Test review questions chpt 6

Question 1

In September, Smith Company had the following financial statement amounts related to producing 500 units:
Direct materials	$27,000
Depreciation expense	11,000
Sales revenue	95,000
Direct labour	23,000
Rent expense	25,000

27. How much is total contribution margin for September?
    a. $45,000
    b. $9,000
    c. $68,000
    d. $20,000

Answer 1

a

Question 2

In September, Smith Company had the following financial statement amounts related to producing 500 units:
Direct materials	$27,000
Depreciation expense	11,000
Sales revenue	95,000
Direct labour	23,000
Rent expense	25,000
How much is the net profit, (loss), for September?
a.	$45,000
b.	$9,000
c.	$68,000
d.	$20,000

Answer 2

b

Question 3

In September, Smith Company had the following financial statement amounts related to producing 500 units:
Direct materials	$27,000
Depreciation expense	11,000
Sales revenue	95,000
Direct labour	23,000
Rent expense	25,000

29. How much is the contribution margin per unit?
    a. $45,000
    b. $9,000
    c. $90
    d. $18

Answer 3

c

Question 4

How much is the break-even point, rounded to the nearest whole number?

a. $18 units
b. $50 units
c. $122 units
d. 400 units

Answer 4

d

Question 5

NEKP Inc. sells two versions of its product, standard and deluxe. The standard model has a 15 percent profit margin and the deluxe model has a 17 percent profit margin. The standard model has a 30 percent contribution margin and the deluxe has a 23 percent contribution margin. If other factors are equal, which product should NEKP emphasize to its customers?

a. The standard model
b. The deluxe model
c. Selling either results in the same additional income for the company
d. Not enough information is given

Answer 5

a

Question 6

33.	Gift Gallery sold 2,000 Zooglars during 2012. Information is provided concerning the Zooglar product:
Sales	 $   60,000 
Variable costs	      24,000 
Fixed costs	      10,000 
Net income	 $   26,000 
	If Gift Gallery sells 30 more units, by how much will its profit increase?
a	$18
b.	$540
c.	$390
d.	$900

Answer 6

b

Question 7

34. In CVP analysis, what does the term “cost” mean?
    a. It includes all fixed and variable costs of products.
    b. It includes all costs which are part of cost of goods sold.
    c. It includes manufacturing costs plus selling and administrative expenses.
    d. It includes all manufacturing costs.

Answer 7

c

Question 8

35. Which one of the following is an assumption of CVP analysis?
    a. Sales in units remain constant.
    b. All costs are variable.
    c. The change in beginning and ending inventories is reflected in the analysis.
    d. The behaviour of costs and revenues are linear within the relevant range.

Answer 8

d

Question 9

36. Which one of the following is a consideration of CVP analysis?
    a. The level of activity must remain constant over the relevant range.
    b. Total fixed costs remain constant over the relevant range.
    c. Total variable costs remain constant over the relevant range.
    d. Cost behaviour can change as long as total costs remain the same at all activity levels.

Answer 9

b

Question 10

45. A company has total fixed costs of $180,000 and a contribution margin ratio of 30%. How much sales are necessary to break-even?
    a. $540,000
    b. $600,000
    c. $54,000
    d. $126,000

Answer 10

b

Question 11

46. A company sells a product which has a unit sales price of $9, unit variable cost of $6 and total fixed costs of $60,000. How many units must the company sell to break-even?
    a. 180,000
    b. 20,000
    c. 6,667
    d. 10,000

Answer 11

b

Question 12

47. Which one of the following describes the break-even point?
    a. It is the point where total sales equal total variable plus total fixed costs.
    b. It is the point where the contribution margin equals zero.
    c. It is the point where total variable costs equal total fixed costs.
    d. It is the point where total sales equal total fixed costs.

