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Quiz 16

Pre test
1The contribution margin at the break-even point
a. equals total fixed costs.
b. plus total fixed costs equals total revenues.
c. is zero.
d. is greater
than variable
costs.

2 Lassler Company produces two products, X and Y, which account for 60 percent and
40 percent, respectively, of total sales dollars. Contribution margin ratios are 55 percent
for X and 35 percent for Y. Total fixed costs are $145,700. What is Lassler's break-even
point in sales dollars?
ncorrect. SUPPORTING CALCULATIONS:
Average CM rate = (0.6)(0.55) + (0.4)(0.35) = 0.47
$145,700/0.47 = $310,000
3.

Assume the following cost behavior data for Zapper Company:

What volume of sales dollars is required to earn an after-tax income of $99,000?


a. $500,000
b. $117,000
c. $150,000
d. $175,500

Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a
contribution margin of $7.50 per unit. Total fixed costs are $300,000. Sales mix and
total volume vary from one period to another. Which of the following is true?
4.

a. At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.
b. The contribution margin per unit of direct materials is lower for 1 than for 2.
c. The ratio of contribution to total sales always will be larger for 1 than for 2.
d. The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.

5.

The equation to compute a target profit in terms of units is:

a. (Total variable cost + Target income)/(Price Fixed cost per unit)


b. (Total fixed cost + Price)/(Target income Variable cost per unit)
c. (Total fixed cost + Target income)/(Price Variable cost per unit)
d. (Total fixed cost + Total variable cost)/(Target income)

Incorrect. The equation to compute a target profit in terms of units is: (Total fixed cost + Target income)/
(Price Variable cost per unit).

6. The following data pertain to the three products produced by Fenwich Corporation:

Fixed costs are $102,350 per month.


Fifty percent of all units sold are Product A, 40 percent are Product B, and 10 percent are Product C.
What is the monthly break-even point for total units?
a. 57,500 units
b. 45,489 units
c. 51,175 units
d. 15,140 units

ncorrect. SUPPORTING CALCULATIONS:


Average CM per unit = (0.5 $1.26) + (0.4 $2) + (0.1 $3.50) = $1.78
$102,350/$1.78 = 57,500 units

On a profit-volume graph, the profit line intersects the horizontal axis at


a. a volume of 1,000 units.
b. the origin.
c. a point where profit is greater than zero.
d. the break-even point.

Incorrect. On a profit-volume graph, the profit line intersects the horizontal axis at the break-even point.

8. Morgantown Company had the following information:

How many units need to be sold to produce a before-tax profit of $100,000, using ABC?
a. 12,500 units
b. 14,400 units
c. 81,000 units
d. 28,800 units

ncorrect. SUPPORTING CALCULATIONS:


[$250,000 + ($1,200 x 80) + ($65 x 2,000) + $100,000]/($40 - $20) = 28,800 units

9Barker Company had the following information:

What is the break-even point in units, using ABC?


a. 11,800 units
b. 26,800 units
c. 12,500 units
d. 150,000 units

10 Holding all other things the same, if there was a decrease in the break-even point, then how
have fixed costs changed?

a. Increased
b. Remained the same
c. Decreased
d. Increased first, then decreased

Incorrect. Holding all other things the same, if there was a decrease in the break-even point, then fixed costs must
have decreased.

11. Monroe Industries projected the following information for next year:

How many units must be sold to obtain an after-tax profit of $88,000?


a. 12,800 units
b. 26,880 units
c. 4,400 units
d. 13,680 units

Incorrect. SUPPORTING CALCULATIONS:


($232,000 + $88,000/0.8)/$25 = 13,680 units

12 Flyer Company had the following information:

Suppose Flyer could reduce setup costs by $400 per setup and could reduce the number of
engineering hours needed to 1,500 hours. How many units must be sold to break even in this case?
a. 27,550 units
b. 20,000 units

c. 17,500 units
d. 10,450 units

Incorrect. SUPPORTING CALCULATIONS:


[$350,000 + ($1,000 85) + ($60 2,000)]/$20 = 27,550 units

13.

Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will
a. reduce the slope of the total cost line by 20 percent.
b. reduce the break-even sales volume by 20 percent.
c. not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs.
d. reduce total costs by 20 percent.

ncorrect. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will reduce
the slope of the total cost line by 20 percent.

14
In the cost-volume-profit analysis, income taxes
a. increase the sales volume required to earn a desired profit.
b. are treated as a fixed cost.
c. are treated as a variable cost.
d. increase the sales volume required to break even.

Incorrect. In the cost-volume-profit analysis, income taxes increase the sales volume required to earn a desired profit.

15Holding all other things the same, if there is an increase in the break-even point, then the variable
cost per unit must have changed in what manner?
a. Increased
b. Remained the same
c. It depends on the circumstances.
d. Increased first, then decreased

Incorrect. Variable cost per unit must have increased if there was an increase in the break-even point.

16

A profit-volume graph:
a. is not subject to the same limiting assumptions as cost-volume-profit graphs.
b. illustrates total revenues, total cost, and profits at various sales volumes.
c. illustrates the relationship between volume and profits.
d. measures profit or loss on the horizontal axis.

Incorrect. A profit-volume graph illustrates the relationship between volume and profit

17 Which of the following statements is true?


a. The total revenue line typically begins above zero.
b. The slope of the total cost line is dependent on the variable cost per unit.
c. The slope of the total revenue line is the contribution margin per unit.
d. The total cost line normally begins at zero.

18 Warren Company sells its product for $60. In addition, it has a variable cost ratio of 40 percent
and total fixed costs of $10,800. How many units must be sold in order to obtain a before-tax profit
of $14,400?
a. 1,050 units
b. 630 units
c. 400 units
d. 700 units

ncorrect. SUPPORTING CALCULATIONS:


($10,800 + $14,400)/$36 = 700 units

1-

2-

Incorrect. SUPPORTING CALCULATIONS:


[$317,600 + ($1,000 60) + ($52 1,200)]/$40 = 11,000 units