TUTORIAL TEST 9

CVP analysis, Margin of safety, Multiple product

1. If contribution margin is positive?

A. Profit will occur
B. Both a profit and loss are possible
C. Profit will occur if the fixed expenses are greater than the contribution margin
D. A loss will occur if the contribution margin is greater than fixed expenses

2. A complete CVP graph will show that profit or loss at any level of sales is measured
by:
A. A vertical line between the fixed cost line and the x-axis
B. A horizontal line between the revenue line and the Y-axis
C. A vertical line between the total revenue line and the total expenses line
D. A horizontal line between the total revenue line and the total expenses line

3. At a volume of 15,000 units, Brazes reported sales revenues of $600,000, variable

costs of $225,000, and fixed costs of $120,000. The company's contribution margin per
unit is:
A. $17.
B. $25.
C. $47.
D. $55

4. Which of the following is the correct interpretation of a degree of operating leverage of

5?
A. Operating leverage of 5 means that sales can decrease by 5% before the firm's current
level of sales will hit the break-even point.
B. Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-
even point.
C. Operating leverage of 5 means that if sales increase by 5%, there will be a 25%
increase in the firm's pretax profit.
D. Operating leverage of 5 measures the degree of debt employed by the firm's debt
structure.

5. The impact on net operating income of any given dollar change in total sales can be
computed by applying which ratio to the dollar change?
A. Profit margin
B. Variable cost ratio
C. Contribution Margin
D. Ratio of Variable to Fixed Expenses

6. If the revenue is $15000, the total variable cost is $5000 and the fixed cost $2000 then
the operating income will be
A. $4,000
B. $8,000
C. $5,000
D. $3,000

7. A recent income statement of Fox Corporation reported the following data:

Sales revenue $3,600,000
Variable costs 1,600,000
Fixed costs 1,000,000
If these data are based on the sale of 10,000 units, the break-even point would be:
A. 2,000 units.
B. 2,778 units.
C. 3,600 units.
D. 5,000 units.

8. Lawton, Inc., sells a single product for $12. Variable costs are $8 per unit and fixed
costs total $360,000 at a volume level of 60,000 units. Assuming that fixed costs do not
change, Lawton's break-even point would be:
A. 30,000 units.
B. 45,000 units.
C. 90,000 units.
D. negative because the company loses $2 on every unit sold.

9. The following information is available for a company's utility cost for operating
its machines over the last four months.

Month Machine hours Utility cost

January 900 $ 5,450
February 1,800 $ 6,900
March 2,400 $ 8,100
April 600 $ 3,600

Using the high-low method, the estimated variable cost per machine hour for
utilities is:
A. $4.22.
B. $6.00.
C. $2.50.
D. $3.38.

10. Leeks Company's product has a contribution margin per unit of $11.25 and a
contribution margin ratio of 22.5%. What is the selling price of the product?
A. $50.
B. $20.
C. $30.
D. $5.

11. Ricco Co., makes and sells only one product. The unit contribution margin is $6 and
the break-even point in unit sales is 24,000. The company's fixed costs are:
A. $144,000.
B. $10,000.
C. $14,400.
D. $4,000.

12. Orion recently reported sales revenues of $800,000, a total contribution margin of
$300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the
company’s variable cost per unit must have been:
A. $12.
B. $32.
C. $50.
D. $92

13. Mullis Corp. manufactures DVDs that sell for $5.00. Fixed costs are $28,000 and
variable costs are $3.60 per unit. Mullis can buy a newer production machine that will
increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit.
What effect would the purchase of the new machine have on Mullis' break-even point in
units?
A) 4,444 unit increase.
B) No effect.
C) 5,714 unit increase.
D) 4,444 unit decrease.
14. Locus Company has total fixed costs of $112,000. Its product sells for $35 per unit
and variable costs amount to $25 per unit. Next year Locus Company wishes to earn a
pretax income that equals 10% of fixed costs. How many units must be sold to achieve
this target income level?
A. 12,320.
B. 8,214.
C. 11,200.
D. 1,120.

