Q: Which formula correctly calculates the contribution margin ratio?

$$\frac{\text{Contribution Margin}}{\text{Sales}}$$

Question 1

A company sells a product for $$\50$ per unit. The variable cost per unit is $$\$$30$$, and total fixed costs are $$\40$$,000$. What is the break-even point in units?

Accepted Answer

$$\frac{\40$$,000}{\$$50 - \30$$} = 2,000$ units

Question 2

Which of the following best describes the contribution margin per unit?

Accepted Answer

Sales price per unit minus variable cost per unit

Question 3

A company is considering dropping a product line. Which cost should NOT be considered in the decision?

Accepted Answer

Allocated fixed overhead that will not change

Question 4

If a company wants to achieve a target profit of $$\60$$,000$$, with a contribution margin per unit of $$\$$15$$ and fixed costs of $$\45$$,000$, how many units must be sold?

Accepted Answer

$$\frac{\45$$,000 + \$$60,000}{\15$$} = 7,000$ units

Question 5

Which of the following is a relevant cost in a make-or-buy decision?

Accepted Answer

Incremental cost of making the product internally

Question 6

A company has limited machine hours and must choose between two products. What should be the primary basis for the decision?

Accepted Answer

Contribution margin per unit of constrained resource

Question 7

Which of the following budgets is most likely to be affected first if sales forecasts are inaccurate?

Accepted Answer

Sales budget

Question 8

A company is offered a special order for 500 units at $$\25$ per unit. Normal selling price is $$\$$40$$ per unit, variable cost is $$\20$ per unit, and fixed costs will not change. Should the company accept the order?

Accepted Answer

Yes, because the special order price exceeds variable cost and fixed costs are unaffected

Question 9

Which formula correctly calculates the contribution margin ratio?

Accepted Answer

$$\frac{	ext{Contribution Margin}}{	ext{Sales}}$$

Question 10

A company is considering whether to sell a product as is or process it further. Which of the following should be considered in the decision?

Accepted Answer

Additional revenue and additional processing costs

Question 11

Which of the following is NOT a reason why budgets are important for management?

Accepted Answer

Budgets guarantee profits

Question 12

If a company has a margin of safety of $$\20$$,000$$ and actual sales of $$\$$100,000$$, what is the break-even sales?

Accepted Answer

$$\100$$,000 - \$$20,000 = \80$$,000$

Question 13

Which of the following is a constraint that may affect short-term decision making?

Accepted Answer

Limited availability of skilled labor

Question 14

A company has the following data: Sales = $$\200$$,000$$, Variable Costs = $$\$$120,000$$, Fixed Costs = $$\50$$,000$. What is the operating leverage?

Accepted Answer

$$\frac{	ext{Contribution Margin}}{	ext{Net Operating Income}} = \frac{\80$$,000}{\$$30,000} = 2.67$$

Question 15

Which of the following is most likely to be a capital expenditure budget item?

Accepted Answer

Purchase of new manufacturing equipment

Question 16

A company is preparing a cash collections budget. Which of the following should be included?

Accepted Answer

Expected cash receipts from customers

Question 17

Which of the following is a special order decision?

Accepted Answer

Accepting a one-time order at a reduced price

Question 18

A company is considering outsourcing its product. Which of the following is a potential disadvantage?

Accepted Answer

Loss of control over production quality

Question 19

Which of the following is an example of a relevant cost in a drop-or-keep decision?

Accepted Answer

Direct materials that will no longer be purchased if the product is dropped

Question 20

Which of the following is a key reason for preparing a budget?

Accepted Answer

To provide a plan for future operations

Cost-Volume-Profit Analysis, Relevant Costs for Short-Term Decisions, and Budgeting in Financial Accounting

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