Chapter08.Cost Volume Profit Analysis

Chapter 8: Cost-Volume-Profit Analysis MULTIPLE CHOICE UE!TIO"!

1. CVP analy analysis sis can be used used to study study the the effect effect of: of: A. changes changes in selling selling prices prices on on a company' company'ss profitabili profitability. ty. B. changes changes in variable variable costs costs on on a company company's 's profitabil profitability ity.. C. changes changes in fixed costs costs on a company' company'ss profitabi profitability lity.. . changes changes in produc productt sales mix on a compan company's y's profitab profitability ility.. !. all all of of the the abov above. e. Ans"er: ! #$: 1 %ype: &C . %he brea()e brea()even ven point point is is that level level of activity activity "here: "here: A. total total reven revenue ue e*ual e*ualss total total cost. cost. B. variab variable le cost cost e*uals e*uals fixed fixed cost cost.. C. total total contribut contribution ion margin margin e*uals e*uals the sum of of variable variable cost plus plus fixed fixed cost. . sales revenue revenue e*uals e*uals total total variable variable cost. !. prof profit it is is grea greate terr than than +er +ero. o. Ans"er: A #$: 1 %ype: &C ,. %he unit unit contribut contribution ion margin margin is calcula calculated ted as the differe difference nce bet"een: bet"een: A. sellin selling g price price and fixe fixed d cost cost per unit. unit. B. selling selling price and variable variable cost per unit. unit. C. sellin selling g price price and prod product uct cost cost per per unit. unit. . fixed cost per unit unit and variab variable le cost cost per unit. unit. !. fixed cost per unit and produ product ct cost cost per per unit. unit. Ans"er: B #$: 1 %ype: &C -. hich of the follo"ing follo"ing "ould produce the largest increase increase in the the contribution contribution margin per unit/ A. A 0 increa increase se in in selli selling ng pric price. e. B. A 12 12 decre decrease ase in in selli selling ng pric price. e. C. A 1- 1- incre increase ase in vari variabl ablee cost. cost. . A 10 10 decrea decrease se in in fixe fixed d cost cost.. !. A , increa increase se in the the numb number er of unit unitss sold. sold. Ans"er: A #$: 1 %ype: 3

Chapter 8

199

2. hich of the follo"ing follo"ing "ould ta(e place if a company company "ere able able to reduce reduce its variable variable cost per unit/ Contribution Brea()even 4argin Point A. 5ncrease 5ncrease B. 5ncrease ecrease C. ecrease 5ncrease . ecrease ecrease !. 5ncrease 3o effect Ans"er: B #$: 1 %ype: 3 6. hich of the follo"ing follo"ing "ould ta(e place if a company company experienced an increase in fixed costs/ A. 3et incom incomee "oul "ould d incr increas ease. e. B. %he brea brea()e ()even ven poin pointt "ould "ould incre increase ase.. C. %he contr contribu ibutio tion n margin margin "ould "ould incr increas ease. e. . %he contributi contribution on margin margin "ould "ould decrease. decrease. !. 4ore 4ore than than one of of the above above even events ts "ould "ould occu occur. r. Ans"er: B #$: 1 %ype: 3 0. Assuming no change in sales volume7 volume7 an increase in a firm's firm's per)unit contribution margin "ould: "ould: A. incr increa ease se net net inc incom ome. e. B. decr decrea ease se net net inco income me.. C. have have no no effe effect ct on net net inco income. me. . incr increa ease se fix fixed ed cos costs ts.. !. decr decrea ease se fixe fixed d cost costs. s. Ans"er: A #$: 1 %ype: 3 8. A company company that desires desires to to lo"er its its brea()even brea()even point point should should strive strive to: A. decrea decrease se sellin selling g prices prices.. B. redu reduce ce var varia iabl blee cost costs. s. C. incr increa ease se fixe fixed d cos costs ts.. . sell sell more ore unit units. s. !. pursue pursue more more than than one one of the the above above acti actions ons.. Ans"er: B #$: 1 %ype: 3 9. A company company has fixed fixed costs costs of 9;; 9;; and and a per)unit per)unit contribu contribution tion margin margin of of ,. hich hich of the follo"ing statements is contribu >contributes> tes> , to"ard to"ard coverin covering g the fixed fixed costs costs of 9;;. B. %he situati situation on describe described d is not possib possible le and there there must must be an error. error. C. $nce the the brea()even brea()even point point is reached reached77 the company company "ill "ill ma(e money money at the rate of , per per unit. . %he firm firm "ill "ill definite definitely ly lose lose money in this this situat situation. ion. !. ?tatem ?tatement entss >A> >A> and and >C> are true. true. Ans"er: ! #$: 1 %ype: 3

