adapted)

A. Variable costs

B. Sales revenues

C. Selling and administrative costs

D. Fixed costs

D. Fixed costs

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44. On January 1, 2006, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted break-even point and budgeted margin of safety? (CPA adapted)

A. a

B. b

C. c

D. d

B. b (Increase/Decrease)

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45. During 2006, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit before income taxes of $200,000. Due to an adverse legal decision, Thor's 2007 liability insurance increased by $1,200,000 over 2006. Assuming the volume and other costs are unchanged, what should the 2007 price be if Thor is to make the same $200,000 profit before income taxes? (CPA adapted)

A. $122.50

B. $135.00

C. $152.50

D. $240.00

B. $135.00

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46. The following information pertains to Syl Co.:

What is Syl's break-even point in sales dollars? (CPA adapted)

A. $200,000

B. $160,000

C. $50,000

D. $40,000

C. $50,000

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47. The following pertains to Clove Co. for the year ending December 31, 2008:

Clove's margin of safety is: (CPA adapted)

A. $300,000

B. $400,000

C. $500,000

D. $800,000

A. $300,000

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48. Kator Inc. manufactures industrial components. One of its products used as a subcomponent in auto manufacturing is KB-96. The selling price and cost per unit data for 9,000 units of KB-96 is as follows.

During the next year, sales of KB-96 are expected to be 10,000 units. All costs will remain the same except for fixed manufacturing overhead, which will increase 20%, and material, which will increase 10%. The selling price per unit for next year will be $160. Based on this data, Kator Inc.'s total contribution margin for next year will be: (CMA adapted)

A. $882,000

B. $980,000

C. $972,000

D. $1,080,000

D. $1,080,000

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Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted)

• The sales price of the T-shirts will be $9

• Variable cost to manufacture will increase by one-third

• Fixed costs will increase by 10%

• The income tax rate of 40% will be unchanged.

49. The selling price that would maintain the same contribution margin ratio as last year is

A. $9.00.

B. $8.25.

C. $10.00.

D. $9.50.

C. $10.00.

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50. The number of T-shirts Donnelly Corporation must sell to break even in the coming year is

A. 17,000 units.

B. 19,250 units.

C. 20,000 units.

D. 22,000 units.

B. 19,250 units.

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51. Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Donnelly's sales volume in the coming year will be

A. 22,600 units.

B. 21,960 units.

C. 23,400 units.

D. 21,000 units.

A. 22,600 units.

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52. If Donnelly Corporation wishes to earn $22,500 in after tax net income for the coming year, the company's sales volume in dollars must be

A. $213,750.

B. $257,625.

C. $207,000.

D. $229,500.

D. $229,500.

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53. Sanfran has the following data:

How many units must Sanfran produce and sell in order to break-even?

A. 8,333 units

B. 12,500 units

C. 15,000 units

D. 22,500 units

D. 22,500 units

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54. Sanfran has the following data:

How many units must Sanfran produce and sell in order to achieve a profit of $30,000 per month?

A. 10,000 units

B. 8,824 units

C. 25,000 units

D. 15,000 units

C. 25,000 units

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55. Sanfran has the following data:

If Sanfran produces and sells 30,000 units, what is the margin of safety?

A. 5,000 units

B. 7,500 units

C. 22,500 units

D. 30,000 units

B. 7,500 units

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56. RedTail Mfg has the following data:

What dollar sales volume does RedTail need to break-even?

A. $822,222

B. $833,333

C. $900,000

D. $1,233,333

D. $1,233,333

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57. RedTail Mfg has the following data:

What dollar sales volume does RedTail need to achieve a $50,000 operating profit per month?

A. $1,400,000

B. $7,560,000

C. $933,333

D. $1,233,333

A. $1,400,000

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58. RedTail Mfg has the following data:

If RedTail has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month, what is the margin of safety?

A. $100,000

B. $266,667

C. $50,000

D. $1,130,000

B. $266,667

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59. KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is KR's break-even sales volume?

A. $800,000

B. $1,000,000

C. $1,200,000

D. $2,000,000

B. $1,000,000

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60. KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What sales volume does KR's need to yield a $200,000 operating profit?

A. $1,000,000

B. $1,200,000

C. $1,500,000

D. $2,000,000

C. $1,500,000

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61. KR Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. What is KR's margin of safety?

A. $200,000

B. $300,000

C. $500,000

D. Cannot determine with the information given.

A. $200,000

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62. Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. At what sales volume would the two stores have equal profits?

A. $250,000

B. $325,000

C. $361,111

D. Cannot determine with the information given.

A. $250,000

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63. Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store B?

A. $666,667

B. $325,000

C. $285,714

D. Cannot determine with the information given.

C. $285,714

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64. Acme Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. What is the break-even sales volume for Store A?

