Cost, volume and profit relationships (CVP analysis)

Multiple choice questions (MCQs)

Your answer is incorrect. The correct answer is “contribution margin” (option 3).

Your answer is incorrect. The correct answer is “sales – variable expenses” (option 4).

Your answer is incorrect. The correct answer is “suffer a loss” (option 1).

Your answer is incorrect. The correct answer is “$8,000” (option 2).

Computation:

Contribution margin: [$12,000 – ($3,000 + $1,000)] = $8,000

Your answer is incorrect. The correct answer is “internal management” (option 4).

Your answer is incorrect. The correct answer is “Revenue = Variable expenses + Fixed expenses” (option 3).

Your answer is incorrect. The correct answer is “Total fixed expenses/Contribution margin per unit” (option 2).

Your answer is incorrect. The correct answer is “variable costs vary in total in direct proportion to changes in the level of activity” (option 3).

Your answer is incorrect. The correct answer is “fixed costs vary on per unit basis but remain the same in total as the level of activity changes” (option 4).

Your answer is incorrect. The correct answer is “contribution margin/sales” (option 1).

Your answer is incorrect. The correct answer is “30%” (option 2).

Your answer is incorrect. The correct answer is “$30” (option 2).

Your answer is incorrect. The correct answer is “40,000 units” (option 3).

Computation:

Break even point in units = Fixed cost/Contribution margin per unit
= $320,000/$8*
= 40,000 units

*$32 – $24 = $8

Your answer is incorrect. The correct answer is “60%” (option 4).

Computation:

Contribution margin percentage = [($500,000 – $200,000)/$500,000] × 100 = 60%

Your answer is incorrect. The correct answer is “$45,000 units” (option 3).

Computation:

No. of units required to sell = (Fixed cost + Target profit)/contribution margin per unit
= ($160,000 + $20,000)/$4*
= 45,000 units

*$16 – $12 = $4

Your answer is incorrect. The correct answer is “$700,000” (option 1).

Computation:

Break even point in dollars = Fixed cost/CM ratio
= $280,000/0.4
= $700,000

Your answer is incorrect. The correct answer is “$2” (option 4).

Computation:

Contribution margin per unit = Fixed cost/Break even point in units
= $8,000/4,000 units
= $2

Your answer is incorrect. The correct answer is “$2,000” (option 3).

Computation:

Selling price per unit = Contribution margin per unit/CM ratio
= $500/0.25
= $2,000

Your answer is incorrect. The correct answer is “$25” (option 1).

Computation:

Contribution margin per unit = Fixed cost/Break even point in units
= $50,000/2,000 units
= $25

Your answer is incorrect. The correct answer is “Actual or budgeted sales – Break even sales” (option 4).

Your answer is incorrect. The correct answer is “$10,000” (option 1).

Computation:

Margin of safety = Actual or budgeted sales – Break even sales
= $25,000 – $15,000
= $10,000

Your answer is incorrect. The correct answer is “$30,000” (option 2).

Computation:

Margin of safety = Actual sales – Break even sales
or
Break even sales = Actual sales – Margin of safety
= $50,000 – $20,000
= $30,000

Your answer is incorrect. The correct answer is “$25,000” (option 3).

Computation:

Actual sales = Break even sales + Margin of safety
= $20,000 + $5,000
= $25,000

Your answer is incorrect. The correct answer is “Contribution margin/Net operating income” (option 4).

Your answer is incorrect. The correct answer is “1.8” (option 2).

Computation:

Operating leverage = Contribution margin/Net operating income
= *$180,000/$100,000**
= 1.8

*Contribution margin = Sales – Variable cost
= $300,000 – $120,000
= $180,000

**Net operating income = Sales – Variable cost – Fixed cost
= $300,000 – $120,000 – $80,000
= $100,000

Your answer is incorrect. The correct answer is “45%” (option 3).

Computation:

Percentage increase in operating income = Degree of operating leverage × Percentage increase in sales
= 3  × 15%
= 45%