Week 6 Seatwork

Cost-Volume Profit (CVP) and Break-Even Analysis

Question 1
At the breakeven point, the contribution margin equals total
A. Variable costs.
B. Sales revenues.
C. Selling and administrative costs.
D. Fixed costs.
Question 2
The most likely strategy to reduce the breakeven point would be to
A. Increase both the fixed costs and the contribution margin.
B. Decrease both the fixed costs and the contribution margin.
C. Decrease the fixed costs and increase the contribution margin.
D. increase the fixed costs and decrease the contribution margin.
Question 3
Del Co. has fixed costs of $100,000 and breakeven sales of $800,000.
What is its projected profit at $1,200,000 sales?
A. $ 50,000
B. $150,000
C. $100,000
D. $400,000
Question 4
Associated Supply, Inc. is considering introducing a new product that will
require a $250,000 investment of capital. The necessary funds would be
raised through a bank loan at an interest rate of 8%. The fixed operating costs
associated with the product would be $122,500 while the contribution margin
percentage would be 42%. Assuming a selling price of $15 per unit, determine
the number of units (rounded to the nearest whole unit) Associated would
have to sell to generate earnings before interest and taxes (EBIT) of 32% of
the amount of capital invested in the new product.
A. 35,318 units.
B. 32,143 units.
C. 25,575 units.
D. 23,276 units.
Question 5
During 2010, 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 2011 liability insurance increased by $1,200,000 over 2010. Assuming
the volume and other costs are unchanged, what should the 2011 price be if
Thor is to make the same $200,000 profit before income taxes?
A. $120.00
B. $135.00
C. $150.00
D. $240.00
Question 6
Breakeven analysis assumes that over the relevant range.
A. Unit revenues are nonlinear.
B. Unit variable costs are unchanged.
C. Total costs are unchanged.
D. Total fixed costs are nonlinear.
Question 7
Thomas Company sells products X, Y, and Z. Thomas sells three units of
X for each unit of Z, and two units of Y for each unit of X. The
contribution margins are $1.00 per unit of X, $1.50 per unit of Y, and
$3.00 per unit of Z. Fixed costs are $600,000. How many units of X
would Thomas sell at the breakeven point?
A. 40,000
B. 120,000
C. 360,000
D. 400,000
Question 8
On January 1, 2011, Lake Co. increased its direct manufacturing labor
wage rates. All other budgeted costs and revenues were unchanged.
How did this increase affect Lake's budgeted breakeven point and
budgeted margin of safety?
Budgeted Breakeven point Budgeted margin of safety
A. Increase Increase
B. Increase Decrease
C. Decrease Decrease
D. Decrease Increase
Question 9
Product Colt has sales of $200,000, a contribution margin of 20%, and a
margin of safety of $80,000. What is the fixed cost?
A. $16,000
B. $24,000
C. $80,000
D. $96,000
Question 10
Which one of the following is an advantage of using variable costing?
A. Variable costing complies with the US Internal Revenue Code.
B. Variable costing complies with generally accepted accounting
principles.
C. Variable costing makes cost-volume relationships more easily
apparent.
D. Variable costing is most relevant to long-run pricing strategies.