Assignment #4 - CVP

The break-even point is the point where total costs equal sales revenues.

Answer: True

The term net income is used to mean operating income before income taxes.

Answer: False

To earn a target profit, total costs plus the amount of target profit must equal total sales revenue.

Answer: True

Units to earn target profit equal total fixed costs plus target profit divided by the contribution
margin ratio.

Answer: False

Sales revenue to earn target profits equals total fixed costs plus target profit divided by the
contribution margin.

Answer: False

Income taxes are generally calculated as a percentage of income.

Answer: True

Increased sales of high contribution margin products increase the break-even point.

Answer: False

The cost-volume-profit graph portrays the relationship between profits and sales volume.

Answer: False

CVP analysis is a short-run decision-making tool since some costs are fixed.

Answer: True

Uncertainty regarding costs, prices, and sales mix affect the break-even point.

Answer: True

Sensitivity analysis is a what-if technique that examines the impact of changes in assumptions.

Answer: True
The point of zero profit is called the:

Answer: Break-even point

Which of the following formulas is used to calculate break-even point in units?

Answer: Break-even point in units = Total fixed costs / (Price − Unit variable cost)

Which of the following formulas is used to compute operating income?

Answer: Operating income = Sales revenues − Variable expenses − Fixed expenses

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent
and total fixed costs of $6,875. What is the break-even point in units for Biscuit Company?

Answer: 250 units

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 55 percent
and total fixed costs of $6,875. How many units must be sold in order to obtain a before-tax
profit of $12,000?

Answer: 839 units

Biscuit Company sells its product for $50. In addition, it has a variable cost ratio of 45 percent
and total fixed costs of $6,875. What is the break-even point in sales dollars for Biscuit
Company?

Answer: $12,500

Total contribution margin is calculated by subtracting

Answer: total variable costs from total revenues.

Which of the following items would NOT be considered in cost-volume-profit analysis?

Answer: Gross profit margin

The contribution margin at the break-even point

Answer: equals total fixed costs.

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000
Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the break-even point in units for Cumberland?

Answer: 50,000 units

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the variable cost per unit for Cumberland?

Answer: $1.25

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000
What is the variable product cost per unit for Cumberland?

Answer: $0.85

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the contribution margin per unit for Cumberland?

Answer: $1.25

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the contribution margin ratio for Cumberland?

Answer: 0.50

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000
Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the total contribution margin for Cumberland?

Answer: $312,500

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000

What is the operating income for Cumberland?

Answer: $250,000

The Cumberland Company provides the following information:

Sales (250,000 units) $625,000

Manufacturing costs:  
Variable 212,500
Fixed 37,500
Selling and administrative costs:  
Variable 100,000
Fixed 25,000
What is the break-even point in sales dollars for Cumberland?

Answer: $125,000

The income statement for Symbiosis Manufacturing Company for the current year is as follows:

Sales (10,000 units) $120,000

Variable expenses 72,000
Contribution margin $48,000
Fixed expenses 36,000
Operating income $12,000

What is the contribution margin per unit?

Answer: $4.80

Summersville Production Company had the following projected information for the current year:

Selling price per unit $150

Variable cost per unit $90
Total fixed costs $300,000

What is the break-even point in units?

Answer: 5,000 units

Summersville Production Company had the following projected information for the current year:

Selling price per unit $150

Variable cost per unit $90
Total fixed costs $300,000

What is the profit when one unit more than the break-even point is sold?
Answer: $60

Summersville Production Company had the following projected information for the current year:

Selling price per unit $150

Variable cost per unit $90
Total fixed costs $300,000

What is the contribution margin ratio?

Answer: 0.400

Summersville Production Company had the following projected information for the current year:

Selling price per unit $150

Variable cost per unit $90
Total fixed costs $300,000

What level of sales dollars is needed to obtain a target before-tax profit of $75,000?

