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.