Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) If fixed expenses increase by $10,000 per year, then the level of sales needed to break even
will also increase by $10,000.
⊚ true
⊚ false

2) If fixed expenses increase by $10,000 per year, then the level of sales needed to break even
will increase by $10,000 divided by the contribution margin ratio.
⊚ true
⊚ false

3) The total volume in sales dollars that would be required to attain a given target profit is
determined by dividing the sum of the fixed expenses and the target profit by the contribution
margin ratio.
⊚ true
⊚ false

4) A company with sales of $70,000 and variable expenses of $40,000 should spend $10,000 on
increased advertising if the increased advertising will increase sales by $20,000.
⊚ true
⊚ false

5) If the fixed expenses increase in a company, and all other factors remain unchanged, then one
would expect the margin of safety to decrease.
⊚ true
⊚ false

6) The margin of safety percentage is equal to the margin of safety in dollars divided by total
sales in dollars.
⊚ true
⊚ false

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
7) Brasher Company manufactures and sells a single product that has a positive contribution
margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do
not change, then what would be the effect on the contribution margin per unit and the
contribution margin ratio?
Contribution margin per unit Contribution margin
ratio
A Decrease Decrease
B Decrease No change
C No change Decrease
D No change No change
A) Choice A.
B) Choice B.
C) Choice C.
D) Choice D.

8) A company increased the selling price for its product from $1.00 to $1.10 a unit when total
fixed expenses increased from $400,000 to $480,000 and variable expense per unit remained
unchanged. How would these changes affect the break-even point?
A) The break-even point in units would increase.
B) The break-even point in units would decrease.
C) The break-even point in units would remain unchanged.
D) The effect cannot be determined from the information given.

9) The margin of safety is equal to:

A) Sales - Net income.
B) Sales - (Variable expenses/Contribution margin).
C) Sales - (Fixed expenses/Contribution margin ratio).
D) Sales - (Variable expenses + Fixed expenses).

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10) A company has provided the following data:
Sales 3,000 units
Sales price $70 per unit
Variable cost $50 per unit
Fixed cost $25,000

If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased
by 20%, and all other factors remain the same, net income will:
A) increase by $61,000.
B) increase by $20,000.
C) increase by $3,500.
D) increase by $11,000.

11) Last year, Black Company reported sales of $640,000, a contribution margin of $160,000,
and a net loss of $40,000. Based on this information, the break-even point in total sales
dollars was:
A) $480,000.
B) $640,000.
C) $800,000.
D) $960,000.

12) The break-even point in sales dollars for Rice Company is $360,000 and the company's
contribution margin ratio is 30%. If Rice Company desires an income of $84,000, sales
would have to total?
A) $280,000.
B) $480,000.
C) $560,000.
D) $640,000.

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