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AFD. MA-2. Ch # CVP Analysis. Test paper

1. Which of the following is not a true assumption of
the accountants approach to break even analysis?
a. Costs can easily be divided into their fixed and
variable elements
b. Fixed costs are stable over the relevant range of
activity
c. Variable costs change in direct proportion to
activity
d. Cost and revenue functions follow a curvilinear
pattern
2. The margin of safety can be expressed as :a. The excess of selling price over cost of sales
b. The difference between actual and budgeted
output
c. The difference between actual output and the
breakeven point
d. The excess of stocks held over the expected
demand
3. The breakeven point in units is represented by the
equation :a. Fixed costs / Variable costs
b. (Sales revenue - Fixed costs)/ Contribution per
unit
c. Fixed costs / selling price per unit
d. Fixed costs / Contribution per unit
4. The breakeven point can be defined as :a. The level of activity where profits equal fixed
costs
b. The level of activity at which there is neither a
profit or loss
c. The level of activity where cash flow is zero
d. The level of activity where variable costs are
covered by sales revenue
5. Which of the following will occur in break even
analysis?
a. As output increases, fixed costs per unit will fall
b. As output increases, the selling price per unit will
increase
c. As output falls total variable costs will stay the
same
d. As output increases, outside the relevant range,
total fixed costs will stay the same
6. In break even analysis which of the following is true?
a. The greater the angle of incidence the greater
the risk of the project
b. The greater the angle of incidence, the lower the
level of contribution per unit
c. The greater the angle of incidence the more
costs the business will incur
d. The greater the angle of incidence the more
profit can be earned
7. contribution in costing terms is best described as
the amount by which
a. Sales revenue exceeds all fixed costs
b. Sales revenue exceeds all fixed and variable
costs
c. Sales revenue exceeds variable production costs
d. Sales revenue exceeds variable production and
selling costs
8. Which of the following statements is true?
a. The break even graph will be useful over all
levels of output
b. The break even graph will only be useful over a
certain range of output
c. The total cost line will have a steeper gradient
than the total revenue line
d. The slope of the total cost line will increase as
more units are made

9. Which of the following is false?

a. If fixed costs increase the breakeven point will
increase
b. If the contribution to sales ratio increases the
breakeven point will increase
c. If sales price per unit increases the breakeven
point will fall
d. If the contribution to sales ratio increases the
breakeven point will decrease
10. Which of the following equations is Correct?
a. Sales revenues = Variable expenses - (Fixed
expenses + Operating income)
b. Sales revenues - Variable expenses - Fixed
expenses = Operating income
c. Sales revenues + Variable expenses + Fixed
expenses = Operating income
d. Sales revenues - Fixed expenses = Variable
expenses - Operating income
11. The contribution margin at the break-even point
a. Equals total fixed costs.
b. Is zero.
c. Plus total fixed costs equals total revenues.
d. is greater than variable costs
12. Currently, a company has fixed costs of $32,500, a
contribution ratio of 65%, and is selling its product
for $12 per unit. If the sales price per unit is
increased by $4, how much less will the break-even
point in sales be when compared to the current
condition?
a. $14,411
b. $13,414
c. $17,500
d. $ 5,932
13. The break-even point is
a. The volume of activity where all fixed costs are
recovered.
b. Where fixed costs equal total variable costs.
c. Where total revenues equal total costs.
d. where total costs equal total contribution margin
14. The profit and loss account for Thomas
Manufacturing Company for 2004 is as follows:
Sales (10,000 units)
120,000
Variable expenses
72,000
Contribution margin
48,000
Fixed expenses
36,000
Operating income
12,000
What is the contribution margin per unit?
a. 7.20
b. 1.20
c. 4.80
d. 120,000
15. In a profit-volume graph,
a. The total revenue line crosses the horizontal axis
at the break-even point.
b. Beyond the break-even sales volume, profits are
maximized at the sales volume where total
revenues equal total costs.
c. An increase in unit variable costs would decrease
the slope of the total cost line.
d. an increase in the unit selling price would shift
the break-even point in units to the left
16. Contribution margin is calculated as
a. Sales minus cost of goods sold.
b. Sales minus total variable costs.
c. Sales minus total variable manufacturing costs.
d. sales minus total variable manufacturing costs
and total fixed manufacturing costs

