cvp analysis

Accountancy Learning Academy (ALA)AFD. MA-2. Ch # CVP Analysis. Test paper

1. Which of the following is not a true assumption of the accountants approach to break even analysis?a. Costs can easily be divided into their fixed and variable

elementsb. Fixed costs are stable over the relevant range of activityc. Variable costs change in direct proportion to activityd. Cost and revenue functions follow a curvilinear pattern

2. The margin of safety can be expressed as :-a. The excess of selling price over cost of salesb. The difference between actual and budgeted outputc. The difference between actual output and the breakeven

pointd. The excess of stocks held over the expected demand

3. The breakeven point in units is represented by the equation :-a. Fixed costs / Variable costsb. (Sales revenue - Fixed costs)/ Contribution per unitc. Fixed costs / selling price per unitd. Fixed costs / Contribution per unit

4. The breakeven point can be defined as :-a. The level of activity where profits equal fixed costsb. The level of activity at which there is neither a profit or lossc. The level of activity where cash flow is zerod. The level of activity where variable costs are covered by sales

revenue5. Which of the following will occur in break even analysis?

a. As output increases, fixed costs per unit will fallb. As output increases, the selling price per unit will increasec. As output falls total variable costs will stay the samed. As output increases, outside the relevant range, total fixed

costs will stay the same6. In break even analysis which of the following is true?

a. The greater the angle of incidence the greater the risk of the project

b. The greater the angle of incidence, the lower the level of contribution per unit

c. The greater the angle of incidence the more costs the business will incur

d. The greater the angle of incidence the more profit can be earned

7. “contribution” in costing terms is best described as the amount by whicha. Sales revenue exceeds all fixed costsb. Sales revenue exceeds all fixed and variable costsc. Sales revenue exceeds variable production costsd. Sales revenue exceeds variable production and selling costs

8. Which of the following statements is true?a. The break even graph will be useful over all levels of outputb. The break even graph will only be useful over a certain range

of outputc. The total cost line will have a steeper gradient than the total

revenue lined. The slope of the total cost line will increase as more units are

made9. Which of the following is false?

a. If fixed costs increase the breakeven point will increaseb. If the contribution to sales ratio increases the breakeven

point will increasec. If sales price per unit increases the breakeven point will falld. If the contribution to sales ratio increases the breakeven

point will decrease10. Which of the following equations is Correct?

a. Sales revenues = Variable expenses - (Fixed expenses + Operating income)

b. Sales revenues - Variable expenses - Fixed expenses = Operating income

c. Sales revenues + Variable expenses + Fixed expenses = Operating income

d. Sales revenues - Fixed expenses = Variable expenses - Operating income

11. The contribution margin at the break-even pointa. Equals total fixed costs.b. Is zero.c. Plus total fixed costs equals total revenues.d. is greater than variable costs

12. Currently, a company has fixed costs of $32,500, a contribution ratio of 65%, and is selling its product for $12 per unit. If the sales price per unit is increased by $4, how much less will the break-even point in sales be when compared to the current condition?a. $14,411b. $13,414c. $17,500d. $ 5,932

13. The break-even point isa. The volume of activity where all fixed costs are recovered.b. Where fixed costs equal total variable costs.c. Where total revenues equal total costs.d. where total costs equal total contribution margin

14. The profit and loss account for Thomas Manufacturing Company for 2004 is as follows:Sales (10,000 units) £120,000Variable expenses 72,000Contribution margin £48,000Fixed expenses 36,000Operating income £ 12,000What is the contribution margin per unit?a. £7.20b. £1.20c. £4.80d. £120,000

15. In a profit-volume graph,a. The total revenue line crosses the horizontal axis at the

break-even point.b. Beyond the break-even sales volume, profits are maximized

at the sales volume where total revenues equal total costs.c. An increase in unit variable costs would decrease the slope

of the total cost line.d. an increase in the unit selling price would shift the break-

even point in units to the left16. Contribution margin is calculated as

a. Sales minus cost of goods sold.b. Sales minus total variable costs.c. Sales minus total variable manufacturing costs.d. sales minus total variable manufacturing costs and total fixed

manufacturing costs17. The current sales price is $25 per unit and the current variable

cost is $17 per unit. Fixed costs are $40,000. If the sales price is increased by $2, and all other costs remain unchanged, the break-even point in units will:a. increase by 1,000 unitsb. decrease by 1,000 unitsc. decrease by 2,000 unitsd. decrease by 119 units (rounded to nearest unit)

18. In a profit-volume graph,a. 0perating income is the dependent variable and units sold

are the independent variable.b. Units produced are the dependent variable and units sold

are the independent variablec. Sales revenue is the independent variable and operating

income is the dependent variable.

