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CVP Tutorial Sheet

1. This document contains a cost-volume-profit tutorial sheet from the School of Business Administration at the University of Technology. It includes multiple choice and structured questions about break-even analysis, contribution margin, variable costs, fixed costs, and margin of safety for single and multi-product companies. 2. The questions require calculating break-even points, sales volumes needed to achieve profit targets, variable costs, contribution margins, and margin of safety based on given price, cost, sales, and profit information for various products and companies. 3. The document is assessing understanding of fundamental cost-volume-profit concepts through practical application questions.

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Daneille Baker
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193 views4 pages

CVP Tutorial Sheet

1. This document contains a cost-volume-profit tutorial sheet from the School of Business Administration at the University of Technology. It includes multiple choice and structured questions about break-even analysis, contribution margin, variable costs, fixed costs, and margin of safety for single and multi-product companies. 2. The questions require calculating break-even points, sales volumes needed to achieve profit targets, variable costs, contribution margins, and margin of safety based on given price, cost, sales, and profit information for various products and companies. 3. The document is assessing understanding of fundamental cost-volume-profit concepts through practical application questions.

Uploaded by

Daneille Baker
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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UNIVERSITY OF TECHNOLOGY

SCHOOL OF BUSINESS ADMINISTRATION

COST – VOLUME – PROFIT TUTORIAL SHEET

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

1. If variable costs per unit decrease, sales volume at the break-even point will
a. increase
b. decrease
c. remain the same
d. remain the same; however, contribution margin per unit will decrease

2. If fixed costs increase, the break-even point in units will


a. increase
b. decrease
c. remain the same
d. remain the same; however, contribution margin per unit will decrease

3. If the selling price per unit increases, the break-even point in units will
a. increase
b. decrease
c. remain the same
d. remain the same; however, contribution margin per unit will decrease

4. 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
Structured Questions

Single Product

1. Enola, Inc., manufactures a product that sells for $400. The variable costs per unit are as
follows:

Direct materials $100


Direct labor 80
Variable manufacturing overhead 50

During the year, the budgeted fixed manufacturing overhead is estimated to be $500,000, and
budgeted fixed selling and administrative costs are expected to be $250,000. Variable selling
costs are $20 per unit.

Required:

a. Determine the break-even point in units.

b. Determine the number of units that must be sold to earn $300,000 in profit before taxes.

c. Determine the number of units that must be sold to generate an after-tax profit of $90,000 if
there is a 40 percent tax rate.

2. LaVerle, Inc., manufactures a product that sells for $480. The variable costs per unit are as
follows:

Direct materials $160


Direct labor 100
Variable manufacturing overhead 40

During the year, the budgeted fixed manufacturing overhead is estimated to be $100,000, and
budgeted fixed selling and administrative costs are expected to be $40,000. Variable selling
costs are $20 per unit.

Required:

a. Determine the break-even point in units.

b. Determine the number of units that must be sold to earn $60,000 in profit before taxes.

c. Determine the number of units that must be sold to generate an after-tax profit of $60,000 if
there is a 40 percent tax rate
3. Determine the following missing amounts:

Sales $100,000
Total variable costs ?
Contribution margin ?
Total fixed costs $20,000
Net income $12,000
Units sold 100
Price ?
Variable cost per unit ?
Contribution margin per unit ?
Contribution margin ratio ?
Break-even point in units ?

4. The break-even point in units is 2,000 for Lumus Company. Contribution margin per unit
was $20 per unit. What would total sales units if Lumus Company desires a net income of
$45,000?

5. Danna Company has a margin safety of $20,000. The break-even point is $220,000, and the
variable cost ratio is 25 percent. Given this information, what would be the net income?

6. The following information pertains to Kangas Company:

Selling price per unit $250


Variable manufacturing costs per unit $75
Fixed manufacturing costs per unit $90
Variable selling costs per unit $45
Fixed selling costs per unit $20
Expected production and sales 2,000 units
By how many units can Kangas Company's sales decline before losses are incurred?

Multi-Product

1. Information about two products is as follows:


Product C Product D
Selling price per unit $20 $25
Variable costs per unit  11  18
Contribution margin per unit $9 $7
The firm expects 60 percent of its sales (in units) to be Product C (a sales mix of 6:4). Fixed
costs are expected to be $82,000.

What is the Break-even in units?


2. Information about two products is as follows:
Product E Product Z
Selling price per unit $40 $65
Variable costs per unit  15  45
Contribution margin per unit $25 $20

The firm expects 80 percent of its sales (in units) to be Product E (a sales mix of 8:2). Fixed
costs are expected to be $90,000.

Required
a. Calculate the Break-even in units.
b. Calculate the number of units of Product E to be sold if the company is targeting a
before-tax income of $120,000.

3. Lily Fan Company has three products: Economy, Standard, and Deluxe. The following
information is available for the three products:

Economy Standard Deluxe


Selling price $10  $20  $35 
Variable cost $ 8 $13  $24 

Contribution margin $2  $7  $11 


Expected sales 18,000  12,000  6,000 

Fixed costs are $170,500.

Required
a. calculate the break-even sales in dollars for Economy.

b. Calculate the number of units to be sold to achieve a target net income before tax for the
coming year of $62,000.

c. Calculate Lily Fan Company's margin of safety.

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