Q: If sales revenue is $$4,500,000, the contribution margin ratio is 28%, and fixed expenses are 569$$,800, what is the operating income?

$$4,500,000 \times 0.28 - 569,800 = 690,200$$

Q: A company’s margin of safety in units is calculated as:

$$\text{Actual (or Target) Sales Units} - \text{Breakeven Sales Units}$$

Question 1

A company sells a product for $$25 per unit. The variable cost per unit is 17.90. If $$the company sells 120,000 units, what is the total contribution margin?

Accepted Answer

$852,000

Question 2

Given a contribution margin per unit of $$7.10 and fixed expenses of 569$$,800, how many units must be sold to break even?

Accepted Answer

$$569,800 \div 7.10 = 80,267$$ units

Question 3

If the contribution margin ratio is 28% and fixed expenses are $569,800, what is the breakeven point in sales revenue?

Accepted Answer

$$569,800 \div 0.28 = 2,035,000$$

Question 4

A company wants to earn an operating income of $$495,200. If the contribution margin per unit is 7.10 $$and fixed expenses are $569,800, how many units must be sold?

Accepted Answer

$$(569,800 + 495,200) \div 7.10 = 150,000$$ units

Question 5

If sales revenue is $$4,500,000, the contribution margin ratio is 28%, and fixed expenses are 569$$,800, what is the operating income?

Accepted Answer

$$4,500,000 	imes 0.28 - 569,800 = 690,200$$

Question 6

Which of the following changes will decrease the breakeven point in units, assuming all other factors remain constant?

Accepted Answer

An increase in the sales price per unit

Question 7

A company’s margin of safety in units is calculated as:

Accepted Answer

$$	ext{Actual (or Target) Sales Units} - 	ext{Breakeven Sales Units}$$

Question 8

If a company’s fixed costs increase, what is the effect on the contribution margin per unit and the breakeven point?

Accepted Answer

Contribution margin per unit remains unchanged; breakeven point increases

Question 9

Which of the following best describes operating leverage?

Accepted Answer

The relative proportion of fixed versus variable costs in a company’s cost structure

Question 10

A company sells 950 units per month and needs to sell 500 units to break even. What is the margin of safety as a percentage?

Accepted Answer

$$\frac{950 - 500}{950} = 47.4\%$$

Question 11

If the variable cost per unit decreases while the sales price per unit remains constant, what will happen to the contribution margin per unit and the breakeven point?

Accepted Answer

Contribution margin per unit increases; breakeven point decreases

Question 12

A company’s sales price per unit is $$35, variable cost per unit is 21$$, and fixed expenses are $7,000. What is the breakeven point in units?

Accepted Answer

$$7,000 \div (35 - 21) = 500$$ units

Question 13

If a company wants to earn a target operating income of $$4,900, with fixed expenses of 7$$,000 and a contribution margin per unit of $14, how many units must be sold?

Accepted Answer

$$(7,000 + 4,900) \div 14 = 850$$ units

Question 14

Which of the following statements about the contribution margin ratio is correct?

Accepted Answer

It represents the percentage of each sales dollar available to cover fixed expenses and profit

Question 15

A company’s sales revenue is $$19,250, variable expenses are 11$$,550, and fixed expenses are $7,000. What is the operating income?

Accepted Answer

$$19,250 - 11,550 - 7,000 = 700$$

Question 16

If a company’s contribution margin ratio is 40%, what percentage of sales revenue is used for variable expenses?

Accepted Answer

60%

Question 17

Which of the following industries is most likely to have high operating leverage?

Accepted Answer

Theme parks

Question 18

If a company’s sales price per unit increases, what is the expected effect on the contribution margin per unit and the breakeven point?

Accepted Answer

Contribution margin per unit increases; breakeven point decreases

Cost-Volume-Profit Analysis: Contribution Margin and Operating Income

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