Managerial Accounting

Section 6- Level 4
 Ch2: Cost – Volume – Profit Relationships

Multiple Choice Questions

1. Winger Corp. sells a product for $5 per unit. The fixed expenses are $210,000
and the unit variable expenses are 60% of the selling price. What sales would
be necessary in order for Winger Corp. to realize a profit of 10% of sales?
A) $700,000
B) $525,000
C) $472,500
D) $420,000

2. How much will a company's net operating income change if it undertakes an

advertising campaign given the following data:
Cost of advertising campaign ...................................... $25,000
Variable expense as a percentage of sales ................... 42%
Increase in sales ........................................................... $60,000
A) $200 increase
B) $25,200 increase
C) $15,000 increase
D) $9,800 increase

3. Sun Company's tentative budget for next year is as follows:

Sales ........................................................... $600,000
Variable expenses ...................................... 360,000
Fixed expenses:
Manufacturing ........................................ 90,000
Selling and administrative ...................... 110,000
Net operating income ............................. $40,000
Mr. Johnston, the marketing manager, has proposed an aggressive advertising
campaign costing an additional $50,000 that he predicts will result in a 30%
unit sales increase. Assuming that Johnston's proposal is incorporated into the
budget, what should be the increase in the budgeted net operating income for
next year?
A) $12,000 B) $22,000
C) $72,000 D) $130,000

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4. Frank Company manufacturers a single product that has a selling price of
$20.00 per unit. Fixed expenses total $45,000 per year, and the company must
sell 5,000 units to break even. If the company has a target profit of $13,500,
sales in units must be:
A) 6,000
B) 5,750
C) 6,500
D) 7,925

5. Spencer Company expects to sell 60,000 units next year. Variable production
costs are$4 per unit, and variable selling costs are 10% of the selling price.
Fixed expenses are $115,000 per year, and the company has set a target profit
of $50,000. Based on this information, the unit selling price should be:
A) $7.00
B) $10.75
C) $7.50
D) $6.75

6. Company X sold 25,000 units of product last year. The contribution margin per
unit was $2, and fixed expenses totaled $40,000 for the year. This year fixed
expenses are expected to increase to $45,000, but the contribution margin per
unit will remain unchanged at $2. How many units must be sold this year to
earn the same net operating income as was earned last year:
A) 22,500
B) 27,500
C) 35,000
D) 2,500

7. A product sells for $10 per unit and has variable expenses of $6 per unit. Fixed
expenses total $45,000 per month. How many units of the product must be
sold each month to yield a monthly profit of $15,000?
A) 6,000 units
B) 3,750 units
C) 15,000 units
D) 10,000 units

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 Use the following to answer questions 8-10:
A tile manufacturer has supplied the following data:
Boxes of tiles produced and sold ............................. 580,000
Sales revenue ............................................................ $2,842,000
Variable manufacturing expense .............................. 1,653,000
Fixed manufacturing expense .................................. 784,000
Variable selling and administrative expense ............ 145,000
Fixed selling and administrative expense ................ 128,000
Net operating income ............................................... $132,000
8. What is the company's unit contribution margin?
A) $0.23
B) $4.90
C) $3.10
D) $1.80

9. The company's contribution margin ratio is closest to:

A) 29.4%
B) 4.7%
C) 63.3%
D) 36.7%

10.If the company increases its unit sales volume by 5% without increasing its
fixed expenses, then total net operating income should be closest to:
A) $6,600
B) $184,200
C) $134,422
D) $138,600

Use the following to answer questions 11-14:

Holger Incorporated, which produces and sells a single product, has provided
the following data:
Sales .................................. 2,000 units
Selling price ...................... $60 per unit
Variable expense ............... $40 per unit
Fixed expense .................... $20,000
Consider each of the following questions independently.

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11.If the dollar contribution margin per unit is increased by 10% and if total fixed
expense is decreased by 20%, net operating income is expected to:
A) increase by $2,000
B) increase by $12,000
C) increase by $8,000
D) increase by $16,000

12.If the sales volume decreases by 25% and the variable expense per unit
increases by 15%, net operating income is expected to:
A) decrease by $19,000
B) decrease by $1,000
C) increase by $1,750
D) decrease by $15,000

13.If the company's fixed expenses increased by $8,000, how many units must be
sold to reach a target net operating income of $36,000:
A) 1,400 units
B) 2,200 units
C) 2,400 units
D) 3,200 units

14.If the company's sales volume in units decreases by 30%, and if it desires a
targeted net operating income of $29,000, then the selling price should be:
A) $58.85
B) $60.75
C) $64.50
D) $75.00

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 Answers
Item Ans. Item Ans.
1. A 11. C
2. D 12. A
3. B 13. D
4. C 14. D
5. C
6. B
7. C
8. D
9. D
10. B

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