1 Prepared by Irfan Ullah


d. operating profit is the independent variable and volume is the dependent variable

19. If the contribution margin per unit decreases, the break-even point in unitsa. Will increase.b. Will decrease.c. Will remain the same.d. cannot be determined from the information given

20. By how much sales will be decline before losses are incurred?a. Contribution margin.b. Margin of safety.c. Degree of operating leverage.d. Fixed costs.

21. A firm sells widgets for $14 each. The variable costs for each unit are $8. The contribution margin per unit is:a. $ 6b. $12c. $14d. $ 8

22. Company A's fixed costs were $42,000, its variable costs were $24,000 and its sales were $80,000 for the sale of 8,000 units. The company's break-even point in units is:a. 8,000b. 5,000c. 6,000d. 7,000

23. Janet sells a product for $6.25. The variable costs are $3.75. Janet's break-even units are 35,000. What is the amount of fixed costs?a. $ 87,500b. $ 35,000c. $131,250d. $104,750

24. Company A's fixed costs were $45,000, its variable costs were $24,000, and its sales were $80,000. The company's break-even point in sales-dollars is:a. $33,000b. $64,286c. $79,000d. $88,000

25. On a cost-volume-profit chart (break-even graph), the total fixed costs are:a. the point where the sales line intersects the cost

line (Y)b. the point where the sales line crosses the total cost

linec. the point where the total cost line intersects the

cost line (Y)d. the point where the total cost line intersects the

volume line (X)26. When using conventional cost-volume-profit analysis, some

assumptions about costs and sales prices are made. Which one of the following is not one of those assumptions?a. the costs can be expressed as straight lines in a

break-even graphb. the actual variable cost per unit must vary over the

production rangec. the sales price will remain unchanged per unitd. fixed costs will decrease per unit

27. A firm's fixed costs are $54,000, and it sold 350 units at $140 each. The total variable costs were $35,000. The net income or loss of the firm was:a. $40,000 lossb. $40,000 incomec. $14,000 income

d. $ 9,000 loss28. The dollar sales necessary to achieve a target income of $21,000

after taxes of 30% is $450,000. The fixed costs are $240,000. What is the contribution ratio (to the nearest tenth)?a. 53.3%b. 65.0%c. 58.0%d. 60.0%

29. If a firm's margin of safety is 35% on sales of $200,000, then its margin of safety on sales of $300,000 will be (assume fixed costs, the variable cost per unit, and the sales price per unit do not change):a. $105,000b. $170,000c. $100,000d. $ 35,000

30. Let:BES = break-even sales, R = revenue per unit, F = fixed costs, V = variable cost per unit, CMR = contribution ratio, CM = contribution margin per unit, S x R = sales dollars, S = sales in units(S x R) - (F / CMR) is the:a. break-even point in unitsb. break-even point in dollarsc. margin of safetyd. sales mix composite

31. If the margin of safety is 40% of sales, which are $400,000, the break-even point:a. is greater than $400,000b. is $160,000c. is $240,000d. is less than $160,000

32. Data from a company's last period of operations shows sales of 2,000 units, total contribution margin of $50,000, and income after subtracting fixed costs of $30,000 is $20,000. Should the company experience sales of 2,400 units (within the relevant range, no sales price increase), net income will be:a. $40,000b. $30,000c. $10,000d. $20,000

33. 1Which of the following is the correct description of the break-even point?a. Where total revenue equals total fixed costs

b. Where total revenue equals total fixed and variable costs

c. Where total revenue equals total variable costs

d. Where total revenue equals total contribution34. 2In a profit-volume chart, what does the point at which the

contribution line touches the vertical axis represent?

a. Total contribution

b. Total fixed costs

c. The break-even point

d. Total variable costs35. 4Which of the following best describes a fixed cost?

a. A cost that is unaffected by the level of inflationb. A cost that is unaffected by the level of outputc. A cost that is unaffected by timed. A cost that involves a long-term commitment by the business

