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Contribution Contributio N Margin Per Unit Margin Ratio: AMIS 4310 Cost-Volume-Profit Analysis

This document contains 13 multiple choice questions regarding cost-volume-profit analysis concepts like contribution margin, contribution margin ratio, break-even point, margin of safety, degree of operating leverage, and calculating sales volumes needed to reach profit targets. The questions cover calculating effects of price and cost changes, identifying factors that impact break-even point and contribution margin ratio, computing break-even points, margins of safety, and sales volumes required for targeted profits for single and multiple product companies.

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377 views5 pages

Contribution Contributio N Margin Per Unit Margin Ratio: AMIS 4310 Cost-Volume-Profit Analysis

This document contains 13 multiple choice questions regarding cost-volume-profit analysis concepts like contribution margin, contribution margin ratio, break-even point, margin of safety, degree of operating leverage, and calculating sales volumes needed to reach profit targets. The questions cover calculating effects of price and cost changes, identifying factors that impact break-even point and contribution margin ratio, computing break-even points, margins of safety, and sales volumes required for targeted profits for single and multiple product companies.

Uploaded by

sev gsd
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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AMIS 4310

Cost-Volume-Profit Analysis

1. East Company manufactures and sells a single product with a positive contribution
margin. If the selling price and the variable expense per unit both increase 5% and
fixed expenses do not change, what is the effect on the contribution margin per
unit and the contribution margin ratio?

Contributio
Contribution n
margin per margin
unit ratio
A) No change No change
B) Increase Increase
C) Increase No change
D) Increase Decrease

2. The contribution margin ratio always increases when the:


A) break-even point increases.
B) break-even point decreases.
C) variable expenses as a percentage of net sales decrease.
D) variable expenses as a percentage of net sales increase.

3. If a company increases its selling price by $2 per unit due to an increase in its variable
labor cost of $2 per unit, the break-even point in units will:
A) decrease.
B) increase.
C) not change.
D) change but direction cannot be determined.

4. The following information relates to the break-even point at Pezzo Corporation:

Sales dollars...................... $120,000


Total fixed expenses......... $30,000

If Pezzo wants to generate net operating income of $12,000, what will its sales
dollars have to be?
A) $132,000
B) $136,000
C) $168,000
D) $176,000

1
5. The following information relates to Snowbird Corporation:

Sales at the break-even point......... $312,500


Total fixed expenses...................... $250,000
Net operating income..................... $150,000

What is Snowbird's margin of safety?


A) $62,500
B) $187,500
C) $100,000
D) $212,500

6. The following information relates to Zinc Corporation for last year:

Sales........................................................... $500,000
Net operating income................................. $25,000
Degree of operating leverage..................... 5

Sales at Zinc are expected to be $600,000 next year. Assuming no change in cost
structure, this means that net operating income for next year should be:
A) $30,000
B) $45,000
C) $50,000
D) $125,000

7. Tice Company is a medium-sized manufacturer of lamps. During the year a new line
called “Horolin” was made available to Tice's customers. The break-even point
for sales of Horolin is $200,000 with a contribution margin of 40%. Assuming
that the profit for the Horolin line during the year amounted to $100,000, total
sales during the year would have amounted to:
A) $300,000
B) $420,000
C) $450,000
D) $475,000

2
8. Birney Company has prepared the following budget data:

Sales.............................................................. 150,000 units


Selling price.................................................. $25 per unit
Variable expenses......................................... $15 per unit
Fixed manufacturing expenses...................... $800,000
Fixed selling and admin. expenses................ $700,000

An advertising agency claims that an aggressive advertising campaign would


enable the company to increase its unit sales by 20%. What is the maximum
amount that the company can pay for advertising and obtain a net operating
income of $200,000?
A) $100,000
B) $200,000
C) $300,000
D) $550,000

9. Moruzzi Corporation is a single-product company that expects the following operating


results for next year:

Sales........................................................... $320,000
Contribution margin per unit..................... $0.20
Contribution margin ratio.......................... 25%
Degree of operating leverage..................... 8

How many units would Moruzzi have to sell next year to break-even?
A) 50,000
B) 200,000
C) 280,000
D) 350,000

10. Frank Company manufacturers a single product that has a selling price of $20.00 per
unit. Fixed expenses total $45,000 per year, and the company must sell 5,000
units to break even. If the company has a target profit of $13,500, sales in units
must be:
A) 6,000
B) 5,750
C) 6,500
D) 7,925

3
11. Mason Enterprises has prepared the following budget for the month of July:

Selling Variable Unit


price per cost per
unit unit sales
Product A............... $10.00 $4.00 15,000
Product B............... $15.00 $8.00 20,000
Product C............... $18.00 $9.00 5,000

Assuming that total fixed expenses will be $150,000 and the sales mix remains
constant, the break-even point would be closest to:
A) $276,008
B) $235,292
C) $294,545
D) $141,278

12. Mark Corporation produces two models of calculators. The Business model sells for
$60, and the Math model sells for $40. The variable expenses are given below:

Busines
s Math
Mode
Model l
Variable production costs per unit................................... $15 $16
Variable selling and administrative expenses per unit.... $9 $6

The fixed expenses are $75,000 per month. The expected monthly sales of each
model are: Business, 1,000 units; Math, 500 units.

The break-even point for the expected sales mix is (round to nearest whole unit):
A) 833 of each
B) 1,667 Business and 833 Math
C) 1,667 of each
D) 833 Business and 1,667 Math

13. Assume the following cost information for Fernandez Company:

Selling price $120 per unit


Variable costs $80 per unit
Total fixed costs $80,000
Tax rate 40%

4
What minimum volume of sales dollars is required to earn an after-tax net income of
$30,000?
A. $465,000
B. $330,000
C. $390,000
D. $165,000

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