Title: Cost Volume Profit Analysis
Course: Question Banks

Q: Tippy Canoe Company is putting together the cost sheet to build 100 fiberglass canoes. The variable costs would include:
- Depreciation on the machine that extrudes the resin.
- Salary for the company accountant.
- Fiberglass resin
A: Fiberglass resin

Q: Tippy Canoe Company needs to calculate their contribution margin per fiberglass canoe. If their fixed costs total $2,500, variable cost per canoe is $50 and they sell each one for $125, what would be their contribution margin per canoe if they sell 100 canoes?
- $50
- $65
- $75
A: $75

Q: Laser Products hopes to sell 5000 printers this year at a price of $90 each. Fixed expenses of $250,000 and variable expenses of $40 per printer have been calculated. Laser Products will show a profit/(loss) of $________ at this sales number.
- Profit $250,000
- Profit $200,000
- They will break even at this sales number
A: They will break even at this sales number

Q: When we price our product, taking into account the variable costs will help us calculate the:
- Price we need to charge to cover the variable costs.
- The profit for each item we sell.
- Contribution margin per item needed to cover fixed expenses.
A: Contribution margin per item needed to cover fixed expenses.

Q: Mike’s Bikes planned to sell 600 bikes at $100 each with variable costs per bike of $50 and fixed costs of $20,000. If they only sell 500 bikes, what would the contribution margin be per bike?
- $10
- $40
- $50
A: $50

Q: Computer Company initially figured their variable costs per unit at $50 per unit, but later found they had missed an expense, and these costs are $60 per unit. If they sell 500 units at $90 each, how much more (less) per unit do they have available to cover fixed costs?
- $40 less per unit
- $10 more per unit
- $10 less per unit
A: $10 less per unit

Q: James sold 100 pizzas at $15 each yesterday at his store. His fixed costs to operate his store are $600 per day and the variable costs (ingredients) per pizza are $7. How much profit did James show yesterday after he paid all of his expenses?
- $900
- $800
- $200
A: $200

Q: Computer Corp calculated their contribution margin percentage at 75%. They currently sell each flash drive for $20. What are the variable expenses per flash drive?
- $15.00
- $10.00
- $5.00
A: $5.00

Q: If Mike’s Bikes has variable costs of $65 per bike and would like a 50% contribution margin ratio, what would they need to price their bikes at to meet their goal?
- $97.50
- We don’t have enough information
- $130
A: $130

Q: Shannon is selling her bread for $6.50 a loaf and is wondering if she should think about a price increase. She checks in with her purchasing department to get variable costs information. Her variable cost per loaf is $2.75. Shannon’s contribution margin ratio is:
- 42%
- 70%
- 58%
A: 58%

Q: Due to a high number of injuries this last year, your worker’s compensation insurance has doubled for your production facility this year. As manager of this department, a good first option will be:
- Immediately fire any employee who was injured on the job last year.
- Raise the prices of your products to cover the increase in premium
- Implement a safety plan to work to reduce injuries and your worker’s compensation premium
A: Implement a safety plan to work to reduce injuries and your worker’s compensation premium

Q: Keeping fixed costs under control, to make sure the company is making a profit is the responsibility of:
- Vendors who need to keep their prices low.
- The production employees.
- The manager in charge of each department
A: The manager in charge of each department

Q: The variable costs for your widgets has gone from $3 each to $4 each due to a shortage of components from your most trusted vendors. You don’t want to change, as you have tried other suppliers and the quality just isn’t as good. If you plan to sell 500 widgets this month at $10 each, how much will this change in variable cost affect your contribution margin?
- $500 higher
- $1000 lower
- $500 lower
A: $500 lower

Q: Mike’s Bikes is working on securing new pricing for the tires they put on their bikes. Their supplier has raised the price of each tire to $12 from $9. Mike’s intends to sell 1000 bikes at $150 each. Since this supplier has the best tires Mike’s has found, they have decided not change suppliers, and this is the lowest price they can negotiate. How much more will Mike’s be spending on tires if they sell 1000 bikes?
- $3,000 more on tires
- $9,000 more on tires
- $6,000 more on tires
A: $6,000 more on tires

Q: Bread and Butter Bakers just received notice of a large price increase in their flour due to a wheat shortage. This increase will bring the variable cost per loaf up to $2.75 from $1.85 per loaf with a selling price of $5.00 per loaf. Bread and Butter has fixed monthly expenses of $18,000. They have budgeted to sell 7,500 loaves of bread per month. What will they show for a net profit(loss)?
- $2,625 net profit
- $5,625 net profit
- $1,125 net loss
A: $1,125 net loss

Q: An increase in fixed costs, combined with a discounted selling price due to new competition in the market will
- The lower price will make people buy MORE of your product, so it shouldn’t affect the net profit for an extended time period.
- The competition will force you to eliminate this product, since the lower price will not help your company show a profit on the sales.
- Force you to sell more of your product to continue to show a net profit.
A: Force you to sell more of your product to continue to show a net profit.

