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CVP Analysis and Marginal Analysis

CVP Analysis and Marginal Analysis MCQs

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Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and u...

Gross margin per unit for each additional unit sold.
Contribution margin per unit for each additional unit sold.
Fixed costs per unit for each additional unit sold.
Variable costs per unit for each additional unit sold.

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The change in period-to-period operating income when using variable costing can be explained by the change in the

Unit sales level multiplied by the unit sales price.
Finished goods inventory level multiplied by the unit sales price.
Unit sales level multiplied by a constant unit contribution margin.
Finished goods inventory level multiplied by a constant unit contribution margin.

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If inventories are expected to change, the type of costing that provides the best information for breakeven analysis is

Job order costing.
Variable (direct) costing.
Joint costing.
Absorption (full) costing.

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One of the major assumptions limiting the reliability of breakeven analysis is that

Efficiency and productivity will continually increase.
Total variable costs will remain unchanged over the relevant range.
Total fixed costs will remain unchanged over the relevant range.
The cost of production factors varies with changes in technology.

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When used in cost-volume-profit analysis, sensitivity analysis

Determines the most profitable mix of products to be sold.
Allows the decision maker to introduce probabilities in the evaluation of decision alternatives.
Is done through various possible scenarios and computes the impact on profit of various predictions of future events.
Is limited because, in cost-volume-profit analysis, costs are not separated into fixed and variable components.

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Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol is the company’s most profitable product; tridol is the least profita...

The installation of new computer-controlled machinery and subsequent layoff of assembly-line workers.
A decrease in tridol’s selling price.
An increase in the overall market for septine.
An increase in anticipated sales of petrol relative to sales of septine and tridol.

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Which of the following will result in raising the breakeven point?

A decrease in the variable cost per unit.
An increase in the semivariable cost per unit.
An increase in the contribution margin per unit.
A decrease in income tax rates.

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A company’s breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume ...

Decrease by less than the percentage increase in selling price.
Decrease by more than the percentage increase in the selling price.
Increase by the percentage change in variable cost per unit.
Remain unchanged.

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The breakeven point in units increases when unit costs

Increase and sales price remains unchanged.
Decrease and sales price remains unchanged.
Remain unchanged and sales price increases.
Decrease and sales price increases.

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For a profitable company, the amount by which sales can decline before losses occur is known as the

Sales volume variance.
Hurdle rate.
Variable sales ratio.
Margin of safety.

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When an organization is operating above the breakeven point, the degree or amount that sales may decline before losses are incurred is called the

Residual income rate.
Marginal rate of return.
Margin of safety.
Target (hurdle) rate of return.

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Which one of the following is true regarding a relevant range?

Total variable costs will not change.
Total fixed costs will not change.
Actual fixed costs usually fall outside the relevant range.
The relevant range cannot be changed after being established.

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Positive operating income is shown on a cost-volume-profit chart when the

Total variable expense line exceeds the total fixed expense line.
Total expense line exceeds the total sales revenue line.
Total sales revenue line exceeds the total fixed expense line.
Total sales revenue line exceeds the total expense line.

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Breakeven quantity is defined as the volume of output at which revenues are equal to

Marginal costs.
Total costs.
Variable costs.
Fixed costs.

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

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

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Blount, Inc., is considering discontinuing a certain product line if it does not have a margin of safety higher than 15%. The breakeven sales are $76,...

No, because the margin of safety ratio of 17.2% is not better than 15%.
Yes, because the margin of safety ratio of 17.2% is better than 15%.
No, because the margin of safety ratio of 14.7% is not better than 15%.
Yes, because the margin of safety ratio of 14.7% is better than 15%.

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Which one of the following would cause a profitable company’s margin of safety to decrease?

A decrease in sales units.
A decrease in fixed costs.
A decrease in variable costs.
An increase in selling price.

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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. Compan...

Lower Lesser
Lower Greater
Higher Lesser
Higher Greater

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The breakeven point in units sold for Tierson Corporation is 44,000. If fixed costs for Tierson are equal to $880,000 annually and variable costs are ...

$0.05
$20
$44
$88

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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 c...

$0.30
$0.33
$0.5
$0.67

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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?

250
500
800
2000

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Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large indus...

$(4,200,000)
$1,780,000
$(2,520,000)
$(420,000)

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Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large indus...

22,000 units.
11,000 units.
8,400 units.
13,888 units.

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Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large indus...

34%
69%
36%
64%

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Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large indus...

3,960 units.
(1,620) units.
1,604 units.
407 units.

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A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10...

$88,000
$100,000
$110,000
$125,000

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Barnes Corporation manufactures skateboards and is in the process of preparing next yearâ€™s budget. The pro forma income statement for the curre...