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AFD. MA-2. Ch # CVP Analysis. Test paper
17. The current sales price is $25 per unit and the
current variable cost is $17 per unit. Fixed costs are
$40,000. If the sales price is increased by $2, and all
other costs remain unchanged, the break-even point
in units will:
a. increase by 1,000 units
b. decrease by 1,000 units
c. decrease by 2,000 units
d. decrease by 119 units (rounded to nearest unit)
18. In a profit-volume graph,
a. 0perating income is the dependent variable and
units sold are the independent variable.
b. Units produced are the dependent variable and
units sold are the independent variable
c. Sales revenue is the independent variable and
operating income is the dependent variable.
d. operating profit is the independent variable and
volume is the dependent variable
19. If the contribution margin per unit decreases, the
break-even point in units
a. Will increase.
b. Will decrease.
c. Will remain the same.
d. cannot be determined from the information given
20. By how much sales will be decline before losses are
incurred?
a. Contribution margin.
b. Margin of safety.
c. Degree of operating leverage.
d. Fixed costs.
21. A firm sells widgets for $14 each. The variable costs
for each unit are $8. The contribution margin per
unit is:
a. $ 6
b. $12
c. $14
d. $ 8
22. Company A's fixed costs were $42,000, its variable
costs were $24,000 and its sales were $80,000 for
the sale of 8,000 units. The company's break-even
point in units is:
a. 8,000
b. 5,000
c. 6,000
d. 7,000
23. Janet sells a product for $6.25. The variable costs are
$3.75. Janet's break-even units are 35,000. What is
the amount of fixed costs?
a. $ 87,500
b. $ 35,000
c. $131,250
d. $104,750
24. Company A's fixed costs were $45,000, its variable
costs were $24,000, and its sales were $80,000. The
company's break-even point in sales-dollars is:
a. $33,000
b. $64,286
c. $79,000
d. $88,000
25. On a cost-volume-profit chart (break-even graph),
the total fixed costs are:
a. the point where the sales line intersects
the cost line (Y)
b. the point where the sales line crosses the
total cost line
c. the point where the total cost line
intersects the cost line (Y)

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d. the point where the total cost line

intersects the volume line (X)
When using conventional cost-volume-profit analysis,
some assumptions about costs and sales prices are
made. Which one of the following is not one of those
assumptions?
a. the costs can be expressed as straight
lines in a break-even graph
b. the actual variable cost per unit must
vary over the production range
c. the sales price will remain unchanged per
unit
d. fixed costs will decrease per unit
A firm's fixed costs are $54,000, and it sold 350 units
at $140 each. The total variable costs were $35,000.
The net income or loss of the firm was:
a. $40,000 loss
b. $40,000 income
c. $14,000 income
d. $ 9,000 loss
The dollar sales necessary to achieve a target
income of $21,000 after taxes of 30% is $450,000.
The fixed costs are $240,000. What is the
contribution ratio (to the nearest tenth)?
a. 53.3%
b. 65.0%
c. 58.0%
d. 60.0%
If a firm's margin of safety is 35% on sales of
$200,000, then its margin of safety on sales of
$300,000 will be (assume fixed costs, the variable
cost per unit, and the sales price per unit do not
change):
a. $105,000
b. $170,000
c. $100,000
d. $ 35,000
Let:
BES = break-even sales, R = revenue per unit,
F = fixed costs, V = variable cost per unit,
CMR = contribution ratio,
CM = contribution margin per unit,
S x R = sales dollars, S = sales in units
(S x R) - (F / CMR) is the:
a. break-even point in units
b. break-even point in dollars
c. margin of safety
d. sales mix composite
If the margin of safety is 40% of sales, which are
$400,000, the break-even point:
a. is greater than $400,000
b. is $160,000
c. is $240,000
d. is less than $160,000
Data from a company's last period of operations
shows sales of 2,000 units, total contribution margin
of $50,000, and income after subtracting fixed costs
of $30,000 is $20,000. Should the company
experience sales of 2,400 units (within the relevant
range, no sales price increase), net income will be:
a. $40,000
b. $30,000
c. $10,000
d. $20,000
1Which of the following is the correct
description of the break-even point?
a. Where total revenue equals total fixed
costs

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AFD. MA-2. Ch # CVP Analysis. Test paper