Q: A decrease in fixed costs will always:
- Increase the contribution margin
- Allow for a discounted price on the product to continue to show the same net profit as budgeted.
- Increase the net profit if all other factors remain unchanged.
A: Increase the net profit if all other factors remain unchanged.

Q: If fixed costs rise, but we sell more product our net profit will:
- Will be higher since the rise in sales will offset the increased fixed costs.
- Will be lower since the increased sales won’t cover the additional fixed costs.
- May be higher or lower depending on how many additional products we sell to compensate for the rise in fixed costs.
A: May be higher or lower depending on how many additional products we sell to compensate for the rise in fixed costs.

Q: A 10% increase in sales combined with a 20% increase in fixed costs will create:
- A 10% decrease in net profit.
- A 20% decrease in net profit.
- It could produce an increase or a decrease in net profit depending on initial sales and fixed cost levels.
A: It could produce an increase or a decrease in net profit depending on initial sales and fixed cost levels.

Q: A decrease in sales volume will:
- Will always result in lower net profit.
- Will force the company to discontinue the product line since it is no longer producing a net profit for the company.
- Create an increase or decrease in net profits depending on what happens with variable and fixed costs.
A: Create an increase or decrease in net profits depending on what happens with variable and fixed costs.

Q: A 10% increase in sales volume and a 20% increase in variable cost per item produced will:
- Always increase the contribution margin, since we are selling more items.
- Always decrease the contribution margin, since it has increased at a higher percentage than sales.
- Create either a higher or lower contribution margin, depending on the initial price level of each.
A: Create either a higher or lower contribution margin, depending on the initial price level of each.

Q: When a company has a selling price of $6 per item, contribution margin per item of $4 and they sell 500 items, how much could they have in fixed expenses to break even?
- $3,000
- $1,000
- $2,000
A: $2,000

Q: Increasing the selling price of the item:
- Will lower the number of items a company needs to sell to break even even if other costs change.
- Will lower the number of items the company sells since customers will not pay the higher price.
- May lower the number of items a company needs to sell to break even.
A: May lower the number of items a company needs to sell to break even.

Q: Using the equation method, calculate how many apples Farmer Jane needs to sell to break-even using the following information. Selling price- $1. Variable costs- $.25 per apple. Fixed costs-$1,000.
- 1000 apples
- 4000 apples
- 1,334 apples
A: 1,334 apples

Q: Using the equation method, calculate the sales amount in dollars that Farmer Jane needs to break even on her apple sales using the following information: Selling price $1. Variable costs = $.25 per apple. Fixed costs = $1,000.
- $4,000 in sales
- $1100 in sales
- $1,334 in sales.
A: $1,334 in sales.

Q: Using the formula method, how many bikes would Mike need to sell at $100 each to break-even with the following information: Variable costs per bike $45. Fixed costs= $5,000.
- 111 bikes
- 100 bikes
- 91 bikes
A: 91 bikes

Q: If Farmer Jane sells her tomatoes for $3 per pound and has variable cost of $1.50 per pound, how many pounds would she need to sell after her fixed expenses of $500 to show a net profit of $2,000?
- 833 pounds
- 1333 pounds
- 1667 pounds
A: 1667 pounds

Q: The margin of safety can be calculated if you know the following information:
- Selling price, contribution margin and variable costs
- Total current sales, contribution margin and variable costs
- Fixed costs, current sales and contribution margin.
A: Fixed costs, current sales and contribution margin.

Q: While planning during the budgeting process, it can be important to know both our break-even point and our anticipated margin of safety based on budgeted sales because:
- If our margin of safety is too high, we can lower our price.
- If our margin of safety is too low, we can discontinue that product line.
- If we plan for potential dips in sales due to economic, competitive or cost changes, we are better able to manage our budget when those arise.
A: If we plan for potential dips in sales due to economic, competitive or cost changes, we are better able to manage our budget when those arise.

