Chapter 22: Cost-Volume-Profit Analysis
Total cost = Fixed cost + Variable cost
$
$......per unit
Contibution magin = sales - variable costs
Contribution margin per unit = Sales price per unit - Total variable cost per unit
Break-even point
𝐛𝐫𝐞𝐚𝐤 − 𝐞𝐯𝐞𝐧 𝐬𝐚𝐥𝐞𝐬 𝐢𝐧 𝐝𝐨𝐥𝐥𝐚𝐫𝐬 =
Income / Target income
𝐭𝐨𝐭𝐚𝐥 𝐟𝐢𝐱𝐞𝐝 𝐜𝐨𝐬𝐭𝐬
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐦𝐚𝐫𝐠𝐢𝐧 𝐫𝐚𝐭𝐢𝐨
Margin of safety
Margin of safety in dollars = expected sales – Breakeven sales
42. A cost that remains the same in total even when volume of activity varies is a:
A. Fixed cost.
B. Curvilinear cost.
C. Variable cost.
D. Step-wise variable cost.
E. Standard cost.
43. A cost that changes in proportion to changes in volume of activity is a(n):
A. Differential cost.
B. Fixed cost.
C. Incremental cost.
D. Variable cost.
E. Product cost.
56. If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in
dollars is:
A. $60,000.
B. $250,000.
C. $190,000.
D. $440,000.
E. $24,000.
57. The excess of expected sales over the sales level at the break-even point is known as the:
A. Sales turnover.
B. Profit margin.
C. Contribution margin.
D. Relevant range.
E. Margin of safety.
58. A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be
$60,000. If the variable costs per unit are $5, total fixed costs must be:
A. $65,000.
B. $90,000.
C. $125,000.
D. $215,000.
E. $275,000.
59. During its most recent fiscal year, Simon Enterprises sold 200,000 electric screwdrivers at a price of $15
each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have
been reported as variable costs in the company's contribution margin income statement for the year in
question?
A. $2,400,000.
B. $1,600,000.
C. $3,000,000.
D. $2,000,000.
E. $1,000,000.
60. Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are
$200,000, what is the margin of safety as a percent of sales?
A. 6%.
B. 25%.
C. 33%.
D. 50%.
E. 75%.
61. A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000.
If the firm wants to earn $35,000 pretax income, how many units must be sold?
A. 6,500.
B. 6,000.
C. 500.
D. 5,000.
E. 5,500.
62. Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will
pretax income equal if sales are $325,000?
A. $57,500.
B. $122,500.
C. $130,000.
D. $181,250.
E. $252,500.
63. Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs
amount to $25 per unit. Next year Conan Company wishes to earn a pretax income that equals 10% of
fixed costs. How many units must be sold to achieve this target income level?
A. 1,120.
B. 8,214.
C. 11,200.
D. 12,320.
E. 14,080.
64. Ivan Company has a goal of earning $70,000 after-tax income. Ivan would need to pay $20,000 of
income taxes at the target level of income. The contribution margin ratio is 30%. What amount of dollar
sales must be achieved to reach the goal if fixed costs are $36,000?
A. $23,333.
B. $36,000.
C. $300,000.
D. $353,333.
E. $420,000.
65. Use the following information to determine the margin of safety in
dollars:
A. $88,500.
B. $108,500.
C. $173,600.
D. $326,400.
E. $500,000.
66. The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If
Griffith Corporation's income tax rate is 40%, compute the number of units that must be sold in order to
achieve a target pretax income of $130,000.
A. 53,165.
B. 81,250.
C. 36,207.
D. 50,000.
E. 58,621.
67. The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If
Griffith Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would
be:
A. $172,420.
B. $150,000.
C. $262,500.
D. $275,862.
E. $310,115.
68. In cost-volume-profit analysis, the unit contribution margin is:
A. Sales price per unit less cost of goods sold per unit.
B. Sales price per unit less unit fixed cost per unit.
C. Sales price per unit less total variable cost per unit.
D. Sales price per unit less unit total cost per unit.
E. The same as the contribution margin ratio.
69. The contribution margin ratio:
A. Is the percent of each sales dollar that remains after deducting total unit variable cost.
B. Is the percent of each sales dollar that remains after deducting total unit fixed cost.
C.Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers'
incomes.