200

Hilton, Managerial Accounting, Seventh Edition

2. hich of the follo"ing follo"ing "ould ta(e place if a company company "ere able able to reduce reduce its variable variable cost per unit/ Contribution Brea()even 4argin Point A. 5ncrease 5ncrease B. 5ncrease ecrease C. ecrease 5ncrease . ecrease ecrease !. 5ncrease 3o effect Ans"er: B #$: 1 %ype: 3 6. hich of the follo"ing follo"ing "ould ta(e place if a company company experienced an increase in fixed costs/ A. 3et incom incomee "oul "ould d incr increas ease. e. B. %he brea brea()e ()even ven poin pointt "ould "ould incre increase ase.. C. %he contr contribu ibutio tion n margin margin "ould "ould incr increas ease. e. . %he contributi contribution on margin margin "ould "ould decrease. decrease. !. 4ore 4ore than than one of of the above above even events ts "ould "ould occu occur. r. Ans"er: B #$: 1 %ype: 3 0. Assuming no change in sales volume7 volume7 an increase in a firm's firm's per)unit contribution margin "ould: "ould: A. incr increa ease se net net inc incom ome. e. B. decr decrea ease se net net inco income me.. C. have have no no effe effect ct on net net inco income. me. . incr increa ease se fix fixed ed cos costs ts.. !. decr decrea ease se fixe fixed d cost costs. s. Ans"er: A #$: 1 %ype: 3 8. A company company that desires desires to to lo"er its its brea()even brea()even point point should should strive strive to: A. decrea decrease se sellin selling g prices prices.. B. redu reduce ce var varia iabl blee cost costs. s. C. incr increa ease se fixe fixed d cos costs ts.. . sell sell more ore unit units. s. !. pursue pursue more more than than one one of the the above above acti actions ons.. Ans"er: B #$: 1 %ype: 3 9. A company company has fixed fixed costs costs of 9;; 9;; and and a per)unit per)unit contribu contribution tion margin margin of of ,. hich hich of the follo"ing statements is contribu >contributes> tes> , to"ard to"ard coverin covering g the fixed fixed costs costs of 9;;. B. %he situati situation on describe described d is not possib possible le and there there must must be an error. error. C. $nce the the brea()even brea()even point point is reached reached77 the company company "ill "ill ma(e money money at the rate of , per per unit. . %he firm firm "ill "ill definite definitely ly lose lose money in this this situat situation. ion. !. ?tatem ?tatement entss >A> >A> and and >C> are true. true. Ans"er: ! #$: 1 %ype: 3

200

Hilton, Managerial Accounting, Seventh Edition

1;. ?anderson sells sells a single product product for 2; that has a variable cost cost of ,;. @ixed costs costs amount to 2  per unit "hen anticipated anticipated sales targets are met. met. 5f the company sells one unit unit in excess of its  brea()even volume7 the bottom)line bottom)line profit "ill "ill be: A. 12. B. ;. C. 2;. . an amount amount that cannot cannot be derived derived based based on the the information information present presented. ed. !. an amount amount other other than those those in in choices choices >A7> >B7> >B7> and >C> >C> but one one that can can be derived derived based based on the information presented. Ans"er: B #$: 1 %ype: A 11. At a volume of 127;;; 127;;; units7 units7 Boston reported reported sales sales revenues revenues of 6;;7;;; 6;;7;;;77 variable variable costs of 27;;;7 and fixed costs of 1;7;;;. %he company's contribution contribution margin per unit is: A. 10. B. 2. C. -0. . 22. !. an amo amount unt other other than than those those above. above. Ans"er: B #$: 1 %ype: A 1. A recent income statement statement of Ban(s Corporation reported the follo"ing data: ?ales revenue Variable costs @ixed costs