$146,341
$636,364
$729,730
$181,818

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Barnes Corporation manufactures skateboards and is in the process of preparing next yearâ€™s budget. The pro forma income statement for the curre...

$729,027
$862,103
$214,018
$474,000

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Romashka, Inc., plans to introduce a new product. The marketing manager forecasts a unit selling price of $500. The variable cost per unit is estimate...

220 units.
275 units.
520 units.
650 units.

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A company makes a product that sells for $30. During the coming year, fixed costs are expected to be $180,000, and variable costs are estimated at $26...

6,000 units.
6,924 units.
45,000 units.
720,000 units.

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Oradell Company sells its single product at a price of $60 per unit and incurs the following variable costs per unit of product: .tg {border-colla...

22,000 units.
44,000 units.
35,200 units.
30,800 units.

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Oradell Company sells its single product at a price of $60 per unit and incurs the following variable costs per unit of product: .tg {border-colla...

.3
.76
.2
.24

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Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the vari...

$9
$8.25
$10
$9.75

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Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the vari...

17500
19250
20000
22000

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Harper and her band want to put on a concert. They have looked at two venues, a small one and a large one, and have compiled the following information...

200
250
300
305

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Harper and her band want to put on a concert. They have looked at two venues, a small one and a large one, and have compiled the following information...

358
375
381
417

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Tonykinn Company is contemplating marketing a new product. Fixed costs will be $800,000 for production of 75,000 units or less and $1,200,000 if produ...

120,000
111,000
96,000
80,000

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A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000. What is the ...

$360,000
$320,000
$288,000
$80,000

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The Childers Company breaks even at an annual sales volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company reported ope...

$800,000
$600,000
75,000
Insufficient information to determine amount of fixed costs.

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A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000. What are the...

$72000
$80000
$288000
$320000

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For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-cost percentage equal to 60% of its $10 per unit selling pr...

$300,000
$500,000
$750,000
$1,050,000

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Oak Fine Furnishings manufactures a wide range of home furnishings. One of their products is an oak headboard. The company currently sells 4,000 headb...

A gross margin of $380,000.
A 50% increase in earnings before interest and taxes.
Fixed costs of $225,000.
Earnings before interest and taxes of $120,000.

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Dimmell has a potential foreign customer that has offered to buy 1,500 tons at $450 per ton. Assume that all of Dimmell’s costs would be at the same...

$297,500
$252,000
$211,500
$256,500

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Kimbeth Carpet cleans carpets for residences and offices. It charges an average price of $100 to clean a standard room. The variable cost per room is ...

800
1000
1500
2000

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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...

$35
$60
$85
$1500

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Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large indus...

$23,850,000
$22,500,000
$21,420,000
$2,700,000

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The data below pertain to the forecasts of XYZ Company for the upcoming year. .tg {border-collapse:collapse;border-spacing:0;} .tg td{font-family...

65,000 units.
36,562 units.
90,000 units.
25,000 units.

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The data below pertain to the forecasts of XYZ Company for the upcoming year. .tg {border-collapse:collapse;border-spacing:0;} .tg td{font-family...

$135,000
$1,015,000
$535,000
$695,000

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Associated Supply, Inc., is considering introducing a new product that will require a $250,000 investment of capital. The necessary funds would be rai...

35,318 units.
32,143 units.
25,575 units.
23,276 units.

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BE&H Manufacturing is considering dropping a product line. It currently produces a multi-purpose woodworking clamp in a simple manufacturing process t...

4,500 units.
5,000 units.
20,000 units.
36,000 units.

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Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the prod...

10,700 units.
12,100 units.
20,000 units.
25,000 units.

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Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the prod...

10,700 units.
12,100 units.
20,000 units.
28,300 units.

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Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit $...

19,300 units.
21,316 units.
22,500 units.
23,800 units.

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A company has just completed the final development of its only product, general recombinant bacteria, which can be programmed to kill most insects bef...

13,017,000 pounds.
14,000,000 pounds.
15,000,000 pounds.
25,600,000 pounds.

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A company that sells its single product for $40 per unit had after-tax net income for the past year of $1,188,000 after applying an effective tax rate...

$20,160,000
$21,600,000
$23,400,000
$26,400,000

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A company that sells its single product for $40 per unit had after-tax net income for the past year of $1,188,000 after applying an effective tax rate...

337,500 units.
346,875 units.
425,000 units.
478,125 units.

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A manufacturer produces a product that sells for $10 per unit. Variable costs per unit are $6 and total fixed costs are $12,000. At this selling price...

$3000
$4000
$5000
$6000

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Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the vari...

22,600 units.
21,960 units.
23,400 units.
21,000 units.

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Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the vari...