Answer: $937,500

The DesMaris Company had the following income statement for the month of November 2018:

DesMaris Company
Income Statement
For the Month of November 2018
Sales ($60 × 10,000)   $600,000
Cost of goods sold:    
Direct materials ($12 × 10,000) $120,000  
Direct labor ($9 × 10,000) 90,000  
Variable factory overhead ($7.50 × 10,000) 75,000  
Fixed factory overhead 120,000 405,000
Gross profit   $195,000
Selling and administrative expenses:    
Variable ($1.50 × 10,000) $15,000  
Fixed 90,000 105,000
Operating income   $90,000

DesMaris Company's break-even sales volume is

Answer: 7,000 units

The DesMaris Company had the following income statement for the month of November 2018:

DesMaris Company
Income Statement
For the Month of November 2018
Sales ($60 × 10,000)   $600,000
Cost of goods sold:    
Direct materials ($12 × 10,000) $120,000  
Direct labor ($9 × 10,000) 90,000  
Variable factory overhead ($7.50 × 10,000) 75,000  
Fixed factory overhead 120,000 405,000
Gross profit   $195,000
Selling and administrative expenses:    
Variable ($1.50 × 10,000) $15,000  
Fixed 90,000 105,000
Operating income   $90,000

What is the sales volume required to earn an operating profit of $9,000?

Answer: 7,300 units

Assume the following information:

Selling price per unit $180

Contribution margin ratio 48%
Total fixed costs $270,000

How many units must be sold to generate a before-tax profit of $54,000?

Answer: 3,750 units

Jamie Quinn, a sole proprietor, has the following projected figures for next year:

Selling price per unit $150.00

Contribution margin per unit $45.00
Total fixed costs $630,000

How many units must be sold to obtain a target before-tax profit of $270,000?

Answer: 20,000 units

Jamie Quinn, a sole proprietor, has the following projected figures for next year:

Selling price per unit $150.00

Contribution margin per unit $45.00
Total fixed costs $630,000

What is the contribution margin ratio?

Answer: 0.300

Jamie Quinn, a sole proprietor, has the following projected figures for next year:

Selling price per unit $150.00

Contribution margin per unit $45.00
Total fixed costs $630,000

What is the break-even point in dollars?

Answer: $2,100,000
The income statement for Symbiosis Manufacturing Company for 2018 is as follows:

Sales (10,000 units) $120,000

Variable expenses 72,000
Contribution margin $48,000
Fixed expenses 36,000
Operating income $12,000

What is the contribution margin ratio?

Answer: 40%

Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis?

Answer: the identification of price and efficiency variances

In 2018, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000,
and a net loss of $4,500.

Samantha's 2018 break-even sales volume was

Answer: $54,000

Assume the following information:

Variable cost ratio 80%

Total fixed costs $60,000

What volume of sales dollars is needed to break even?

Answer: $300,000

Which of the following equations is TRUE?

Contribution margin ratio = 1 − Variable cost ratio

Emerald Printing Company projected the following information for next year:

Selling price per unit $60.00

Contribution margin per unit $45.00
Total fixed costs $150,000
Tax rate 30%

What is the break-even point in dollars?

Answer: $200,000

In the cost-volume-profit analysis, income taxes

Answer: increase the sales volume required to earn a desired profit.

Multiple-product break-even analysis requires a constant sales mix, which is difficult to predict
with certainty.

Answer: True

Hologram Printing Company projected the following information for next year:

Selling price per unit $75.00

Contribution margin per unit $30.00
Total fixed costs $120,000
Tax rate 40%

How many units must be sold to obtain an after-tax profit of $67,500?

Answer: 7,750 units

Assume the following cost behavior data for Alpha Arts Company:

Sales price $20.00 per unit

Variable costs $15.00 per unit
Fixed costs $20,000  
Tax rate 30%  

What volume of sales dollars is required to earn a before-tax income of $25,000?

Answer: $180,000

Assume the following cost behavior data for Graphic Arts Company:

Sales price $18.00 per unit

Variable costs $13.50 per unit
Fixed costs $22,500  
Tax rate 40%  

What volume of sales dollars is required to earn an after-tax income of $40,500?

Answer: $360,000