Q: Kay sells posters for $$35 each, with a variable cost of 21 $$per poster and monthly fixed costs of $7,000. What is the breakeven point in units using the unit contribution margin approach?

$$\text{Breakeven units} = \frac{\7$$,000}{\$$14} = 500$$

Q: A company has a contribution margin ratio of 40%. If fixed costs are $60,000, what is the breakeven point in sales dollars?

$$\text{Breakeven sales} = \frac{\60$$,000}{0.40} = \$$150,000$$

Q: What is the margin of safety in units if actual sales are 1,200 units and breakeven sales are 950 units?

$$\text{Margin of safety (units)} = 1,200 - 950 = 250$$

Q: A company has a contribution margin of $$13,300 and operating income of 6$$,300. What is the operating leverage factor?

$$\text{Operating leverage factor} = \frac{\13$$,300}{\$$6,300} = 2.11$$

Q: A company is considering a special order for 5,000 units at a reduced price. The variable cost per unit is $$8, and the special order price is 10. $$Fixed costs will not change. What is the incremental profit from accepting the order?

$$\text{Incremental profit} = (\10$$ - \$$8) \times 5,000 = \10$$,000$

Question 1

Which of the following best describes the unit contribution margin?

Accepted Answer

The excess of the selling price per unit over the variable cost per unit.

Question 2

Kay sells posters for $$35 each, with a variable cost of 21 $$per poster and monthly fixed costs of $7,000. What is the breakeven point in units using the unit contribution margin approach?

Accepted Answer

$$	ext{Breakeven units} = \frac{\7$$,000}{\$$14} = 500$$

Question 3

If the variable cost per unit increases while all other factors remain constant, what is the effect on the breakeven point?

Accepted Answer

The breakeven point increases.

Question 4

A company has a contribution margin ratio of 40%. If fixed costs are $60,000, what is the breakeven point in sales dollars?

Accepted Answer

$$	ext{Breakeven sales} = \frac{\60$$,000}{0.40} = \$$150,000$$

Question 5

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

Accepted Answer

Inventory levels will change as sales volume changes.

Question 6

A company sells two products, A and B. Product A has a higher contribution margin per unit than Product B. If the company wants to maximize operating income, what should it do?

Accepted Answer

Increase the sales of Product A.

Question 7

What is the margin of safety in units if actual sales are 1,200 units and breakeven sales are 950 units?

Accepted Answer

$$	ext{Margin of safety (units)} = 1,200 - 950 = 250$$

Question 8

A company has a contribution margin of $$13,300 and operating income of 6$$,300. What is the operating leverage factor?

Accepted Answer

$$	ext{Operating leverage factor} = \frac{\13$$,300}{\$$6,300} = 2.11$$

Question 9

Which of the following is a characteristic of a high operating leverage company?

Accepted Answer

Higher fixed costs and lower variable costs.

Question 10

In scenario analysis, which of the following is NOT typically considered?

Accepted Answer

Guaranteed case scenario.

Question 11

Which of the following costs should NOT be considered when making a short-term business decision?

Accepted Answer

Sunk costs.

Question 12

A company is considering a special order for 5,000 units at a reduced price. The variable cost per unit is $$8, and the special order price is 10. $$Fixed costs will not change. What is the incremental profit from accepting the order?

Accepted Answer

$$	ext{Incremental profit} = (\10$$ - \$$8) 	imes 5,000 = \10$$,000$

Question 13

When deciding whether to discontinue a product, which of the following is most important?

Accepted Answer

The product's contribution margin and avoidable fixed costs.

Question 14

A company has a machine-hour constraint. Product X has a contribution margin per unit of $$12 and requires 2 machine hours per unit. Product Y has a contribution margin per unit of 8 $$and requires 1 machine hour per unit. Which product should be emphasized to maximize profit?

Accepted Answer

Product Y, because it has a higher contribution margin per machine hour.

Question 15

In a make-or-buy decision, which of the following is relevant?

Accepted Answer

The variable cost per unit to make the product.

Question 16

Bertolli can sell basic olive oil for $$5 per quart or process it further into gourmet oil for 7 $$per quart. Processing costs an additional $0.75 per quart. What is the incremental profit per quart from processing further?

Accepted Answer

$$\7.00$$ - \$$5.00 - \0.75$$ = \$$1.25$$

Question 17

Which type of data analytics seeks to determine what should be done in a business situation?

Accepted Answer

Prescriptive analytics

Question 18

Which budgeting approach requires managers to justify every dollar in the budget, starting from zero?

Accepted Answer

Zero-based budgeting

Question 19

A merchandiser expects sales of $500,000 in January and wants ending inventory to be 10% of next month's cost of goods sold. If cost of goods sold is 60% of sales, what is the desired ending inventory for January?

Accepted Answer

$$	ext{Ending inventory} = 10\% 	imes (0.60 	imes \520$$,000) = \$$31,200$$

Cost-Volume-Profit Analysis and Short-Term Decision Making in Managerial Accounting

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