CHAPTER 3; Cost Volume Profit

True/False

1.

Determining the number of units that must be produced in order to generate enough profit to cover total fixed costs is one reason for using a break-even analysis.

2.

An expected value is the w eighted average of the outcomes, based on the percentage combinations of the incomes.

3.

Which of the following statements about net income (NI) is TRUE?

a.

b.

NI = operating income plus income taxes.

NI = operating income plus operating costs.

c.

d.

NI = operating income less income taxes.

NI = the absolute (positive) value of income taxes less operating income.

3. paying 25% of her revenue made at the convention.

What would the indifference point be between option 1 and option 2? a. 500 units; b. 400 units; c. 300 units; d. 200 units

7.

The following information is for Winnie Company:

P roduct A:

Product B:

Revenue

$4.00

$6.00

Variable Cost

$1.00

$2.00

Total fixed costs are $40,000.

What is the break-even point, assuming the sales mix consists of two units of Product A and one unit of Product B?

a.

b.

c.

d.

2,000 units of B and 4,000 units of A

2,025 units of B and 4,050 units of A

4,025 units of B and 8,050 units of A

4,000 units of B and 8,000 units of A

8.

What is the operating income, assuming actual sales are 300,000 units, and the sales mix is one unit of Product A and two units of Product B? a. $ 100,000; b. $1,040,000; c. $1,060,000; d. $1,100,000

4.

a.

b.

c.

d.

The break-even point in CVP analysis is defined as

the point where output units equal input units.

the point where unit contribution margin equals fixed costs divided by number of break-even units.

where revenues less variable costs equal operating income.

where the unit contribution margin equals the selling price less the unit variable cost.

5.

What would be target operating income when fixed costs equal $6,000, unit contribution margin equals $40.00, and the number of units equals 400?

a.

$ 6,000; b. $10,000; c.$16,000; d. $20,000

6.

Chris Muss is going to sell Ad-hoc Disks for $40 a box; one box is considered to be one unit. The disks cost Chris $10 a unit. She is planning to rent a booth at the upcoming Area Computer Show. She has three options for attending the show:

1. paying a fixed fee of $3,000,

2. paying a $1,000 fee plus 10% of her revenue made at the convention, or

9.

Information, Inc. sells accounting software. Each unit's costs may be separated as follows: selling price of $100 and variable costs of $30. Fixed costs are $10,000. How many units must Information, Inc. sell in order to yield after-tax net income of $2,400, assuming the tax rate is 40%? a. 200 units; b. 170 units; c. 150 units; d. 145 units

10.

Big Sports University is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet: 1. Foothills Country Club

a. Fixed rental cost of $600; b. $15.00 per person for food. 2. Downhill Country Club

a. Fixed rental cost of $1,080. b. A caterer who will charge $12.00 per person for food.

Big Sports has budgeted $900 for administrative and marketing expenses. It plans to hire a band, which will cost another $400. Tickets are expected to be $40 per person. Any other items required for the event will be donated by its local business supporters.

How many p eople must purchase tickets, assuming option two is chosen and Big Sports expects to raise $4,820 for the athletic fund? Assume no one pays

Review Questions: CHAPTER 3; Cost Volume Profit; page 1

m ore than the cost of his/her ticket.

a. 257 people; b. 514 people; c. 600 people; d. 610 people

11.

Events, as distinguished from actions, would include

a.

b.

c.

d.

personnel policy options.

decisions on time schedules.

decisions on direct material vendors.

a financial recession.

12.

Joan Perry has three booth rental options at the bridal fair where she plans to s ell her...