36. 7Which one of the following best describes the margin of safety? a. The extent to which the total sales exceeds the total fixed

costs



b. The extent to which the total sales exceeds the total fixed and variable costs

c. The extent to which the total sales exceeds the total variable costs

d. Fixed costs/ (Sales revenue per unit – variable costs per unit)37. 9A variable cost is one that:

a. varies directly but not proportionately with output

b. is constant per unit of output irrespective of the level of output

c. varies with the time period

d. will vary according to the general rate of inflation38. 10Nanyang Ltd produces a single product. The selling price is £50

per unit and the variable costs is £30 per unit. The annual fixed costs of the business are £4,000. The company aims to make £10,000 profit during the forthcoming year. How many units must be sold to achieve this target?

a. 280 units

b. 700 units

c. 500 units

d. 200 units39. CVP analysis can be used to study the effect of:

a. changes in selling prices on a company's profitabilityb. Changes in variable costs on a company's profitability.c. Changes in fixed costs on a company's profitability.d. Changes in product sales mix on a company's profitability.e. all of the above

40. Which of the following would produce the largest increase in the contribution margin per unit?a. A 7% increase in selling price.b. A 15% decrease in selling price.c. A 14% increase in variable cost.d. A 17% decrease in fixed cost.e. A 23% increase in the number of units sold

41. Target operating income is $450,000 and fixed costs are $60,000. The sales price per unit is $15, with a contribution margin of 40%. How many sales units are required to achieve the target operating income?a. 100,000 unitsb. 85,000 unitsc. 30,000 unitsd. 34,000 unitse. None of the above

42. Target operating income is $450,000 and fixed costs are $60,000. The sales price per unit is $15, with a contribution margin of 40%. What is the sales volume in dollars required to achieve the target operating income?a. $1,400,000b. $750,000c. $510,000d. $474,000e. $1,275,000

43. The contribution margin ratio is 40%. Operating income is $320,000. What is the margin of safety?a. $800,000b. $128,000c. $672,000d. Cannot be computed from information provided

44. Product A sells for $24 and has a contribution margin ratio of 25%. Sales are expected to decline by 10,000 units over the next accounting period. What will be the loss in operating income?a. $240,000b. $250,000

c. $25,000d. $60,000e. $75,000

45. Fixed costs of $50,000 are expected to increase 20%. The contribution margin per unit of $6 on a sales price of $18 is expected to decrease by 25%. With a projected operating income of $300,000, what must be the projected sales?a. $1,081,081b. $1,400,000c. $1,440,000d. $720,000e. $1,240,000

46. The current sales price is $80 per unit. Variable costs are expected to increase from $65.00 to $67.50 per unit. Fixed costs of $300,000 will not change. How many additional sales units are required in order to maintain an operating income of $360,000?a. 8,000b. 8,800c. 10,800d. 12,000e. 2,800

47. Which of the following is not an assumption underlying cost-volume-profit analysis?a. Sales price per unit is assumed to be constantb. Fixed costs are assumed to remain constant at all levels of

sales within a relevant range of activityc. Variable costs are assumed to remain constant as a

percentage of sales revenued. If more than one product is sold, the proportion of the

various products sold is assumed to remain constante. All the above are true

48. The sales volume in units can be determined by dividing a denominator into the total of fixed costs plus the target operating income. What is the denominator?a. Unit contribution marginb. Margin of safetyc. Contribution margin ratiod. Unit sales pricee. Sales

49. Operating income can be determined by multiplying the contribution margin ratio by what other factor?a. Unit contribution marginb. Margin of safetyc. Variable costs per unitd. Unit sales pricee. Change in sales volume

50. A change in operating income can be determined by multiplying the contribution margin ratio by what other factor?a. Unit contribution marginb. Margin of safetyc. Variable costs per unitd. Unit sales pricee. Change in sales volume



Answers:

s.no s.no

1 d 26 b

2 c 27 a

3 d 28 d

4 b 29 b

5 a 30 c

6 d 31 c

7 d 32 b

8 b 33 b

9 b 34 b

10 b 35 b

11 a 36 b

12 d 37 b

13 c 38 b

14 c 39 e

15 d 40 a

16 b 41 b

17 b 42 e

18 a 43 a

19 a 44 d

20 b 45 c

21 a 46 b

22 c 47 e

23 a 48 a

24 b 49 b

25 c 50 e


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