87;;;7;;; 27;;;7;;; 7;;7;;;

5f these data are based on the sale of ;7;;; units7 the contribution margin per unit "ould be: A. -;. B. 12;. C. 9;. . ,6;. !. an amount amount other other than than those above. Ans"er: B #$: 1 %ype: A

Chapter 8

201

1,. A recent income statement of @ox Corporation reported the follo"ing data: ?ales revenue Variable costs @ixed costs

,76;;7;;; 176;;7;;; 17;;;7;;;

5f these data are based on the sale of 1;7;;; units7 the brea()even point "ould be: A. 7;;; units. B. 7008 units. C. ,76;; units. . 27;;; units. !. an amount other than those above. Ans"er:  #$: 1 %ype: A 1-. A recent income statement of ale Corporation reported the follo"ing data: ?ales revenue Variable costs @ixed costs

72;;7;;; 172;;7;;; 8;;7;;;

5f these data are based on the sale of 27;;; units7 the brea()even sales "ould be: A. 7;;;7;;;. B. 7;67;;;. C. 72;;7;;;. . 1;7;;;7;;;. !. an amount other than those above. Ans"er: A #$: 1 %ype: A 12. #a"ton7 5nc.7 sells a single product for 1. Variable costs are 8 per unit and fixed costs total ,6;7;;; at a volume level of 6;7;;; units. Assuming that fixed costs do not change7 #a"ton's  brea()even point "ould be: A. ,;7;;; units. B. -27;;; units. C. 9;7;;; units. . negative because the company loses  on every unit sold. !. a positive amount other than those given above. Ans"er: C #$: 1 %ype: A

202

Hilton, Managerial Accounting, Seventh Edition

16. reen7 5nc.7 sells a single product for ;. Variable costs are 8 per unit and fixed costs total 1;7;;; at a volume level of 27;;; units. Assuming that fixed costs do not change7 reen's  brea()even sales "ould be: A. 16;7;;;. B. ;;7;;;. C. ,;;7;;;. . -8;7;;;. !. an amount other than those above. Ans"er: B #$: 1 %ype: A 10. $rion recently reported sales revenues of 8;;7;;;7 a total contribution margin of ,;;7;;;7 and fixed costs of 18;7;;;. 5f sales volume amounted to 1;7;;; units7 the company's variable cost  per unit must have been: A. 1. B. ,. C. 2;. . 9. !. an amount other than those above. Ans"er: C #$: 1 %ype: A 18. ?trand has a brea()even point of 1;7;;; units. 5f the firm's sole product sells for -; and fixed costs total -8;7;;;7 the variable cost per unit must be: A. -. B. ,6. C. --. . an amount that cannot be derived based on the information presented. !. an amount other than those in choices >A7> >B7> and >C> but one that can be derived based on the information presented. Ans"er: B #$: 1 %ype: A 19. &ibco Co.7 ma(es and sells only one product. %he unit contribution margin is 6 and the brea() even point in unit sales is -7;;;. %he company's fixed costs are: A. -7;;;. B. 1-7-;;. C. -;7;;;. . 1--7;;;. !. an amount other than those above. Ans"er:  #$: 1 %ype: A

Chapter 8

203

;. %he contribution)margin ratio is: A. the difference bet"een the selling price and the variable cost per unit. B. fixed cost per unit divided by variable cost per unit. C. variable cost per unit divided by the selling price. . unit contribution margin divided by the selling price. !. unit contribution margin divided by fixed cost per unit. Ans"er:  #$:  %ype: &C 1. At a volume level of 2;;7;;; units7 ?ullivan reported the follo"ing information: ?ales price Variable cost per unit @ixed cost per unit

6; ; -

%he company's contribution)margin ratio is: A. ;.,,. B. ;.-;. C. ;.6;. . ;.60. !. an amount other than those above. Ans"er:  #$:  %ype: A . hich of the follo"ing expressions can be used to calculate the brea()even point "ith the contribution)margin ratio