$213,750
$257,625
$207,000
$229,500

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For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-cost percentage equal to 60% of its $10 per unit selling pr...

65,000 units.
75,000 units.
77,250 units.
97,500 units.

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Based on potential sales of 1,000 units per year, a new product has estimated costs of $600,000. What is the target price to obtain a 20% return on sa...

$720
$750
$1080
$3000

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The margin of safety is a key concept of CVP analysis. The margin of safety is the

Contribution margin rate.
Difference between budgeted contribution margin and breakeven contribution margin.
Difference between budgeted sales and breakeven sales.
Difference between the breakeven point in sales and cash flow breakeven.

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A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X for every 5 units of Y (2:5). Fixed costs are $49,50...

1,650 composite units.
4,500 composite units.
8,250 composite units.
22,500 composite units.

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Catfur Company has fixed costs of $300,000. It produces two products, X and Y. Product X has a variable cost percentage equal to 60% of its $10 per un...

$300,000
$750,000
$857,142
$942,857

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Catfur Company has fixed costs of $300,000. It produces two products, X and Y. Product X has a variable cost percentage equal to 60% of its $10 per un...

8,571 units.
20,454 units.
23,377 units.
25,714 units.

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Catfur Company has fixed costs of $300,000. It produces two products, X and Y. Product X has a variable cost percentage equal to 60% of its $10 per un...

The company is operating at the breakeven point.
The company earned a profit.
The company sustained a loss.
Cannot be determined from the information given.

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Ticker 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...

The total number of units necessary to break even will decrease.
The overall contribution margin ratio will increase.
Operating income will decrease if the total number of units sold remains constant.
The contribution margin ratios for Products A and B will change.

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Eagle Brand, Inc., produces two products. Data regarding these products are presented below. .tg {border-collapse:collapse;border-spacing:0;} .tg...

100 units of product Y.
250 units of product X.
200 units of product X and 20 units of product Y.
200 units of product X and 50 units of product Y

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Due to a change in market conditions, a company finds that it can sell as many of each of its three main products as it can produce. Which one of the ...

Contribution margin per unit.
Contribution margin per hour of production time available.
Sales price per unit.
Sales price less full absorption cost per hour of production time available.

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During the previous year, Morrison, Inc., produced 200,000 pogo sticks and sold them all for $10 each. The explicit costs of production were $700,000,...

An accounting profit of $1.1 million and an economic profit of $0.
An accounting profit of $1.3 million and an economic profit of $1.1 million.
An accounting profit of $1.3 million and an economic profit of $1.3 million.
An accounting profit of $1.3 million and an economic profit of $1.5 million.

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A normal profit is

The same as an economic profit.
The same as the accountant’s bottom line.
An explicit or out-of-pocket cost.
A cost of resources from an economic perspective.

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A corporation’s net income as presented on its income statement is usually

More than its economic profits because opportunity costs are not considered in calculating net income.
More than its economic profits because economists do not consider interest payments to be costs.
Equal to its economic profits.
Less than its economic profits because accountants include labor costs, while economists exclude labor costs.

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The change in total product resulting from the use of one unit more of the variable factor is known as

The point of diminishing average productivity.
Marginal product.
Marginal cost.
The point of diminishing marginal productivity

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If a firm currently producing 500 units of output incurs total fixed costs of $10,000 and total variable costs of $15,000, the average total cost per ...

$20
$30
$50
$25

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When a firm produces 10,000 units of output, its total variable cost is equal to $50,000. Also, it experiences average fixed costs of $3 per unit. Wha...

$30,000
$50,000
$50,003
$80,000

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Regardless of output, a firm has $4,000 a year in total fixed costs. This same firm has an average variable cost of $3 while producing 1,000 units of ...

$1
$3
$4
$7

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A firm produces only 5 units of output. If total variable cost is $400 and total fixed cost is $200, then

Marginal cost is $120.
Average total cost is $600.
Average fixed cost is $200.
Average variable cost is $80.

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If a firm’s fixed costs are $500 and its average variable costs stay constant despite various levels of output, which of the following must be true?...

Marginal cost will equal average total cost.
Marginal cost will be less than average variable cost.
Average total cost will decrease when output is increased.
Average total cost will be constant.

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The sum of the average fixed costs and the average variable costs for a given output is known as

Long-run average cost.
Average product.
Total cost.
Average total cost.

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The definition of economic cost is

All the dollar costs employers pay for all inputs purchased.
The opportunity cost of all inputs minus the dollar cost of those inputs.
The difference between all implicit and explicit costs of the business firm.
The sum of all explicit and implicit costs of the business firm.

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Jennilyn Jasper, whose annual salary as a flight instructor is $40,000, has just inherited $100,000 after taxes. She is considering quitting her job a...

