Multiple Choice Questions
1. If a company has a $25,000 reduction in sales and an increase of $7,000 in fixed costs with a contribution margin ratio of 34 percent, by how much will net income change?
a. Decrease $1,500
b. Decrease $32,000
c. Increase $1,500
d. Decrease $15,500
2. Which of the following statements is correct as it relates to a company that sells multiple products?
a. CVP analysis cannot be used.
b. Contribution margin is based on sales mix.
c. CVP analysis is much easier to use.
d. The break-even point remains the same even if sales mix changes.
3. Hoagland Company has the following product information:
Sales price ....... $6.00 per unit
Variable costs ..... $2.00 per unit
Fixed costs ...... $12,000
Units sold ....... 20,000
What is the break-even point in sales dollars?
a. $12,000
b. $15,000
c. $18,000
d. $21,000
4. Greer Corp. has the following product information:
Sales price ............ $6.00 per unit
Contribution margin ratio ...... 35%
Fixed costs ............$42,000
What is the break-even point in units?
a. 7,000
b. 2,471
c. 20,000
d. 18,850
5. Greer Corp. has the following product information:
Sales price ............ $6.00 per unit
Contribution margin ratio....... 35%
Fixed costs ............. $42,000
How many units must Greer Corp sell in order to reach a target before-tax profit of $50,000?
a. 43,810
b. 44,000
c. 44,545
d. 45,105
6. Scuffy Company has the following product information:
Sales price .......... $7.25 per unit
Variable costs ......... $2.25 per unit
Fixed costs .......... $10,000
What is the break-even point in units?
a. 1,380
b. 2,000
c. 4,445
d. 5,000
7. Which of the following is a correct form of the break-even equation when using activity-based costing?
a. Break-even ($) = (Fixed costs + Batch-level costs) ÷÷ Contribution margin per unit
b. Break-even (units) = (Fixed costs + Facility-level costs) ÷ Contribution margin per unit
c. Break-even ($) = (Fixed costs + Batch-level costs + Product-level costs) ÷ Contribution margin per unit
d. Break-even (units) = (Fixed costs + Batch-level costs + Product-level costs) ÷ Contribution margin per unit
8. John Abner Enterprises has a contribution margin ratio of 80 percent and fixed costs of $20,000. What would sales have to be for an after-tax net income of $60,000? The company is in the 40 percent tax bracket.
a. $80,000
b. $100,000
c. $120,000
d. $150,000
9. Which of the following is not an assumption of cost-volume-profit analysis?
a. Selling prices change only at the end of the month.
b. Costs can be thought of as fitting a linear function within the relevant range.
c. Sales mix is constant.
d. Inventory levels do not change.