15. A recent income statement of Oslo Corporation reported the following data:
Units sold 8,000
Sales revenue $7,200,000
Variable costs $4,000,000
Fixed costs $1,600,000
If the company desired to earn a target net profit of $480,000, it would have to sell:
A. 1,200 units.
B. 2,800 units.
C. 4,000 units.
D. 5,200 units.

16. A recent income statement of Banks Corporation reported the following data:
Sales revenue $8,000,000
Variable costs 5,000,000
Fixed costs 2,200,000
If these data are based on the sale of 20,000 units, the contribution margin per unit would
be:
A. $40.
B. $150.
C. $290.
D. $360

17. A variable costing income statement is used for ________.

A. filing income tax returns
B. external reporting purposes
C. determining the amount of gross profit
D. internal decision-making purposes

18. Yellow, Inc., sells a single product for $10. Variable costs are $4 per unit and fixed
costs total $120,000 at a volume level of 10,000 units. What dollar sales level would
Yellow have to achieve to earn a target net profit of $240,000?
A. $400,000.
B. $500,000.
C. $600,000.
D. $750,000.

19. Archie sells a single product for $50. Variable costs are 60% of the selling price, and
the company has fixed costs that amount to $400,000. Current sales total 16,000 units.
Archie will:
A. will break-even by selling 8,000 units.
B. will break-even by selling 13,333 units.
C. will break-even by selling 20,000 units.
D. will break-even by selling 1,000,000 units.

20. Wells Corporation has the following sales mix for its three products: A, 20%; B, 35%;
and C, 45%. Fixed costs total $400,000 and the weighted-average contribution margin is
$100. How many units of product A must be sold to break-even?
A. 800.
B. 4,000.
C. 20,000.
D. 2,000

21. Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth
model sells for $300 and has a unit contribution margin of $105; the Adult model sells for
$850 and has a unit contribution margin of $450; and the Recreational model sells for
$1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5
Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs
total $6,500,000, calculate the firm's selling price per composite unit.
A. $1,255.
B. $5,150.
C. $15,150.
D. $1,950.

22. Maxie's budget for the upcoming year revealed the following figures:
Sales revenue $840,000
Contribution margin 504,000
Net income 54,000
If the company's break-even sales total $750,000, Maxie's safety margin would be:
A. $696,000.
B. $90,000.
C. $246,000.
D. $336,000.

23. Wang Co. manufactures and sells a single product that sells for $450 per unit; variable
costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is
$4,200,000. Management targets an annual pre-tax income of $1,125,000. Compute the
unit sales to earn the target pre-tax net income.
A. 4,444.
B. 7,500.
C. 6,650.
D. 10,694.
24. Which of the following statements is TRUE of variable costing?
A. It considers variable manufacturing overhead as period costs.
B. It considers fixed manufacturing overhead as product costs.
C. It considers variable selling and administrative costs as product costs.
D. It considers fixed selling and administrative costs as period costs.

25. Bing Company's contribution margin income statement is presented below. Sales for
the current period consisted of 7,500 units. Compute the company's margin of safety in
percent
Bing Company
Contribution Margin Income Statement
Sales $225,000
Variable costs 135,000
Contribution margin 90,000
Fixed costs 48,000
Net income $42,000

A. 46,7%
B. 36,7%
C. 45%
D. 50%

26. At a volume level of 500,000 units, Sullivan reported the following information:
 Sales price $60
Variable cost per unit 20
Fixed cost per unit 4
The company's contribution-margin ratio is:
A. 0.33.
B. 0.40.
C. 0.60.
D. 0.67

27. Which of the following would produce the largest increase in the contribution margin
per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.

28. A company that desires to lower its break-even point should strive to:
A. decrease selling prices.
B. reduce variable costs.
C. increase fixed costs.
D. sell more units.

29. Green, Inc., sells a single product for $20. Variable costs are $8 per unit and fixed
costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not
change, Green's break-even sales would be:
A. $160,000.
B. $200,000.
C. $300,000.
D. $480,000.

30. At the breakeven point:

A. Profit is $0
B. Fixed Cost + Variable Cost = Sales
C. Fixed Cost = Contribution Margin
D. All of the above