Answer 12

a

Question 13

If a firm is currently at the break-even point, and it sells one more unit, what will happen to its operating profit?

a. It will increase by the unit selling price.
b. It will decrease by the unit variable cost.
c. It will increase by the unit contribution margin.
d. It will increase by the fixed cost divided by the unit contribution margin

Answer 13

c

Question 14

55. What does the margin of safety measure?
    a. How far prices can be changed before the CVP analysis is no longer valid
    b. How much sales can drop before the firm has an operating loss
    c. How far fixed costs can drop before the firm has an operating loss
    d. How far variable costs can rise before the firm has an operating loss

Answer 14

b

Question 15

56. Tiny Tots Toys has actual sales of $400,000 and a break-even point of $260,000. How much is its margin of safety ratio?
    a. 35%
    b. 65%
    c. 286%
    d. 53.8%

Answer 15

a

Question 16

59. Forms, Inc. wants to sell a sufficient quantity of products to earn an after-tax profit of $40,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $80,000, how many units must be sold to earn income of $40,000? Forms, Inc has a tax rate of 40%.
    a. 73,334 units
    b. 18,334 units
    c. 40,000 units
    d. 90,000 units

Answer 16

a

Question 17

60. How much sales are required to earn a target net income of $80,000 if total fixed costs are $100,000, the contribution margin ratio is 40% and the tax rate is 25%?
    a. $6,000,000
    b. $250,000
    c. $516,667
    d. $1,050,000

Answer 17

c

Question 18

87. Fallow-Hawke is a non-profit organization that captures stray deer from residential communities. Fixed costs are $10,000. The variable cost of capturing deer is $10.00 each. Fallow-Hawke is funded by a local philanthropy in the amount of $32,000 for 2012. How many deer can Fallow-Hawke capture during 2012?
    a. 2,200
    b. 3,200
    c. 4,200
    d. 2,000

Answer 18

a

Question 19

Company A and Company B sell their products for exactly the same sales price. Both have the same annual fixed costs. Company A’s variable and fixed costs at break-even total $60,000 and $30,000 respectively. Company B’s variable and fixed costs at break-even total $30,000 and $60,000 respectively. Both companies have the same net income. If both companies experience an increase in sales, which company will have the higher net income?

a. Company A
b. Company B
c. Both companies will report the same profits since total costs are the same.
d. More information is needed to determine the answer.

Answer 19

b

Question 20

Brad Sherwood Corporation sells two types of computers; one is designed for audio applications and the other for video applications. Sherwood incurs $300,125 in fixed costs.
Per unit data on the two products is presented blow:

			Unit data		Audio computer	Video computer
	Selling price			        $1,500		      $1,750
	Variable costs			          1,100		        1,200
	Contribution margin		        $   400		         $550
	Sales mix				75%		          25%

• 94. The weighted-average contribution margin is
      a. $437.50.
      b. $475.00.
      c. $1,125.00.
      d. $375.00.

Answer 20

a

Question 21

*94. The weighted-average Unit data Audio computer Video computer
Selling price $1,500 $1,750
Variable costs 1,100 1,200
Contribution margin $ 400 $550
Sales mix 75% 25%

contribution margin is

a. $437.50.
b. $475.00.
c. $1,125.00.
d. $375.00.

• 95. The break-even point in units is
      a. 267.
      b. 632.
      c. 686.
      d. 800.
• 96. How many audio computers will be sold at the break-even point?
      a. 477
      b. 172
      c. 515
      d. 158

97. What will be the total contribution margin at the break-even point?
    a. $225,000
    b. $276,000
    c. $300,125
    d. $372,250

Answer 21

94 - a
95- c
96 - c
97 c

Question 22

Old Canadian Company has sales of $500,000, variable costs of $425,000, and fixed costs of $25,000. New World Company has sales of $500,000, variable costs of $200,000, and fixed costs of $250,000.

108. Old Canadian’s contribution margin ratio is a. 15%. b. 60%. c. 85%. d. 95%.

• 109. New World’s degree of operating leverage is
       a. .85.
       b. 1.50.
       c. 6.00.
       d. 6.67.

110. Old Canadian break-even point in dollars is
     a. $166,667.
     b. $400,000.
     c. $450,000.
     d. $466,667.
111. New World’s margin of safety ratio is
     a. .17.
     b. .33.
     c. .67.
     d. .83.

Answer 22

108 -a
109 - c
110 -a
111 -a