A. $208,333

B. $312,500

C. $325,000

D. Cannot determine with the information given.

B. $312,500

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65. Genco Sales has two store locations. Carslberg has fixed costs of $250,000 per month and a contribution margin ratio of 35%. Tuborg has fixed costs of $400,000 per month and a contribution margin ratio of 65%. At what sales volume would the two stores have equal profits?

A. $500,000

B. $650,000

C. $1,300,000

D. Cannot determine with the information given.

A. $500,000

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66. Which of the following would not cause the break-even point to change?

A. Sales price increases.

B. Sales volume increases.

C. Fixed cost increases.

D. Variable costs per unit decreases.

E. Product mix shifts towards the cheaper products.

B. Sales volume increases.

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67. Which of the following would not cause the break-even point to change?

A. Variable costs per unit increases.

B. Fixed costs increases.

C. Product mix shifts towards the more expensive products.

D. Sales volume decreases.

D. Sales volume decreases.

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68. If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars) increase, what will be the effect on the contribution margin ratio and the break-even point respectively?

A. a

B. b

C. c

D. d

A. a (decreased/Increased)

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69. A company's break-even point will not be increased by:

A. an increase in the number of units produced and sold.

B. a decrease in the selling price per unit.

C. an increase in the variable cost per unit.

D. an increase in the variable cost ratio.

E. an increase in total fixed costs.

A. an increase in the number of units produced and sold.

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70. A company's break-even point will not be changed by:

A. a change in total fixed costs.

B. a change in the selling price per unit.

C. a change in the variable cost per unit.

D. a change in the contribution margin ratio.

E. a change in the income tax rate.

E. a change in the income tax rate.

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71. A company's break-even point will not be changed by:

A. a change in total fixed costs.

B. a change in the number of units produced and sold.

C. a change in the variable cost ratio.

D. a change in the contribution margin ratio.

E. a change in the product mix.

B. a change in the number of units produced and sold.

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72. If both the variable cost per unit and the selling price per unit increase, the new contribution margin ratio in relation to the old contribution margin ratio will be:

A. Lower.

B. Higher.

C. Unchanged.

D. Not enough information to tell.

D. Not enough information to tell.

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73. Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

The contribution margin ratio for the current year is

A. 53.6%

B. 49.3%

C. 46.4%

D. 25%

B. 49.3%

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74. Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

The break-even point (rounded to the nearest dollar) for Misa Corporation for the current year is

A. $2,625,000.

B. $1,865,672.

C. $1,724,138.

D. $2,155,172.

C. $1,724,138.

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75. Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

For the coming year, the management of Misa Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed expenses.

The operating profit for next year would be

A. $477,500.

B. $492,500.

C. $552,500.

D. $831,250.

A. $477,500.

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76. Misa Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

For the coming year, the management of Misa Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed expenses.

The break-even point for next year would be

A. $3,022,500.

B. $2,947,500.

C. $2,668,750.

D. $2,168,225

D. $2,168,225.

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77. You have been provided with the following information:

If unit sales decrease by 10%, how much will fixed expenses have to be reduced by to maintain the current operating profit?

A. $12,000.

B. $4,500.

C. $6,000.

D. $1,800.

D. $1,800.

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78. You have been provided with the following information:

If sales decrease by 10%, what level of fixed expenses will maintain the current operating profit?

A. $12,000.

B. $20,400.

C. $21,600.

D. $24,000.

B. $20,400.

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79. You have been provided with the following information:

If sales increase by 10%, what level of fixed expenses will yield a 20% increase in profits?

A. $14,400.

B. $19,200.

C. $25,200.

D. $26,400.

C. $25,200.

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80. EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is EM's break-even sales volume?

A. $660,000

B. $1,540,000

C. $1,600,000

D. $2,020,000

C. $1,600,000

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81. EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What sales volume does EM's need to yield a $240,000 operating profit?

A. $600,000

B. $2,020,000

C. $2,400,000

D. $2,440,000

C. $2,400,000

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82. EM Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. What is EM's margin of safety?

A. $480,000

B. $600,000

C. $2,020,000

D. Cannot determine with the information given.

B. $600,000

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83. Kanmore produces and sells three products. Last month's results are as follows:

Fixed costs total $200,000. What is Kanmore's break-even sales volume? (Assume the current product mix)

A. $500,000

B. $416,667

C. $384,615

D. $460,000

B. $416,667

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84. Kanmore produces and sells three products. Last month's results are as follows:

Fixed costs total $200,000. What is Kanmore's margin of safety? (Assume the current product mix)

A. $83,333

B. $40,000

C. $460,000

D. $115,385

A. $83,333