Q: What is the formula for the contribution margin ratio (CMR)?

$$\text{CMR} = 1 - \text{Variable Cost Ratio}$$

Q: Which formula correctly calculates the break-even point in units?

$$\text{Break-even units} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}}$$

Q: Which of the following is the correct formula for calculating operating income?

$$\text{Operating Income} = \text{Sales} - \text{Variable Expenses} - \text{Fixed Expenses}$$

Question 1

Which of the following best describes the difference between fixed and variable costs in the context of Napco’s plant cleaning scenario?

Accepted Answer

Fixed costs remain constant regardless of the number of times the plant is cleaned, while variable costs change with the number of cleanings.

Question 2

Given Napco’s March labor cost of $21,000 for four cleanings, what is the predicted labor cost if the plant is cleaned six times in a month, assuming labor cost is fixed?

Accepted Answer

$21,000

Question 3

If cleaning supplies are a variable cost and cost $8,000 for four cleanings, what is the cost per cleaning for supplies?

Accepted Answer

$2,000

Question 4

Using the cost-volume-profit (CVP) formula, what is the break-even point in total revenue for a hospital with fixed costs of $42,000,000 and a variable cost ratio of 70%?

Accepted Answer

$140,000,000

Question 5

A vending machine company has fixed monthly costs of $$4,000 and a contribution margin per unit of 0.32. $$What is the monthly break-even point in units?

Accepted Answer

12,500 units

Question 6

If Joann Swanson’s restaurant has fixed costs of $$17,000 per month, an average bill of 18$$, and variable costs of $9.50 per meal, how many meals must she serve to break even?

Accepted Answer

2,000 meals

Question 7

If Children’s Hospital expects total revenue of $150,000,000 and variable costs are 10% greater than predicted, what is the new variable cost?

Accepted Answer

$115,500,000

Question 8

What is the formula for the contribution margin ratio (CMR)?

Accepted Answer

$$	ext{CMR} = 1 - 	ext{Variable Cost Ratio}$$

Question 9

If eBay’s operating expenses in Q1 2001 were $$123 million and fixed costs were 37 $$million, what were the variable costs?

Accepted Answer

$86 million

Question 10

A company’s sales increase by 59%, but its operating income increases by 130%. What concept does this illustrate?

Accepted Answer

Operating leverage

Question 11

If Napco hires an outside cleaning company at $5,700 per cleaning for 19 cleanings next quarter, what is the total cost?

Accepted Answer

$108,300

Question 12

Which of the following best describes the effect of increasing the contribution margin on the break-even point?

Accepted Answer

The break-even point decreases.

Question 13

If a vending machine company increases its contribution margin per unit from $$0.32 to 0.25$$, what happens to the break-even point in units?

Accepted Answer

It increases.

Question 14

Which formula correctly calculates the break-even point in units?

Accepted Answer

$$	ext{Break-even units} = \frac{	ext{Fixed Costs}}{	ext{Contribution Margin per Unit}}$$

Question 15

If Joann Swanson increases her average price per meal from $$18 to 22$$, and variable costs rise to $$11.40 per meal, how many meals must she sell to earn 8$$,500 profit?

Accepted Answer

3,200 meals

Question 16

Which of the following is the correct formula for calculating operating income?

Accepted Answer

$$	ext{Operating Income} = 	ext{Sales} - 	ext{Variable Expenses} - 	ext{Fixed Expenses}$$

Question 17

If a company’s total sales are $$40,000, variable expenses are 26$$,200, and fixed expenses are $11,800, what is the operating income?

Accepted Answer

$2,000

Question 18

Which of the following best describes the contribution margin?

Accepted Answer

Sales minus total variable costs

Question 19

If a company’s fixed costs are $$6,000 and its contribution margin per unit is 0.32$$, what is the break-even point in units?

Accepted Answer

18,750 units

Question 20

If a company’s sales increase but its fixed costs remain unchanged, what happens to the contribution margin ratio?

Accepted Answer

It remains unchanged.

Cost Behavior, CVP Analysis, and Operating Leverage – Financial Accounting Study Guidance

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