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b. Where total revenue equals total fixed

and variable costs
c. Where total revenue equals total variable
costs
d. Where total revenue equals total
contribution
2In a profit-volume chart, what does the point at
which the contribution line touches the vertical axis
represent?
a. Total contribution
b. Total fixed costs
c. The break-even point
d. Total variable costs
4Which of the following best describes a fixed cost?
a. A cost that is unaffected by the level of inflation
b. A cost that is unaffected by the level of output
c. A cost that is unaffected by time
d. A cost that involves a long-term commitment by
the business
7Which one of the following best describes the
margin of safety?
a. The extent to which the total sales exceeds the
total fixed costs
b. The extent to which the total sales exceeds the
total fixed and variable costs
c. The extent to which the total sales exceeds the
total variable costs
d. Fixed costs/ (Sales revenue per unit variable
costs per unit)
9A variable cost is one that:
a. varies directly but not proportionately with
output
b. is constant per unit of output irrespective of the
level of output
c. varies with the time period
d. will vary according to the general rate of inflation
10Nanyang Ltd produces a single product. The
selling price is 50 per unit and the variable costs is
30 per unit. The annual fixed costs of the business
are 4,000. The company aims to make 10,000
profit during the forthcoming year. How many units
must be sold to achieve this target?
a. 280 units
b. 700 units
c. 500 units
d. 200 units
CVP analysis can be used to study the effect of:
a. changes in selling prices on a company's
profitability
b. Changes in variable costs on
a company's profitability.
c. Changes in fixed costs on
a company's profitability.
d. Changes in product sales mix on a
company's profitability.
e. all of the above
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.
e. A 23% increase in the number of units sold
Target operating income is $450,000 and fixed costs
are $60,000. The sales price per unit is $15, with a
contribution margin of 40%. How many sales units
are required to achieve the target operating income?
a. 100,000 units

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b. 85,000 units
c. 30,000 units
d. 34,000 units
e. None of the above
Target operating income is $450,000 and fixed costs
are $60,000. The sales price per unit is $15, with a
contribution margin of 40%. What is the sales
volume in dollars required to achieve the target
operating income?
a. $1,400,000
b. $750,000
c. $510,000
d. $474,000
e. $1,275,000
The contribution margin ratio is 40%. Operating
income is $320,000. What is the margin of safety?
a. $800,000
b. $128,000
c. $672,000
d. Cannot be computed from information provided
Product A sells for $24 and has a contribution margin
ratio of 25%. Sales are expected to decline by
10,000 units over the next accounting period. What
will be the loss in operating income?
a. $240,000
b. $250,000
c. $25,000
d. $60,000
e. $75,000
Fixed costs of $50,000 are expected to increase 20%.
The contribution margin per unit of $6 on a sales
price of $18 is expected to decrease by 25%. With a
projected operating income of $300,000, what must
be the projected sales?
a. $1,081,081
b. $1,400,000
c. $1,440,000
d. $720,000
e. $1,240,000
The current sales price is $80 per unit. Variable costs
are expected to increase from $65.00 to $67.50 per
unit. Fixed costs of $300,000 will not change. How
many additional sales units are required in order to
maintain an operating income of $360,000?
a. 8,000
b. 8,800
c. 10,800
d. 12,000
e. 2,800
Which of the following is not an assumption
underlying cost-volume-profit analysis?
a. Sales price per unit is assumed to be constant
b. Fixed costs are assumed to remain constant at all
levels of sales within a relevant range of activity
c. Variable costs are assumed to remain constant
as a percentage of sales revenue
d. If more than one product is sold, the proportion
of the various products sold is assumed to
remain constant
e. All the above are true
The sales volume in units can be determined by
dividing a denominator into the total of fixed costs
plus the target operating income. What is the
denominator?
a. Unit contribution margin
b. Margin of safety
c. Contribution margin ratio
d. Unit sales price

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AFD. MA-2. Ch # CVP Analysis. Test paper
e. Sales
49. Operating income can be determined by multiplying
the contribution margin ratio by what other factor?
a. Unit contribution margin
b. Margin of safety
c. Variable costs per unit
d. Unit sales price
e. Change in sales volume
50. A change in operating income can be determined by
multiplying the contribution margin ratio by what
other factor?
a. Unit contribution margin
b. Margin of safety
c. Variable costs per unit
d. Unit sales price
e. Change in sales volume

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