D. Cannot be used in conjunction with other analytical tools.
E. Is the same as the unit contribution margin.
70. Total contribution margin in dollars divided by pretax income is the:
A. Degree of operating leverage.
B. Contribution margin ratio.
C. Margin of safety.
D. Sales mix.
E. Break-even point in units.
78. A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed
costs are $98,000.The contribution margin per unit is:
A. $5.00.
B. $7.00.
C. $8.17.
D. $12.00.
E. $17.00.
79. A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed
costs are $98,000. The break-even point in units is:
A. 5,158.
B. 7,000.
C. 8,167.
D. 14,000.
E. 19,600.
80. Brown Company's contribution margin ratio is 24%. Total fixed costs are $84,000. What is Brown's
break-even point in sales dollars?
A. $20,160.
B. $110,526.
C. $350,000.
D. $240,000.
E. $84,000.
81. A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000.
What is the break-even point in dollar sales?
A. $2,100.
B. $6,000.
C. $420,000.
D. $646,154.
E. $1,200,000.
82. A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If
the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the
selling price does not change, break-even point in units would:
A. Increase by 20,000.
B. Equal 6,000.
C. Increase by 6,000.
D. Decrease by 20,000.
E. Not change.
83. The difference between sales price per unit and variable cost per unit is the:
A. Gross profit from sales.
B. Gross margin per unit.
C. Fixed cost per unit.
D. Margin of safety per unit.
E. Contribution margin per unit.
84. The contribution margin per unit expressed as a percentage of the product's selling price is the:
A. Volume variance.
B. Margin of safety.
C. Contribution margin ratio.
D. Break-even point.
E. Rate of return on sales.
85. A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760,
and its variable costs are $90 per unit. The company's break-even point in units is:
A. 2,292.
B. 573.
C. 764.
D. 327.
E. 840.
86. A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760,
and its variable costs are $90 per unit. The company's break-even point in dollars is:
A. $91,680.
B. $68,760.
C. $2,292.
D. $275,040.
E. $206,280.
87. A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75
per unit. What is the company's break-even point in dollar sales?
A. $60,000.
B. $128,571.
C. $180,000.
D. $210,000.
E. $300,000.
88. Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit is $1.70. Lee's
total fixed costs are $10,500. How many widgets must Lee Company sell to break even?
A. 5,250.
B. 6,176.
C. 35,000.
D. 52,500.
E. 61,760.
89. The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost
per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the
contribution margin per unit?
A. $7.50.
B. $16.25.
C. $23.75.
D. $60,000.
E. $1.25.
90. Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio
of 22.5%. What is the selling price of the product?
A. $5.
B. $20.
C. $30.
D. $40.
E. $50.
91. Yamaguchi Company's break even point in units is 1,000. The sales price per unit is $10 and variable
cost per unit is $7. If the company sells 2,500 units, what will net income be?
A. $4,500
B. $7,500
C. $17,000
D. $35,000
E. Fixed costs must be known in order to predict net income.
92. Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and variable costs
are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000
per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new
machine have on Mueller's break-even point in units?
A. 4,444 unit increase.
B. 9,850 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
93. At Flint Company's break-even point of 9,000 units, fixed costs are $180,000 and variable costs are
$540,000 in total. The unit sales price is:
A. $20.
B. $40.
C. $60.
D. $80.
E. $100.
94. Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss
of $250 is anticipated. The break-even point in sales dollars is:
A. $1,750.
B. $2,500.
C. $4,000.
D. $4,250.
E. $4,375.
95. During a recent fiscal year, Dawson Company reported pretax income of $125,000, a contribution
margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:
A. $1,100,000.
B. $1,200,000.
C. $500,000.
D. $1,600,000.
E. $2,100,000.
96. In Davis Corporation's most recent fiscal year, the company reported pretax earnings of $215,000.
Fixed costs totaled $325,800, the unit selling price of the firm's only product was $60, and the variable
costs per unit were 40% of the selling price. Based on this information, the firm's break-even point in
units was:
A. 13,575 units.
B. 15,023 units.
C. 13,750 units.
D. 9,050 units.
E. 8,750 units.
100.A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The
firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. The
contribution margin per composite unit is:
A. $12.
B. $20.
C. $32.
D. $44.
E. $52.
101.A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The
firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is
the firm's break-even point in units of A and B?
A. 31,000 of A and 31,000 of B.
B. 31,000 of A and 62,000 of B.
C. 10,333 of A and 20,667 of B.
D. 36,167 of A and 72,333 of B.
E. 62,000 of A and 31,000 of B.
102.The ratio of the sales volume for the various products sold by a company is called the:
A. Current product mix.
B. Relevant mix.
C. Sales mix.
D. Inventory cost ratio.
E. Production ratio.
103.Baker Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product
are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed
costs are $320,000. What is the break-even point in composite units?
A. 1,111.
B. 1,600.
C. 2,666.
D. 4,000.
E. 5,000.
104.Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost
data are:
Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to
the nearest thousand):
A. $20,000.
B. $289,000.
C. $400,000.
D. $629,000.
E. $740,000.
105.Wayward Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells
for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit
contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution
margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational
models. If the firm's annual fixed costs total $6,500,000, calculate the firm's break-even point in sales
dollars.
A. $13,250,000.
B. $13,000,000.
C. $12,750,000.
D. $12,900,050.
E. $12,750,625.
106.Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable
costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by
$11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the contribution margin per
unit if the machine is purchased.
A. $22.50.
B. $26.00.
C. $29.50.
D. $28.50.
E. $27.50.
107.Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable
costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by
$11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in units if
the new machine is purchased.
A. 10,438 units.
B. 8,814 units.
C. 10,000 units.
D. 9,200 units.
E. 9,869 units.
108.Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable
costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by
$11,400 per year, but will decrease variable costs by $3.50 per unit. What effect would the purchase of
the new machine have on Winthrop's break-even point in units?
A. 800 unit increase.
B. 800 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
109.Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable
costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by
$11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in dollars
with the purchase of the new machine.
A. $500,000.
B. $440,678.
C. $521,923.
D. $480,000.
E. $460,000.
110.Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for
$75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the
contribution margin per composite unit.
A. $270.
B. $240.
C. $300.
D. $330.
E. $285.
111.Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for
$75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the
break-even point in composite units.
A. 1,748.
B. 1,468.
C. 1,550.
D. 1,395.
E. 1,270.
112.Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for
$75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the
number of units of Product A Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 5,580.
D. 3,100.
E. 9,300.
113.Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for
$75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the
number of units of Product Z Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 2,540.
D. 3,100.
E. 2,790.
114.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are
$300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution
margin per unit.
A. $480.
B. $300.
C. $200.
D. $190.
E. $180.
115.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are
$300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution
margin ratio.
A. 37.5%.
B. 62.5%.
C. 55.0%.
D. 50.0%.
E. 47.5%.
116.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are
$300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even
point in units.
A. 3,750.
B. 10,000.
C. 5,500.
D. 3,300.
E. 6,000.
117.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are
$300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even
point in dollars.
A. $2,790,000.
B. $2,640,000.
C. $2,880,000.
D. $2,475,000.
E. $2,500,000.
118.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs
are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Dunkin company
management targets an annual after-tax income of $843,750. The company is subject to a 25% income
tax rate. Compute the unit sales to earn the target after-tax net income.
A. 12,000.
B. 10,188.
C. 6,672.
D. 11,750.
E. 14,688.
119.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs
are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Dunkin company
management targets an annual after-tax income of $843,750. The company is subject to a 25% income
tax rate. Compute the dollar sales to earn the target after-tax net income.
A. $4,890,000.
B. $5,640,000.
C. $4,327,500.
D. $5,043,750.
E. $5,050,000.
120.Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are
$300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the current margin
of safety in dollars for Dunkin Company.
A. $3,210,000.
B. $2,640,000.
C. $1,560,000.
D. $2,440,000.
E. $3,500,000.
42. A
43. D
56. A
57. E
58. B
59. D
60. B
61. A
62. B
63. D
64. E
65. C
66. E
67. D
68. C
69. A
70. A
78. B
79. D
80. C
81. E
82. E
83. E
84. C
85. A
86. D
87. E
88. C
89. A
90. E
91. A
92. E
93. D
94. E
95. B
96. D
100. E
101. B
102. C
103. E
104. D
105. B
106. C
107. D
108. B
109. E
110. A
111. C
112. B
113. D
114. E
115. A
116. C
117. B
118. D
119. B
120. C