Cost Accounting “ACCT 3120”
Midterm Revision [Part 1]
Week Five - Cost-Volume-Profit Analysis
Question [1]: Choose the correct answers and show your calculations:
1. Contribution margin equals _________________.
a. revenues minus period costs
b. revenues minus product costs
c. revenues minus variable costs
d. revenues minus fixed costs
2. Sherry’s Custom Jewelry sells a single product. 700 units were sold resulting in $7,000 of sales
revenues, $2,800 of variable costs, and 1,200 of fixed costs.
I. Contribution Margin Per unit is ______________.
a. $4.00
b. $4.29
c. $6.00
d. None of these answers are correct
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II. If sales increased by $25,000, operating income will increase by _________.
a. $10,000
b. $15,000
c. $22,000
d. None of these answers are correct
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3. The contribution income statements highlight ______________.
a. gross margin
b. products costs and period costs
c. different product lines
d. variable and fixed costs
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Cost Accounting “ACCT 3120”
4. Fixed costs equal $12,000, unit contribution margin equals $20. And the number of units sold
equal 1,600. Operating Income is ___________.
a. $12,000
b. $20,000
c. $32,000
d. $40,000
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5. If the selling price per unit is $30, variable cost per unit are $20, total fixed costs are $10,000,
the tax rate is 30%, and the company sells 5,000, net income is ____________.
a. $12,000
b. $14,000
c. $28,000
d. $40,000
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6. The margin of safety is the difference between _______________.
a. budgeted expenses and breakeven expenses
b. budgeted revenues and breakeven revenues
c. actual operating income and budgeted operating income
d. actual contribution margin and budgeted contribution margin
7. Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs
are $20,000, while his variable costs are $500 per procedure. What is the margin of safety
assuming 100 procedures were made?
a. 40 procedures
b. 50 procedures
c. 60 procedures
d. 100 procedures
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Cost Accounting “ACCT 3120”
Question [2]: The Chorus Company manufactures and sells pens. Present sales output is
5,000,000 units per year at a selling price of $0.60 per unit. Fixed costs are $1,080,000 per year.
Variable costs are $0.36 per unit.
Required:
1. What is the present operating income for a year?
2. What is the breakeven point in revenues?
3. Compute the new operating income for each of the following independent changes:
a. A $0.048 per unit increase in variable costs.
b. A 10% increase in fixed costs and 10% increase in units sold.
c. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable
costs per unit, and a 40% increase in units sold.
4. How many units are need for Chorus company to achieve a target income of $200,000?
Solution [1]:
Solution [2]:
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Solution [3]:
a. A $0.048 per unit increase in variable costs:
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Cost Accounting “ACCT 3120”
b. A 10% increase in fixed costs and 10% increase in units sold.
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c. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable
costs per unit, and a 40% increase in units sold.
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Solution [4]:
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