Problem Set: CVP Analysis (Part 1) a.

SP/(FC/VC)
b. FC/(VC/SP)
1. CVP analysis requires costs to be categorized as c. VC/(SP - FC)
a. either fixed or variable. d. FC/(SP - VC)
b. fixed, mixed, or variable.
c. product or period. 8. Consider the equation X = Sales - [(CM/Sales)
d. standard or actual. (Sales)]. What is X?
a. net income
2. CVP analysis relies on the assumptions that b. fixed costs
costs are either strictly fixed or strictly variable. c. contribution margin
Consistent with these assumptions, as volume d. variable costs
decreases total
a. fixed costs decrease. 9. If a firm's net income does not change as its
b. variable costs remain constant. volume changes, the firm('s)
c. costs decrease. a. must be in the service industry.
d. costs remain constant. b. must have no fixed costs.
c. sales price must equal $0.
3. Which of the following factors is involved in d. sales price must equal its variable costs.
studying cost-volume-profit relationships?
a. product mix 10. Break-even analysis assumes over the relevant
b. variable costs range that
c. fixed costs a. total variable costs are linear.
d. all of the above b. fixed costs per unit are constant.
c. total variable costs are nonlinear.
4. After the level of volume exceeds the break- d. total revenue is nonlinear.
even point
a. the contribution margin ratio increases. 11. A firm's break-even point in dollars can be
b. the total contribution margin exceeds found in one calculation using which of the
the total fixed costs. following formulas?
c. total fixed costs per unit will remain a. FC/CM per unit
constant. b. VC/CM
d. the total contribution margin will turn c. FC/CM ratio
from negative to positive. d. VC/CM ratio

5. Which of the following will decrease the break- 12. The contribution margin ratio always increases
even point? when the
Decrease in Increase in Increase in a. variable costs as a percentage of net
fixed cost labor cost selling price sales increase.
a. Yes Yes Yes b. variable costs as a percentage of net
b. Yes No Yes sales decrease.
c. Yes No No c. break-even point increases.
d. No Yes No d. break-even point decreases.

6. At the break-even point, fixed costs are always 13. Below is an income statement for Thompson
a. less than the contribution margin. Company:
b. equal to the contribution margin.
c. more than the contribution margin.
d. more than the variable cost.
Based on the cost and revenue structure on the
7. Given the following notation, what is the break- income statement, what was Thompson’s break-
even sales level in units? even point in dollars?
SP = selling price per unit, FC = total fixed cost,
VC = variable cost per unit
 14. Refer to Thompson Company. Assuming that
the fixed costs are expected to remain at 19. Refer to Eclectic Corporation. If the company
$200,000 for the coming year and the sales would have sold a total of 6,000 units,
price per unit and variable costs per unit are consistent with CVP assumptions how many of
also expected to remain constant, how much those units would you expect to be Product B?
profit before taxes will be produced if the
company anticipates sales for the coming year 20. Refer to Eclectic Corporation. How many units
rising to 130 percent of the current year’s level? would the company have needed to sell to
produce a profit of $12,000?
15. Value Pro produces and sells a single product.
Information on its costs follow: 21. Sombrero Company manufactures a western-
Variable costs: style hat that sells for $10 per unit. This is its
SG&A $2 per unit sole product and it has projected the break-
Production $4 per unit even point at 50,000 units in the coming period.
Fixed costs: If fixed costs are projected at $100,000, what is
SG&A $12,000 per year the projected contribution margin ratio?
Production $15,000 per year
Refer to Value Pro. Assume Value Pro produced and 22. Mike is interested in entering the catfish
sold 5,000 units. At this level of activity, it produced a farming business. He estimates if he enters this
profit of $18,000. What was Value Pro's sales price per business, his fixed costs would be $50,000 per
unit? year and his variable costs would equal 30
percent of sales. If each catfish sells for $2, how
16. Harris Manufacturing incurs annual fixed costs many catfish would Mike need to sell to
of $250,000 in producing and selling a single generate a profit that is equal to 10 percent of
product. Estimated unit sales are 125,000. An sales?
after-tax income of $75,000 is desired by
management. The company projects its income 23. The following information pertains to Saturn
tax rate at 40 percent. What is the maximum Company’s cost-volume-profit relationships:
amount that Harris can expend for variable Break-even point in units sold 1,000
costs per unit and still meet its profit objective if Variable costs per unit $500
the sales price per unit is estimated at $6? Total fixed costs $150,000

17. The following information relates to financial How much will be contributed to profit before
projections of Folk Company: taxes by the 1,001st unit sold?
Projected sales 60,000 units
Projected variable costs $2.00 per unit 24. Information concerning Averie Corporation's
Projected fixed costs $50,000 per year Product A follows:
Projected unit sales price $7.00 Sales $300,000
How many units would Folk Company need to Variable costs 240,000
sell to earn a profit before taxes of $10,000? Fixed costs 40,000

18. Eclectic Corporation manufactures and sells two Assuming that Averie increased sales of Product
products: A and B. The operating results of the A by 20 percent, what should the profit from
company are as follows: Product A be?
Product A Product B
Sales in units 2,000 3,000 25. In a CVP graph, the slope of the total revenue
Sales price per unit $10 $5 line indicates the
Variable costs per unit 7 3 a. rate at which profit changes as volume
changes.
In addition, the company incurred total fixed b. rate at which the contribution margin
costs in the amount of $9,000. How many total changes as volume changes.
units would the company have needed to sell to c. ratio of increase of total fixed costs.
break even? d. total costs per unit