$245,000 and $46,000.
$245,000 and $140,000.
$100,000 and $46,000.
$100,000 and $40,000.

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Jennilyn Jasper, whose annual salary as a flight instructor is $40,000, has just inherited $100,000 after taxes. She is considering quitting her job a...

Neither an accounting nor an economic profit.
An accounting profit but not an economic profit.
An economic profit but not an accounting profit.
Both an accounting profit and an economic profit.

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Two months ago, Hickory Corporation purchased 4,500 pounds of Kaylene at a cost of $15,300. The market for this product has become very strong, with t...

Remaining 300 pounds of Kaylene Market price of $4.05 per lb.
Market price of $4.05 per lb. Purchase price of $3.40 per lb.
Purchase price of $3.40 per lb. Market price of $4.05 per lb.
4,500 pounds of Kaylene Remaining 300 pounds of Kaylene.

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Verla Industries is trying to decide which one of the following two options to pursue. Either option will take effect on January 1st of the next year....

Irrelevant because it does not affect taxes.
Relevant because it is a decrease in cash outflow.
Irrelevant because it does not affect cash.
Relevant because it is an increase in cash outflows.

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In differential cost analysis, which one of the following best fits the description of a sunk cost?

Direct materials required in the manufacture of a table.
Purchasing department costs incurred in acquiring material.
Cost of the forklift driver to move the material to the manufacturing floor.
Cost of a large crane used to move materials.

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Capital Company has decided to discontinue a product produced on a machine purchased 4 years ago at a cost of $70,000. The machine has a current book ...

$25000
$30000
$55000
$95000

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In a joint manufacturing process, joint costs incurred prior to a decision as to whether to process the products after the split-off point should be v...

Sunk costs.
Relevant costs.
Standard costs.
Differential costs.

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Profits that are lost by moving an input from one use to another are referred to as

Out-of-pocket costs.
Cannibalization charges.
Replacement costs.
Opportunity costs.

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In a management decision process, the cost measurement of the benefits sacrificed due to selecting an alternative use of resources is most often refer...

Relevant cost.
Sunk cost.
Opportunity cost.
Differential cost.

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Allred Company sells its single product for $30 per unit. The contribution margin ratio is 45%, and fixed costs are $10,000 per month. Allred has an e...

$9900
$12000
$13500
$16500

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Jeffrey Company sells its single product for $30 per unit. The contribution margin ratio is 45%, and fixed costs are $10,000 per month. Sales were 3,0...

$10000
$13500
$16500
$30000

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Breeze Company has a contribution margin of $4,000 and fixed costs of $1,000. If the total contribution margin increases by $1,000, operating profit w...

Decrease by $1,000.
Increase by more than $1,000.
Increase by $1,000.
Remain unchanged.

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Wilkinson Company sells its single product for $30 per unit. The contribution margin ratio is 45%, and Wilkinson has fixed costs of $10,000 per month....

$30500
$49500
$40500
$90000

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In order to avoid pitfalls in relevant-cost analysis, management should focus on

Variable cost items that differ for each alternative.
Long-run fixed costs of each alternative.
Anticipated fixed costs and variable costs of all alternatives.
Anticipated revenues and costs that differ for each alternative.

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A major difference between economic profit and accounting profit is that economic profit

Allows for more accurate expense accruals.
Minimizes the impact of accounting estimates.
Reduces profits by associated cost of capital.
Adjusts accounting profit by depreciation.

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In the short run in perfect competition, a firm maximizes profit by producing the rate of output at which the price is equal to

Total cost.
Total variable cost.
Average fixed costs.
Marginal cost.

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A characteristic of a monopoly is that

A monopoly will produce when marginal revenue is equal to marginal cost.
There is a unique relationship between the market price and the quantity supplied.
In optimizing profits, a monopoly will increase its supply curve to where the demand curve becomes inelastic.
There are multiple prices for the product to the consumer.

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Monopolistic competition is characterized by a

Relatively large group of sellers who produce differentiated products.
Relatively small group of sellers who produce differentiated products.
Monopolistic market where the consumer is persuaded that there is perfect competition.
Relatively large group of sellers who produce a homogeneous product.

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The distinguishing characteristic of oligopolistic markets is

A single seller of a homogeneous product with no close substitute.
A single seller of a heterogeneous product with no close substitute.
Lack of entry and exit barriers in the industry.
Mutual interdependence of firm pricing and output decisions.

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An industry that is oligopolistic would be best characterized by

One firm selling a product with no close substitutes.
The absence of the profit-maximizing goal.
Significant barriers to entry.
Horizontal or flat demand curves for the output of individual firms.

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