# Cost Volume Profit Questions

**Topics:**Variable cost, Management accounting, Contribution margin

**Pages:**2 (406 words)

**Published:**February 25, 2007

Self-Test Questions

1. The difference between the sales price and the total variable costs is the contribution margin. (D) 2. The breakeven volume in units (perfume sticks) for 2005 is

TR-VC-FC=PBTMR=900000/1800 = 500

TR-VC-FC=0VC/Q = 495000/1800 = 275

Q*MR - Q(VC/Q) = FC

Q = _____FC_____

MR-VC/Q

Q = 247500/(500 275)

Q=1100Therefore (B)

3. If sales volume is expected to be 2100 units with prices/costs same, after-tax net income is expected to be

TR-VC-FC=PBT

Q*MR-Q(VC/Q)-FC=PBT

2100(500) 2100(275) 247500 = PBT = 225000

After income taxes of 32%:

225000 (225000)(.32) = 153000Therefore (A)

4. Sell 1500 at 450, reject some business from regular customers.

TR-VC-FC=PBT

Q*MR-Q(VC/Q)-FC=PBT

1500(450)+1500(500) 3000(275) 247500 = 352500

After income taxes

352500 352500(.32) = 239700Therefore (C)

5. Prices decline by 10%, variable costs increase $40/unit, no change in FC. Q needed to earn after-tax net income of 107100.

After tax income of 107100 requires PBT = X, where

X (0.32)X = 107100VC/Q = 315

X = 157500MR = 450

TR-VC-FC=157500

Q(450) Q(315) 247500 = 157500

Q(135) = 405000

Q = 3000

Sales volume required is 3000(450)=1,350,000Therefore (D) 6. Degree of operating leverage = contribution margin ÷ profit before tax

OLo = 650000÷440000 = 1.48 Therefore (C)

7. CM%=CM/TRExpected Level of production/sales 10000

VC/Q = 5+10+3.5=18.5TR = Q*MR

(MR-18.5)/(MR) = .30

0.3MR = MR 18.5

18.5 = 0.7MRMR = 26.43Therefore (B)

8. MR=28, what must Q be to generate income of 10000.

Q*MR Q*(VC/Q) FC = 10000

CM = 9.5

Q*CM = Total Fixed Costs + Desired Income

Q*CM = (0.65*10*10000) + 10000

9.5*Q = 75000

Q = 7895Therefore (C)

9. Variable costing is direct costing that treats includes only variable production costs (DM, DL, VOH) as product of inventoriable costs and FOH is a period cost. 300K + 100K + 50K = 450000 Therefore (B)

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