Professional Documents
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Cost Section
Cost Section
No statement T/F
1 A company’s break-even point is the level where total revenues equal total costs. T
2 Variable costs per unit remain unchanged with levels of production. T
3 Total fixed costs remain unchanged with levels of production T
4 Total fixed costs vary inversely with levels of production F
5 Fixed costs per unit vary inversely with levels of production T
6 Fixed costs per unit remain constant with levels of production F
7 Break-even point may be expressed in terms of units or dollars T
8 Dividing total fixed costs by the contribution margin ratio yields break-even point in sales T
dollars
9 Dividing total fixed costs by the contribution margin ratio yields break-even point in units. F
10 After the break-even point is reached, each dollar of contribution margin is a dollar of before- F
tax profit.
11
25. The margin of safety is an effective measure of risk for a company. T
12
28. In CVP analysis, sales and production are assumed to be equal. T
Multiple Choice Questions
3. A Company sells a product for $7.50 whose variable cost is $2. 50 per unit. The
company needed to sell 20,000 shirts to break even. What was the company’s total
fixed costs?
a. $100,000 20000 = FX ÷ (7.5 – 2.25 ) so FX = 20000×5 = 105000
b. $150,000
c. $45,000
d. $3,810
4. Ayman Company manufactures a product that sells for $800 per unit. The unit
variable costs are $600 and total fixed costs are $6,600,000. The annual sales volume
required for W Company to break even is:
a. $26,400,000. ( 6600000 ÷ ( 800 – 600 ÷ 800))
b. $8,800,000.
c. $6,600,000.
d. None of the above.
1
5. CVP analysis requires costs to be categorized as
a. either fixed or variable.
b. fixed, mixed, or variable.
c. product or period.
6.
d. standard or actual.
6. With respect to fixed costs, CVP analysis assumes total fixed costs
a. per unit remain constant as volume changes.
b. remain constant from one period to the next.
c. vary directly with volume.
d. remain constant across changes in volume.
7.
COMPLETION
NO Statement Answer
The level of activity where a company’s total revenues equal total costs is break-even point
1 referred to as the ______________________________.
Contribution margin divided by revenue is referred to as the contribution
2 _______________________. margin ratio
The excess of budgeted or actual sales over sales at break-even point is margin of safety
3 referred to as _________________________________.
2
(1) During 2018, ayman company produced and sold 6,000 at $3 each (Sales $18,000).
Variable costs for the year totaled $10,800. Fixed costs 13,200. Determine the sales and
units sold that were needed to break-even ?.
Solution
Contribution margin = Sales $18,000 - Variable costs $10,800 = $7,200,
Contribution margin Per unit = $7,200 ÷ 6,000 = = $1.20
Break-even point (units) = $13,200 ÷ $1.20 = 11,000 units
Contribution margin ratio = $7,200 ÷ $18,000 = 40%
Break-even point (sales) = $13,200 ÷ 40% = $33,000 or 11000 × 3
(2) Azazy Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling
commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling
and administrative costs total $2,750.