Q: Farmer Jane has sales of 10,000 pounds of tomatoes at $2 per pound. Her break-even point is sales of $10,000. What is Jane’s margin of safety percentage?
- 100%
- We need more information.
- 50%
A: 50%

Q: To determine a proper sales mix to maximize company net profit, we need to know:
- What the selling price is of each product.
- Which product we can sell the most of.
- What the contribution margin is for each product in our line.
A: What the contribution margin is for each product in our line.

Q: Farmer Jane can grow a total of 1000 pounds of food on her land. Tomatoes have a contribution margin of $1 per pound, and broccoli has a contribution margin of $1.25 per pound. Market analysis has shown that Jane can sell 750 pounds of tomatoes and 500 pounds of broccoli at her local farmers market. How much of each should Jane grow?
- 500 lbs broccoli and 750 lbs of tomatoes
- 750 lbs of tomatoes and 250 lbs of broccoli
- 500 lbs broccoli and 500 lbs of tomatoes
A: 500 lbs broccoli and 500 lbs of tomatoes

Q: Due to limited production space, Computer Inc needs to adjust its sales mix. Current production is 1000 flash drives (contribution margin $4 each) and 1500 charging cords (contribution margin $2 each). There has been a surge in sales on the charging cords and Computer Inc could sell 5000 of them if they could make them! There is only space to manufacture a total of 3000 items. What should they do?
- 1000 flash drives and 1500 charging cords.
- 3000 charging cords and no flash drives.
- 1000 flash drives and 2000 charging cords
A: 1000 flash drives and 2000 charging cords

Q: Your supervisor comes in to your office all excited about a new computer that has come on the market that can do the work of three of your best programmers! This computer has a steep price tag, and can be used for only a few years before it will become obsolete. Where do you start analyzing whether this is a good investment or not?
- The new technology is a fixed cost, and even though it is expensive, if it costs less than the three years of labor for your programmers, jump on it!
- The programmers can do things the computer can’t do, so put together an analysis, but make it clear to your supervisor that keeping the employees is a better option, even though it may cost a bit more.
- Prepare a spreadsheet outlining all of the costs related to the three programmers, as well as the fixed costs related to the new computer. Look at the pros and cons of both, and prepare an analysis of both options.
A: Prepare a spreadsheet outlining all of the costs related to the three programmers, as well as the fixed costs related to the new computer. Look at the pros and cons of both, and prepare an analysis of both options.

Q: Purchasing a piece of machinery that replaces labor costs is:
- A shift from one variable cost to a different variable cost.
- Simply moving your fixed cost from payroll to depreciation.
- A shift to a fixed cost from a variable cost.
A: A shift to a fixed cost from a variable cost.

Q: A strength in shifting costs from fixed to variable costs may be:
- Since fixed costs happen no matter how many items you sell, you don’t want to have any machines doing the work, as it is never cost effective.
- Variable costs, such as labor are always better, since machines will always become obsolete over time.
- If sales goes down,the variable cost will go down as well, helping to keep costs in check during lower sales periods.
A: If sales goes down,the variable cost will go down as well, helping to keep costs in check during lower sales periods.

Q: Assuming an increase of 20% in sales over last year, two companies that manufacture the exact same product will experience:
- A 20% increase in their net profits, since their companies are identical.
- An identical increase in their net profit, but we can’t calculate it without additional information.
- An increase in net profit of an undetermined amount, since we don’t have variable and fixed cost information to calculate it.
A: An increase in net profit of an undetermined amount, since we don’t have variable and fixed cost information to calculate it.

Q: If Farmer Jane has a net operating income of $25,000 with a contribution margin of $51,000, based on 100,000 in sales per year, what is her degree of operating leverage?
- 1.96
- 4.00
- 2.04
A: 2.04

Q: Review the following information.

If both companies experienced a 20% growth in sales, which one would experience a higher increase in their net profit?

 | ABC Company | XYZ Company
Sales | $50,000 | $50,000
Variable Expenses | $25,000 | $10,000
Contribution Margin | $25,000 | $40,000
Fixed Expenses | $10,000 | $25,000
Net Profit (loss) | $15,000 | $15,000
- ABC would show a higher increase in net profit.
- They would both show the same increase in net profit.
- XYZ would show a higher increase in net profit
A: XYZ would show a higher increase in net profit