Q: Which formula correctly calculates the contribution margin per unit?

$$\text{Contribution Margin per Unit} = \text{Sales Price per Unit} - \text{Variable Cost per Unit}$$

Q: A company sells two products, A and B. Product A’s contribution margin per unit is $$20 and B’s is 10. If $$the sales mix is 2:1 (A:B), what is the weighted-average contribution margin per unit?

$$\frac{(2 \times 20) + (1 \times 10)}{2 + 1}$$

Question 1

Which of the following best describes a variable cost?

Accepted Answer

A cost that changes in total as volume changes but remains constant per unit.

Question 2

A company incurs $$10,000 in fixed costs and 5 in $$variable costs per unit. If the company produces 2,000 units, what is the total cost?

Accepted Answer

$$10,000 + 2,000 	imes 5$$

Question 3

Which formula correctly calculates the contribution margin per unit?

Accepted Answer

$$	ext{Contribution Margin per Unit} = 	ext{Sales Price per Unit} - 	ext{Variable Cost per Unit}$$

Question 4

A company sells a product for $$100 per unit. Variable costs are 60 $$per unit, and fixed costs are $8,000. What is the breakeven point in units using the contribution margin approach?

Accepted Answer

$$\frac{8,000}{100 - 60}$$

Question 5

Which of the following is NOT an assumption of cost-volume-profit (CVP) analysis?

Accepted Answer

The price per unit changes as volume changes.

Question 6

If the contribution margin ratio is 40% and fixed costs are $12,000, what is the breakeven point in sales dollars?

Accepted Answer

$$\frac{12,000}{0.40}$$

Question 7

A company’s expected sales are $$50,000 and its breakeven sales are 35$$,000. What is the margin of safety?

Accepted Answer

$$50,000 - 35,000$$

Question 8

Which of the following best describes operating leverage?

Accepted Answer

The effect that fixed costs have on changes in operating income as sales volume changes.

Question 9

A company has a contribution margin of $$30,000 and operating income of 10$$,000. What is the degree of operating leverage?

Accepted Answer

$$\frac{30,000}{10,000}$$

Question 10

Which of the following is a correct step in the high-low method for separating mixed costs?

Accepted Answer

Calculate the variable cost per unit using the highest and lowest levels of activity.

Question 11

If a company’s sales price per unit decreases, what is the likely effect on the breakeven point, assuming all other factors remain constant?

Accepted Answer

The breakeven point in units will increase.

Question 12

A company sells two products, A and B. Product A’s contribution margin per unit is $$20 and B’s is 10. If $$the sales mix is 2:1 (A:B), what is the weighted-average contribution margin per unit?

Accepted Answer

$$\frac{(2 	imes 20) + (1 	imes 10)}{2 + 1}$$

Question 13

Which of the following is an example of a mixed cost?

Accepted Answer

Electricity cost that includes a flat fee plus a charge per kilowatt-hour used.

Question 14

If fixed costs increase, what is the effect on the breakeven point, assuming all other factors remain constant?

Accepted Answer

The breakeven point increases.

Question 15

A company wants to earn a target profit of $$15,000. Fixed costs are 10$$,000, the sales price per unit is $$50, and variable cost per unit is 30. $$How many units must be sold to achieve the target profit?

Accepted Answer

$$\frac{10,000 + 15,000}{50 - 30}$$

Question 16

Which of the following best describes the relevant range?

Accepted Answer

The range of volume where total fixed costs and variable cost per unit remain constant.

Question 17

Which of the following is a primary use of sensitivity analysis in CVP?

Accepted Answer

To estimate profit or loss if sales price, cost, or volume changes.

Question 18

Cost stickiness refers to:

Accepted Answer

Costs increasing more when sales volume rises than they decrease when sales volume falls.

Question 19

Which of the following statements about the contribution margin income statement is correct?

Accepted Answer

It classifies costs by behavior (variable and fixed).

Question 20

A company’s sales mix is 3:2 for products X and Y, respectively. If the breakeven point for the sales mix package is 100 units, how many units of product Y must be sold to break even?

Accepted Answer

$$100 	imes \frac{2}{3+2}$$

(20) Cost-Volume-Profit Analysis (CVP): Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards