1.

A company has a machine with an operating capacity of 400 machine hours per
month. The company can produce Product X or Product Y with the machine. Further
information is shown below.

X Y
Machine hours to produce one unit 15 10
Maximum sales units per month 30 60

Selling price per unit $600 $500

Contribution margin per unit 200 150

The company currently produces and sells 10 units of X and 15 units of Y per month.
Assume that the operating capacity of the machine could be increased from 400 to
500 machine hours per month. Which new combination of monthly production and
sales of X and Y is feasible and would generate the highest operating profit?

A.X = 10 and Y = 40.

B.X = 18 and Y = 23.
C.X = 0 and Y = 50.
D.X = 15 and Y = 20.

2. Jack Blaze wants to rent store space in a new shopping mall for the three month
holiday shopping season. Blaze believes he has a new product available which has
the potential for good sales. The product can be obtained on consignment at the cost
of $20 per unit and he expects to sell the item for $100 per unit. Due to other
business ventures, Blaze's risk tolerance is low. He recognizes that, as the product is
entirely new, there is an element of risk. The mall management has offered Blaze
three rental options: (1) a fixed fee of $8,000 per month, (2) a fixed fee of $3,990 per
month plus 10% of Blaze's revenue, or (3) 30% of Blaze's revenues. Which one of
the following actions would you recommend to Jack Blaze?
A. Choose the third option no matter what Blaze expects the revenues to be.
B. Choose the first option no matter what Blaze expects the revenues to be.
C. Choose the second option no matter what Blaze expects the revenues to be.
D. Choose the second option only if Blaze expects revenues to exceed $5,700.
3. United Industries manufactures three products at its highly automated factory. The
products are very popular, with demand far exceeding the company's ability to
supply the marketplace. To maximize profit, management should focus on each
product's
A. Segment margin.
B. Gross margin.
C. Contribution margin ratio.
D. Contribution margin per machine hour.

4. Siberian Ski Company recently expanded its manufacturing capacity, which will
allow it to produce up to 15,000 pairs of cross-country skis of the mountaineering
model or the touring model. The Sales Department assures management that it can
sell between 9,000 pairs and 13,000 pairs of either product this year. Because the
models are very similar, Siberian Ski will produce only one of the two models.
The following information was compiled by the Accounting Department.

Per Unit (Pair) Data

Mountaineering Touring
Selling price $88.00 $80.00
Variable costs 52.80 52.80
Fixed costs will total $369,600 if the mountaineering model is produced but will be
only $316,800 if the touring model is produced. Siberian Ski is subject to a 40%
income tax rate.
The sales revenue at which Siberian Ski Company would make the same profit or
loss regardless of the ski model it decided to produce is
A.$422,400.
B.$686,400.
C.$924,000.
D.$880,000.
5. Siberian Ski Company recently expanded its manufacturing capacity, which will
allow it to produce up to 15,000 pairs of cross-country skis of the Mountaineering
model or the Touring model. The Sales Department assures management that it can
sell between 9,000 pairs and 13,000 pairs of either product this year. Because the
models are very similar, Siberian Ski will produce only one of the two models.
The following information was compiled by the Accounting Department.

Per Unit (Pair) Data

Mountaineering Touring
Selling price $88.00 $80.00
Variable costs 52.80 52.80
Fixed costs will total $369,600 if the Mountaineering model is produced but will be
only $316,800 if the Touring model is produced. Siberian Ski is subject to a 40%
income tax rate.
If Siberian Ski Company desires an after-tax net income of $24,000, how many pairs
of Touring model skis will the company have to sell?
A. 4,460 pairs.
B.13,853 pairs.
C.12,529 pairs.
D.13,118 pairs.

6. Which one of the following factors is least likely to be taken into account when
analyzing a company’s selling expenses?
A. Possibility that the expense, such as sales promotion expense, will yield future
benefits.
B. Percentage of variable and fixed selling expenses in relation to revenue.
C. Changes in the unit selling prices.
D. Variance of the expense compared with prior years.

7. Moorehead Manufacturing Company produces two products for which the

following data have been tabulated. Fixed manufacturing cost is applied at a rate of
$1.00 per machine hour.

Per Unit XY-7 BD-4

Selling price $4.00 $3.00
Variable manufacturing cost $2.00 $1.50
Fixed manufacturing cost $0.75 $0.20
Variable selling cost $1.00 $1.00
The sales manager has had a $160,000 increase in the budget allotment for
advertising and wants to apply the money to the most profitable product. The
products are not substitutes for one another in the eyes of the company's customers.
Suppose Moorehead has only 100,000 machine hours that can be made available to
produce additional units of XY-7 and BD-4. If the potential increase in sales units for
either product resulting from advertising is far in excess of this production capacity,
which product should be advertised and what is the estimated increase in
contribution margin earned?
A. Product XY-7 should be produced, yielding a contribution margin of $133,333.
B. Product BD-4 should be produced, yielding a contribution margin of $250,000.
C. Product BD-4 should be produced, yielding a contribution margin of $187,500.
D. Product XY-7 should be produced, yielding a contribution margin of $75,000

8. For the year just ended, Silverstone Company's sales revenue was $450,000.
Silverstone's fixed costs were $120,000 and its variable costs amounted to
$270,000. For the current year sales are forecasted at $500,000. If the fixed costs
change to $150,000, Silverstone's profits this year will be:
A. $50,000.

B. $110,000.

C. $60,000.

D. $200,000.

9. Milton Manufacturing occasionally has capacity problems in its metal shaping

division, where the chief cost driver is machine hours. In evaluating the
attractiveness of its individual products for decision-making purposes, which
measurement tool should the firm select?
A. If machine hours do not constrain the number of units produced, gross profit. If
machine hours constrain the number of units produced, contribution margin.
B. If machine hours do not constrain the number of units produced, contribution
margin. If machine hours constrain the number of units produced, contribution
margin per machine hour.
C. If machine hours do not constrain the number of units produced, contribution
margin. If machine hours constrain the number of units produced, contribution
margin ratio.
D. If machine hours do not constrain the number of units produced, contribution
margin per machine hour. If machine hours constrain the number of units produced,
contribution margin.
10. Kator Co. is a manufacturer of industrial components. One of their products that
is used as a subcomponent in auto manufacturing is KB-96. This product has the
following financial structure per unit:

Selling price $150

Direct materials $20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling 3
Fixed selling and administrative 10
Total costs $90
During the next year, KB-96 sales are expected to be 10,000 units. All of the costs
will remain the same except that fixed manufacturing overhead will increase by 20%
and direct materials will increase by 10%. The selling price per unit for next year will
be $160. Based on this data, the contribution margin from KB-96 for next year will be

A. $1,110,000

B. $1,080,000

C. $620,000

D. $750,000

11. Barnes Corporation manufactures skateboards and is in the process of preparing

next year's budget. The pro forma income statement for the current year is presented
as follows.

Sales $1,500,000
Cost of sales:
Direct materials 250,000
Direct labor 150,000
Variable overhead 75,000
Fixed overhead 100,000
Gross profit $ 925,000
Selling and G&A Variable 200,000
Selling and G&A Fixed 250,000
 Operating income $ 475,000
For the coming year, the management of Barnes Corporation anticipates a 10%
increase in sales, a 12% increase in variable costs, and a $45,000 increase in fixed
expenses. The breakeven point for next year will be
A.$474,000.
B.$729,027.
C.$214,018.
D.$862,103.

12. Two companies produce and sell the same product in a competitive industry.
Thus, the selling price of the product for each company is the same. Company 1 has
a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more
automated, making its fixed costs 40% higher than those of Company 1. Company 2
also has a contribution margin ratio that is 30% greater than that of Company 1. By
comparison, Company 1 will have the _____ breakeven point in terms of revenue
and will have the _____ operating income potential once the indifference point in
sales revenue is exceeded.
A.Lower, Greater
B.Lower, Lesser
C.Higher, Greater
D.Higher, Lesser

13. Cereal Foods produces two organic cereals: Granola Stars and Magic Grain.
Cost data for the two products are shown below:

Granola Stars Magic Grain

Sales price (per 1 kg bag) $11.00 $15.00
Variable costs:
Direct materials $ 2.50 $ 2.85
Direct labor 2.00 2.50
Variable Overhead 2.50 2.95
Variable selling and administrative 1.50 2.00
Cereal Foods can sell any quantity of either of the types of cereals that it produces.
However, its baking ovens can run only 12 hours per day, constraining the quantity
of product that Cereal Foods can produce. The baking ovens can produce 72 kgs of
Granola Stars in one hour; or, the baking ovens can produce 30 kgs of Magic Grain
in one hour.
At what unit contribution margin of Magic Grain will the contribution per oven hour for
Magic Grain be the same as it is currently for Granola Stars?
A.$5.00
B.$6.00
C.$4.70
D.$2.50

14. Stark Theater stages a number of summer musicals at its theater in northern
Ohio. Preliminary planning has just begun for the upcoming season, and Stark has
developed the following estimated data.
Average
Number of Ticket Variable Fixed
Production Attendance per
Performances Price Costs1 Costs2
Performance
Mr.
Wonderful 12 3,500 $18 $3 $165,000

That's Life
20 3,000 $15 $1 $2,49,000
All That
12 4,000 $20 $0 $3,16,000
Jazz

1 Represent payments to production companies and are based on tickets sold.

2 Costs directly associated with the entire run of each production for costumes, sets,
and artist fees.
Stark will also incur $565,000 of common fixed operating charges (administrative
overhead, facility costs, and advertising) for the entire season, and is subject to a
30% income tax rate.
If management desires Mr. Wonderful to produce an after-tax contribution of
$210,000 toward the firm's overall operating income for the year, total attendance for
the production would have to be
A. 25,000
B. 31,000.
C. 20,800.
D. 25,833.
15. Which of the following statements is correct concerning contribution margin per
unit?
A. Contribution margin per unit represents the total revenue left over after paying all
the production costs of goods sold during a period.

B. Contribution margin per unit represents the total revenue left over after paying all
the variable costs incurred in a period.

C. Contribution margin per unit represents the selling price from an individual unit left
over after paying the costs related to producing that individual unit.

D. Contribution margin per unit represents the selling price from an individual unit left
over after paying the variable costs related to producing and selling that individual
unit.

16. The following data pertains to XYZ Company for the current year of operations.

Total Per Unit

Sales (40,000 units) $1,000,000 $25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and general expenses:
Variable 120,000 3
Fixed 225,000
Assuming that XYZ Company sells 80,000 units, what is the maximum that can be
paid for an advertising campaign while still breaking even?

A. $1,015,000
B. $695,000
C. $135,000
D. $535,000
17. For the year just ended, Silverstone Company's sales revenue was $450,000.
Silverstone’s fixed costs were $120,000 and its variable costs amounted to
$270,000. For the current year sales are forecasted at $500,000. If the fixed costs do
not change, Silverstone’s profits this year will be
A. $60,000.
B. $110,000.
C. $200,000.
D. $80,000.

18. Madengrad Company manufactures a single electronic product called

Precisionmix. This unit is a batch-density monitoring device attached to large
industrial mixing machines used in flour, rubber, petroleum, and chemical
manufacturing. Precisionmix sells for $900 per unit. The following variable costs are
incurred to produce each Precisionmix device:

Direct labor $180

Direct materials 240
Factory overhead 105
Total variable production costs $525
Marketing costs 75
Total variable costs $600

Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except
for an operating loss incurred in the year of incorporation, the firm has been
profitable over the last 5 years.
Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct
labor, and a reduction in unit material costs of 25%, with no change in selling price.
Madengrad Company's breakeven point would increase (decrease) (rounded to the
nearest whole unit) by
A.1,604 units.
B.(1,620) units.
C.3,960 units.
D.407 units.
19. An analyst gathers the following data about a financial calculator produced and
sold by a company
Unit selling price = $60
Quantity sold = 100,000
Unit variable costs = $30
Fixed costs = $200,000
What is the contribution margin per unit and total contribution margin?

A. Contribution margin per unit is $23 and total contribution margin is

$3,000,000.

B. Contribution margin per unit is $30 and total contribution margin is

$3,000,000.

C. Contribution margin per unit is $30 and total contribution margin is

$2,300,000.

D. Contribution margin per unit is $23 and total contribution margin is

$2,300,000.

20. A company includes a margin of safety when it examines a new product with a
cost-volume-profit analysis. The total fixed cost of production is $200,000. If the unit
selling price is $80, the unit variable cost is $60, and budgeted revenue is
$1,040,000, what is the margin of safety in units?
A. 13,000 units.
B. 10,000 units.
C. 5,500 units.
D. 3,000 units.

21. A decision-making concept, described as "the contribution to income that is

forgone by not using a limited resource for its best alternative use," is called
A. Opportunity cost.
B. Potential cost.
C. Incremental cost.
D. Marginal cost.

22. Sunk costs

A. In and of themselves are not relevant to decision making.
B. Are fixed costs.
C. Are relevant to decision making.
D. Are substitutes for opportunity costs.
23. The amount remaining from sales revenues after variable expenses are
deducted is the:
A. net income.
B. contribution margin.
C. breakeven point.
D. operating income.

24. A company that sells its single product for $40 per unit uses cost-volume-profit
analysis (CVP) in its planning. The company's after-tax net income for the past year
was $1,188,000 after applying an effective tax rate of 40%. The projected costs for
manufacturing and selling its single product in the coming year are shown below.
Variable cost per unit:
Direct material $5
Direct labor $4
Manufacturing overhead $6
Selling and administrative costs $3
Total variable cost per unit $18
Annual fixed operating costs:
Manufacturing overhead $6,200,000
Selling and administrative costs $3,700,000
Total annual fixed cost $9,900,000
The dollar sales volume required in the coming year to earn the same after-tax net
income as the past year is:
A. $23,400,000
B. $20,160,000
C. $26,400,000
D. $21,600,000

25. A manufacturer is considering introducing a new product that will require a

$250,000 investment of capital. The necessary funds would be raised through a
bank loan at an interest rate of 8%. The fixed operating costs associated with the
product would be $122,500, while the contribution margin percentage would be 42%.
Assuming a selling price of $15 per unit, determine the number of units (rounded to
the nearest whole unit) the manufacturer would have to sell to generate earnings
before interest and taxes (EBIT) of 32% of the amount of capital invested in the new
product.

A. 35,318 units.
B. 32,143 units.
C. 25,575 units.
D.23,276 units.
26. Which of the following statements about contribution margin is correct?
A. An increase in variable selling expenses per unit will increase contribution margin
per unit.
B. An increase in fixed selling expenses per unit will decrease contribution margin
per unit.
C. A decrease in variable selling expenses per unit will increase contribution margin
per unit.
D. A decrease in variable selling expenses per unit will not impact contribution
margin per unit.

27. All of the following are assumptions of cost-volume-profit analysis except

A. Total fixed costs do not change with a change in volume.
B. Revenues change proportionately with volume.
C. Variable costs per unit change proportionately with volume.
D. Sales mix for multi-product situations do not vary with volume changes.

28. A company uses cost-volume-profit (CVP) analysis to evaluate a new product.

The total fixed cost of production is $600,000. If the product would break even with
10,000 units sold per year, and the unit variable cost is $25, the unit selling price is
A. $35
B. $60
C. $85
D. $1500

29. How much does each additional sales dollar contribute toward profit for a firm
with $4 million breakeven level of revenues and $1.2 million in fixed costs including
depreciation?
A. $0.30
B. $0.33
C. $0.50
D. $0.67

30. United Industries manufactures three products at its highly automated factory.
The products are very popular, with demand far exceeding the company's ability to
supply the market. To maximize profit, management should focus on each product's:
A. Contribution margin.
B. Contribution margin per machine hour.
C. Gross margin.
D. Contribution margin ratio.
31. All of the following statements accurately describe an operating breakeven
point except:
A. Above breakeven signifies profits; below breakeven signifies loss.

B. Below breakeven signifies profits; above breakeven signifies loss.

C. Total operating revenues and total operating costs are equal.

D. Operating income is zero.

32. The following information relates to Chris Corporation, which produced and sold
50,000 units during a recent accounting period.
Sales $850,000
Manufacturing costs:
Fixed $2,10,000
Variable $1,40,000
Selling and administrative
costs:
Fixed 3,00,000
Variable $45000
Income tax rate: 40%
For the next accounting period, if production and sales are expected to be 40,000
units, the company should anticipate a contribution margin per unit of
A. $13.30.
B. $7.30.
C. $3.10.
D. $1.86.

33. The BLM Company currently has a contribution margin of $95 per unit. It is
considering increasing sales salaries from $13 per unit to $17 per unit and
decreasing administrative expenses from $15 per unit to $12 per unit. If both of these
changes are implemented, what will be BLM's new contribution margin per unit?

A. $98 per unit.

B. $94 per unit.

C. $91 per unit.

D. $95 per unit.

34. Synergy Inc. produces a component that is popular in many refrigeration
systems. Data on three of the five different models of this component are as follows.
Model
A B C
Volume needed 5,000 6,000 3,000
Manufacturing Costs
Variable Direct Costs $ 10 $ 24 $ 20
Variable Overhead 5 10 15
Fixed Overhead 11 20 17
Total Manuracturing Costs $ 26 $ 54 $ 52
Cost if Purchased $ 21 $ 42 $ 39

Synergy applies variable overhead on the basis of machine hours at the rate of
$2.50 per hour. Models A and B are manufactured in the Freezer Department, which
has a capacity of 28,000 machine processing hours. Which one of the following
options should be recommended to Synergy's management?
A. The Freezer Department's manufacturing plan should include 5,000 units of Model
A and 4,500 units of Model B.

B. Manufacture all three products in the quantities required.

C. The Freezer Department's manufacturing plan should include 2,000 units of

Model A and 6,000 units of Model B.

D. Purchase all three products in the quantities required.

35. Which one of the following would cause a profitable company’s margin of safety
to decrease?
A. A decrease in sales units.
B. A decrease in fixed costs.
C. A decrease in variable costs.
D. An increase in selling price.
36. Relevant costs refer to
A. All fixed costs.
B. Costs that would be incurred within the relevant range of production.
C. Past costs that are expected to be different in the future.
D. Anticipated Future Costs that will differ among various alternatives

37. Relevant or differential cost analysis

A. Considers only variable costs as they change with each decision alternative
B. Considers all variable and fixed costs as they change with each decision
alternative.
C. Allows the decision maker to group all types of costs together to facilitate decision
making.
D. Takes all variable and fixed costs into account to analyze decision alternatives.

38. Ace Manufacturing plans to produce two products, Product C and Product F,
during the next year, with the following characteristics.
Product CProduct F
Selling price per unit $10 $15
Variable cost per unit 8 10
Expected sales (units) 20,000 5,000
Total projected fixed costs for the company are $30,000. Assume that the product
mix would be the same at the breakeven point as at the expected level of sales of
both products. What is the projected number of units (rounded) of Product C to be
sold at the breakeven point?
A. 2,308 units.
B. 15,000 units.
C. 11,538 units.
D. 9,231 units.

39. The number of units produced or the number of units sold describes:
A. cost behaviour.

B. Sales mix.

C. Activity level.

D. Contribution margin.
40. Bran Electronics Co. is developing a new product, surge protectors for high-
Vlogge electrical flows. The following cost information relates to the product:
Particulars Unit Costs
Direct materials $3.25
Direct labor $4.00
Distribution $0.75
The company will also be absorbing $120,000 of additional fixed costs associated
with this new product. A corporate fixed charge of $20,000 currently absorbed by
other products will be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Bran Electronics
sell at a selling price of $14 per unit to increase after-tax income by $30,000? Bran
Electronics' effective income tax rate is 40%.
A. 10,700 units
B. 12,100 units.
C. 20,000 units.
D. 28,300 units.

41. Ace Manufacturing plans to produce two products, Product C and Product F,
during the next year, with the following characteristics.
Product C Product F
Selling price per unit $10 $15
Variable cost per unit $8 $10
Expected sales (units) 20,000 5,000

Total projected fixed costs for the company are $30,000. Assume that the product
mix would be the same at the breakeven point as at the expected level of sales of
both products. What is the projected number of units (rounded) of Product C to be
sold at the breakeven point?

A. 2,308 units.

B. 9,231 units.

C. 15,000 units.

D. 4,286 units.
42. Madengrad Company manufactures a single electronic product called
Precisionmix. This unit is a batch-density monitoring device attached to large
industrial mixing machines used in flour, rubber, petroleum, and chemical
manufacturing. Precisionmix sells for $900 per unit. The following variable costs are
incurred to produce each Precisionmix device:
Direct labor $180
Direct materials $240
Factory overhead $105
Total variable production costs $525
Marketing costs $75
Total variable costs $600
Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except
for an operating loss incurred in the year of incorporation, the firm has been
profitable over the last 5 years.
Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct
labor, and a reduction in unit material costs of 25%, with no change in selling price.
After incorporating these changes, Madengrad Company's contribution margin ratio
would be
A. 64%
B. 36%
C. 69%
D. 34%

43. A company is evaluating a risky business opportunity that would require

$1,000,000 in fixed costs. Variable cost per unit is $45 and the selling price per unit
is $195. The company’s effective income tax rate is 20%. In order to achieve an
expected after-tax profit of $1,600,000, the number of units the company will need to
sell is
A. 10,667
B. 13,334
C. 17,334
D. 20,000

44. BranCo sells coffeemakers for $120 each. The firm currently has variable costs
per unit of $65. If BranCo is able to reduce its variable cost per unit to $58, its
contribution margin ratio will:
A. Decrease by about 6%.
B. Increase by about 6%.
C. Decrease by about 8%.
D. Increase by about 8%.
45. Cost-volume-profit (CVP) analysis is a key factor in many decisions, including
choice of product lines, pricing of products, marketing strategy, and use of productive
facilities. A calculation used in a CVP analysis is the breakeven point. Once the
breakeven point has been reached, operating income will increase by the
A. Variable costs per unit for each additional unit sold
B. Fixed costs per unit for each additional unit sold.
C. Contribution margin per unit for each additional unit sold.
D. Gross margin per unit for each additional unit sold.

46. A detergent company sells large containers of industrial cleaner at a selling price
of $12 per container. Each container of cleaner requires $4.50 of direct materials,
$2.50 direct labor, and $1.00 of variable overhead. The company has total fixed
costs of $2,000,000 and an income tax rate of 40%. Management has set a goal to
achieve a targeted after-tax net income of $2,400,000. What amount of dollar sales
must the company achieve in order to meet its goal?

A. $22,000,000
B. $14,400,000.
C. $18,000,000.
D. $24,000,000.

47. Cassy Corporation makes two types of motors for use in various products.
Operating data and unit cost information for its products are presented below.
Particulars Product A Product B
Annual unit capacity 10,000 20,000
Annual unit demand 10,000 20,000
Selling price $100 $80
Variable manufacturing
$53 $45
cost
Fixed manufacturing cost $10 $10
Variable selling &
$10 $11
administrative
Fixed selling &
$5 $4
administrative
Fixed other administrative $2 $0
Unit operating profit $20 $10
Machine hours per unit 2 1.5

Cassy has 40,000 productive machine hours available. The relevant contribution
margins, per machine hour for each product, to be utilized in making a decision on
product priorities for the coming year, are:
A. Product A - $37.00; Product B - $24.00.
B. Product A - $20.00; Product B - $10.00.
C. Product A - $18.50; Product B - $16.00.
D. Product A - $17.00; Product B - $14.00.

48. Charles Inc. manufactures only one product and is preparing its budget for next
year based on the following information.
Selling price per unit $100
Variable costs per unit $75
Fixed costs $250,000
Effective tax rate 35%
If Charles wants to achieve a net income of $1.3 million next year, its sales must be
A. 90,000 units.
B. 62,000 units.
C. 70,200 units.
D. 80,000 units.

49. Which of the following is not a common application for cost/volume/profit (CVP)
analysis?
A. Deciding whether to replace a piece of equipment.

B. Engaging in capital rationing.

C. Pricing for a new product.

D. Deciding whether to outsource.

50. Recent economic conditions are forcing MIKE to drop its price from $50 to $40
per unit, but the company expects its sales to rise from 600,000 to 750,000 units.
The company produces exactly enough units to meet sales expectations and the
company's current cost of production is $38 per unit. Of that $38 per unit, $10 per
unit is a result of fixed costs, which was calculated by dividing the fixed costs by
expected sales of 600,000. Fixed costs will remain the same despite the price and
production changes. Suppose MIKE would like to maintain a 16% target operating
income on its sales revenue. To achieve this target, the company must lower its
variable cost of production by:
A. $25.60 per unit.

B. $33.60 per unit.

C. $2.40 per unit.

D. $4.40 per unit.

51. Robin Company wants to earn a 6% return on sales after taxes. The company's
effective income tax rate is 40%, and its contribution margin is 30%. If Robin has
fixed costs of $240,000, the amount of sales required to earn the desired return is:
A. $400,000.

B. $1,200,000.

C. $1,000,000.

D. $1,600,000.

52. Trent Company sells two products. Product A provides a contribution margin of
$3 per unit, and Product B provides a contribution margin of $4 per unit. If Trent's
sales mix shifts toward Product A, which one of the following statements is correct?
A. Operating income will decrease if the total number of units sold remains constant.
B. The contribution margin ratios for Products A and B will change.
C. The overall contribution margin ratio will increase.
D. The total number of units necessary to break even will decrease

53. An entity has decided to focus strictly on producing and selling one type of teddy
bear. For the upcoming year, the entity hopes to make a 25% profit on sales. Fixed
costs are set at $51,000, and variable costs are $9.50 per unit. If teddy bears are
sold at $15 each, how many bears must be sold to meet the profit goal?
A. 5,514
B. 9,273
C. 13,600
D. 29,143
54. LINDA Industries produces two products, Crates and Trunks. Per unit selling
prices, costs, and resource utilization for these products are:
Particulars Crates Trunks
Selling price $20 $30
Direct material costs $5 $5
Direct labor costs $8 $10
Variable overhead costs $3 $5
Variable selling costs $1 $2
Machine hours per unit 2 4

Production of Crates and Trunks involves joint processes and use of the same
facilities. The total fixed factory overhead cost is $2,000,000 and total fixed selling
and administrative costs are $840,000. Production and sales are scheduled for
500,000 Crates and 700,000 Trunks. LINDA has a normal capacity to produce a total
of 2,000,000 units in any combination of Crates and Trunks, and maintains no direct
materials, work-in-process, or finished goods inventory.
Due to plant renovations LINDA Industries will be limited to 1,000,000 machine
hours. What is the maximum amount of contribution margin LINDA can generate
during the renovation period?

A. $2,000,000.

B. $8,000,000.

C. $4,000,000.

D. $2,400,000.

55. In a decision analysis situation, which one of the following costs is generally not
relevant to the decision?
A. Differential cost
B. Historical cost.
C. Incremental cost.
D. Avoidable cost.
56. Mason Enterprises has prepared the following budget for the month of July.

Selling Price Variable Cost

Per Unit Per Unit Unit Sales
Product A $10.00 $4.00 15,000
Product B 15.00 8.00 20,000
Product C 18.00 9.00 5,000

Assuming that total fixed costs will be $150,000 and the mix remains constant, the
breakeven point (rounded to the next whole unit) would be:
A. 21,819 units.

B. 22,223 units.

C. 20,455 units.

D. 6,819 units.

57. Carlos Inc. manufactures only one product and is preparing its budget for next
year based on the following information.
Selling price per unit $ 100
Variable costs per unit $85
Fixed costs $250,000
Effective tax rate 35%
If Carlos wants to achieve a net income of $1.3 million next year, its sales must be:

A. 150,000 units.

B. 70,000 units.

C. 80,000 units.

D. 62,000 units.
58. A company that sells its single product for $40 per unit uses cost-volume-profit
analysis in its planning. The company's after-tax net income for the past year was
$1,188,000 after applying an effective tax rate of 45%. The projected costs for
manufacturing and selling its single product in the coming year are shown below.
Variable cost per unit:
Direct material $5
Direct labor $4
Manufacturing overhead $6
Selling and administrative
$3
costs
Total variable cost per unit $18
Annual fixed operating
costs:
Manufacturing overhead $6,200,000
Selling and administrative
$3,700,000
costs
Total annual fixed cost $9,900,000

The company has learned that a new direct material is available that will increase the
quality of its product. The new material will increase the direct material costs by $3
per unit. The company will increase the selling price of the product to $50 per unit
and increase its marketing costs by $1,575,000 to advertise the higher-quality
product. The number of units the company has to sell in order to earn a 10 percent
before-tax return on sales would be:
A. 412,500 units
B. 337,500 units.
C. 478,125 units.
D. 346,875 units.

59. A company uses cost-volume-profit (CVP) analysis to evaluate a new product.

The total fixed cost of production is $600,000. If the product would break even with
10,000 units sold per year, and the unit variable cost is $25, the unit selling price is
A. $35
B. $60
C. $85
D.$1500
60. Alfred Company sells its single product for $30 per unit. The contribution margin
ratio is 50%, and fixed costs are $10,000 per month. Alfred has an effective income
tax rate of 40%. If Alfred sells 1,000 units in the current month, Allred's variable
expenses would be:
A. $15,000.

B. $20,000.

C. $9,900.

D. $13,500.

61.For a profitable company, the amount by which sales can decline before losses
occur is known as the
A. Sales volume variance.
B. Hurdle rate.
C. Variable sales ratio.
D. Margin of safety.

62. Stark Rehabilitation Hospital is an inpatient institution for severely injured

patients who need intense therapy to recover normal functioning. The hospital has a
maximum capacity of 130 patients. The hospital employs nurses, doctors and
physical therapists. Expenses are as follows:
Medical staff:

 1 nurse for every 20 patients, average cost $66,000 per year per nurse
 1 doctor for every 60 patients, average cost $150,000 per year per doctor
 1 physical therapist for every 10 patients, average cost $80,000 per year per
therapist

The cost per patient per day for meals, medicine and supplies averages $60 per day
per patient.
Utilities cost a base amount of $2,500 per month plus an average of $200 per patient
per month.
Medical and exercise equipment, occupancy expense and administrative expense
total $7,700,000 per year.
The hospital patient census (i.e., number of patients at any one time) varies from a
minimum of 100 patients to fully occupied at 130 patients.
Stark charges $300 per day per patient, and this includes the room, meals, medicine,
supplies and all services.
What items are fixed costs for Stark?
A. Medical and exercise equipment, occupancy expense and administrative expense
B. Utilities
C. Medical staff
D. Meals, medicine and supplies

63. What is the breakeven point in units for a product that sells for $10 if fixed costs
are $4,000 and variable costs are 20% of sales?
A. 250
B. 500
C. 800
D. 2000

64. The opportunity cost of making a component part in a factory with excess
capacity for which there is no alternative use is
A. The total variable cost of the component.
B. Zero.
C. The total manufacturing cost of the component.
D. The fixed manufacturing cost of the component

65. A company includes a margin of safety when it examines a new product with a
cost-volume-profit analysis. The total fixed cost of production is $850,000. If the unit
selling price is $50, the variable cost ratio is 60%, and budgeted revenue is
$2,500,000, what is the margin of safety in units?
A. 13,000 units.
B. 10,000 units.
C. 7,500 units.
D. 3,000 units.

66. An analyst calculates the dollar sales breakeven point for a product as $500,000.
The product sells for $20 per unit. Fixed costs are $150,000. What is the contribution
margin per unit?

A. $17.50.
B. $6.
C. $20.00.
D. $14.00.
67. Geary Manufacturing has assembled the data pertaining to two popular products
as follows. Past experience has shown that the fixed manufacturing overhead
component included in the cost per machine hour averages $10. Geary has a policy
of filling all sales orders, even if it means purchasing units from outside suppliers.
BlenderElectric Mixer
Direct materials $6 $ 11
Direct labor 4 9
Factory overhead at $16 per hour 16 32
Cost if purchased from an outside supplier 20 38
Annual demand (units) 20,000 28,000
If 50,000 machine hours are available, and Geary Manufacturing desires to follow an
optimal strategy, it should
A. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units
as needed.
B. Purchase all units as needed.
C. Produce 25,000 electric mixers and purchase all other units as needed.
D. Produce 20,000 blenders and purchase all other units as needed.

68. GaryCo. has two products, a frozen dessert and ready-to-bake breakfast rolls,
ready for introduction. However, plant capacity is limited, and only one product can
be introduced at present. Therefore, Garyhas conducted a market study, at a cost of
$26,000, to determine which product will be more profitable. The results of the study
follow.
Sales of Desserts at $1.80/unit Sales of Rolls at $1.20/unit
Volume Probability Volume Probability
2,50,000 0.3 2,00,000 0.2
3,00,000 0.4 2,50,000 0.5
3,50,000 0.2 3,00,000 0.2
4,00,000 0.1 3,50,000 0.1

The costs associated with the two products have been estimated by Gary's cost
accounting department and are shown as follows.
Particulars Dessert Rolls
Ingredients per unit $ 0.40 $ 0.25
Direct labor per unit $0.35 $0.3
Variable overhead per unit $0.4 $0.2
Production tooling* $48,000 $25,000
Advertising $30,000 $20,000

*Garytreats production tooling as a current operating expense rather than

capitalizing it as a fixed asset.
Assuming that Garyelects to produce the frozen dessert, the profit that would have
been earned on the breakfast rolls is a(n)
A. Deferrable cost
B. Avoidable cost.
C. Opportunity cost.
D. Sunk cost.

69. Bruce Electronics Co. is developing a new product, surge protectors for high-
voltage electrical flows. The following cost information relates to the product.
Particular Unit Costs
Direct materials $3.25
Direct labor $4.00
Distribution $0.75

The company will also be absorbing $120,000 of additional fixed costs associated
with this new product. A corporate fixed charge of $20,000 currently absorbed by
other products will not be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Bruce
Electronics sell at a selling price of $14 per unit to increase after-tax income by
$30,000? Bruce Electronics' effective income tax rate is 40%.

A. 32,500 units.

B. 28,300 units.

C. 12,100 units.

D. 25,000 units.

70. When setting a product price, breakeven analysis is best exemplified by

consideration of:
A. Competitors' prices.

B. Probable competitive reaction.

C. Sales and costs.

D. Value-added and non-value added features.

71. Cervine Corporation makes motors for various products. Operating data and unit
cost information for its products are presented below.

Product A Product B
Annual unit capacity 10,000 20,000
Annual unit demand 10,000 20,000
Selling price $100 $80
Variable manufacturing cost 53 45
Fixed manufacturing cost 10 10
Variable selling & administrative 10 11
Fixed selling & administrative 5 4
Fixed other administrative 2 0
Unit operating profit $20 $10
Machine hours per unit 2.0 1.5

Cervine has 40,000 productive machine hours available. What is the maximum total
contribution margin that Cervine can generate in the coming year?
A. $740,000.

B. $689,992.

C. $640,008.

D. $333,329.

72. Which of the following statements accurately describes the cost behavior of fixed
costs in response to changes in business activity levels?
A. Total fixed costs change with increases or decreases in activity.

B. Total fixed costs remain constant within the relevant range of activity.

C. Fixed costs on a total and per unit basis both remain constant within the relevant
range of activity.

D. Fixed costs on a total and per unit basis both change with increases or decreases
in activity.
73. Which of the following statements about contribution margin is correct?
A. An increase in variable selling expenses per unit will increase contribution margin
per unit.

B. An increase in fixed selling expenses per unit will decrease contribution margin
per unit.

C. A decrease in variable selling expenses per unit will increase contribution margin
per unit.

D. A decrease in variable selling expenses per unit will not impact contribution
margin per unit.

74. Total production costs of prior periods for a company are listed as follows.
Assume that the same cost behavior patterns can be extended linearly over the
range of 3,000 to 35,000 units and that the cost driver for each cost is the number of
units produced.
Production (units/month): 3,000 9,000 16,000 35,000
Cost X: $23,700 $52,680 $86,490 $178,260
Cost Y: $47,280 $1,41,840 $2,52,160 $5,51,600
The company is concerned about its current operating performance that is
summarized as follows:
Sales ($12.50 per
$300,000
unit)
Variable costs $180,000
Net operating loss ($40000)
How many additional units should have been sold in order for the company to break
even?
A. 12,800
B. 16,000
C. 8,000
D. 32,000

75. A firm is considering discontinuing a certain product line if it does not have a
margin of safety higher than 15%. The breakeven sales are $76,800, and the margin
of safety is $13,200. Based on this information, the controller has recommended that
the firm keep this product line. Did the controller make the appropriate decision?
A. No, because the margin of safety ratio of 17.2% is not better than 15%.
B. Yes, because the margin of safety ratio of 17.2% is better than 15%.
C. No, because the margin of safety ratio of 14.7% is not better than 15%.
D. Yes, because the margin of safety ratio of 14.7% is better than 15%.
76. Denver Corporation manufactures and sells T-shirts imprinted with college
names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost
to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts
to break even. The net income last year was $5,040. Denver's expectations for the
coming year include the following:

 The sales price of the T-shirts will be $9

 Variable cost to manufacture will increase by one-third
 Fixed costs will increase by 10%
 The income tax rate of 40% will be unchanged

If Denver Corporation wishes to earn $22,500 in net income for the coming year, the
company's sales volume in dollars must be
A. Some amount other than those given
B. $229,500
C. $257,625
D. $213,750

77. The amount remaining from sales revenues after variable expenses are
deducted is the:
A. Net income.

B. Breakeven point.

C. Contribution margin.

D. Operating income.

78. BrewCo sells coffeemakers for $120 each. The firm currently has variable costs
per unit of $65. If BrewCo is able to reduce its variable cost per unit to $58, its
contribution margin ratio will:

A. Decrease by about 8%.

B. Increase by about 8%.

C. Decrease by about 6%.

D. Increase by about 6%.

79. Breakeven quantity is defined as the volume of output at which revenues are
equal to
A. Fixed costs.
B. Marginal costs.
C. Variable costs.
D. Fixed costs. And variable costs

80. All of the following statements concerning breakeven analysis are correct except:
A. Contribution margin per unit is used to determine the number of units that need to
be sold to break even.

B. Gross margin per unit is used to determine the number of units that need to be
sold to break even.

C. The breakeven point is defined as the level of activity where total revenues are
equal to total operating costs.

D. The breakeven point is defined as the level of activity where operating income is
zero.