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Chapter 5 Profit Planning and Decision-Making
MULTIPLE CHOICE
1. Which of the following is considered a fixed cost?
a. packing materials
b. insurance
c. direct labour
d. sales commission
ANS: B
PTS: 1
REF: 211
2. Which of the following is considered a variable cost?
a. finance costs
b. professional fees
c. depreciation
d. overtime
ANS: D
PTS: 1
REF: 211
3. How is the contribution margin calculated?
a. subtract fixed costs from revenue
b. subtract cost of sales from revenue
c. subtract variable costs from revenue
d. subtract operating income from revenue
ANS: C
PTS: 1
REF: 216
4. How is the PV ratio calculated?
a. divide the contribution margin by revenue
b. divide revenue by the contribution margin
c. multiply the contribution margin by the unit revenue
d. multiply revenue by the unit contribution margin
ANS: A
PTS: 1
REF: 217
5. When is the break-even point reached?
a. when revenue covers all fixed costs
b. when revenue covers all costs
c. when all costs are deducted from fixed and variable costs
d. when revenue covers all variable costs
ANS: B
PTS: 1
REF: 216
6. What is the PV ratio divided into to calculate the revenue break-even point?
a. fixed costs
b. all operating costs
c. revenue
d. variable costs
ANS: A
PTS: 1
REF: 223
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7. Which of the following is a non-cash expense?
a. prepaid expenses
b. electricity
c. fixed costs
d. depreciation
ANS: D
PTS: 1
REF: 223
8. What is the unit contribution margin divided into to calculate the profit break-even point?
a. fixed costs
b. profit plus fixed costs
c. profit
d. profit plus variable costs
ANS: B
PTS: 1
REF: 224
9. If a company wants to invest more money in its advertising budget, what is added to the additional
advertising expense to calculate the new break-even point?
a. existing fixed costs
b. existing total costs
c. existing variable costs
d. existing profit objective
ANS: A
PTS: 1
REF: 225
10. What are committed fixed costs?
a. costs that should be increased in order to generate more volume
b. costs that should be eliminated if a company experiences a loss
c. costs that can be changed with the volume of production
d. costs that cannot be controlled
ANS: D
PTS: 1
REF: 233
11. On what is the break-even calculation based?
a. profit before tax
b. operating margin
c. profit for the year before depreciation
d. gross profit
ANS: A
PTS: 1
REF: 216|217
12. What is the tool that is used to analyze how volume, price, product mix, and product costs relate to one
another?
a. vertical analysis
b. horizontal analysis
c. cost of sales analysis
d. cost-volume-profit analysis
ANS: D
PTS: 1
REF: 210
13. Which of the following would be considered a semi-variable cost?
a. purchases
b. freight in
c. rent
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d. electricity
ANS: D
PTS: 1
REF: 212
14. What are the variables used to calculate the break-even point?
a. unit selling price, volume of production, and fixed costs
b. revenue, fixed costs, and variable costs
c. revenue, variable costs, and gross profit
d. contribution margin, revenue, and variable costs
ANS: B
PTS: 1
REF: 223
15. What does the PV ratio mean?
a. profit-value ratio
b. performance-value ratio
c. profit-volume ratio
d. price-volume ratio
ANS: C
PTS: 1
REF: 217
16. What does the relevant range mean?
a. all costs that apply to a certain level of production
b. fixed costs that apply to a certain level of production
c. revenue that applies to a certain level of production
d. variable costs that apply to a certain level of production
ANS: A
PTS: 1
REF: 218
17. What are relevant costs?
a. variable cost alternatives that managers can choose from to operate a business
b. revenue alternatives that managers can choose from to operate a business
c. all cost alternatives that managers can choose from to operate a business
d. fixed cost alternatives that managers can choose from to operate a business
ANS: C
PTS: 1
REF: 218
18. What is the break-even point formula?
a. SP x N = FC + VC x N
b. FC + VC = SP - N
c. N x FC = R
d. SP x FC = N x VC
ANS: A
PTS: 1
REF: 222
19. When is the profit break-even point achieved?
a. when the revenue covers variable costs and the profit objective
b. when the revenue covers fixed costs and the profit objective
c. when the contribution margin covers fixed costs and the profit objective
d. when the contribution margin covers all costs and the profit objective
ANS: C
PTS: 1
REF: 224
20. What does the break-even wedge help managers determine the most appropriate way of structuring:
a. revenue and variable costs
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b. revenue and fixed costs
c. the contribution margin to achieve higher profit
d. all fixed and variable costs
ANS: D
PTS: 1
REF: 231
21. What decisions are helped through break-even point analysis?
a. advertising effectiveness
b. bookkeeping
c. cost accounting
d. pricing
ANS: D
PTS: 1
REF: 216
22. Within the framework of the break-even point analysis, profit decisions deal with what a company
needs to do in order to achieve a certain level of:
a. profit before taxes
b. gross profit
c. operating income
d. contribution margin
ANS: A
PTS: 1
REF: 216| 217
23. What are costs that remain constant at varying levels of production called?
a. semi-variable costs
b. period costs
c. out-of-pocket costs
d. variable costs
ANS: B
PTS: 1
REF: 210
24. What are costs that fluctuate directly with changes in volume of production called?
a. period costs
b. constant costs
c. out-of-pocket costs
d. fixed costs
ANS: C
PTS: 1
REF: 211
25. What are costs that change disproportionately with changes in output levels called?
a. fixed costs
b. semi-variable costs
c. variable costs
d. output costs
ANS: B
PTS: 1
REF: 212
26. If a business could produce 1,000 units at a zero cost per unit with a total cost amounting to $100,000
that increases to 2,000 units with a zero cost per unit that also amounts to $100,000, what would the
$100,000 be called?
a. semi-variable cost
b. committed cost
c. fixed cost
d. variable cost
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ANS: C
PTS: 1
REF: 210
27. If sales are at 2,000 units at a cost of $20,000 that increases to 4,000 units at a cost of $40,000 that
finally reaches 6,000 units at a cost of $60,000, what would we be dealing with?
a. committed costs
b. variable costs
c. semi-variable costs
d. fixed costs
ANS: B
PTS: 1
REF: 211
28. If a company sells 10,000 units at a cost of $10.00 per unit that totals $200,000 in costs and 20,000
units at the same cost of $10.00 per unit that totals $300,000 in costs, what are we are referring to?
a. total semi-variable costs
b. total fixed costs
c. total variable costs
d. total costs
ANS: D
PTS: 1
REF: 220
29. What are inventory costs that include purchases, direct labour, and manufacturing overhead?
a. non-product costs
b. product costs
c. standby costs
d. period costs
ANS: B
PTS: 1
30. What are costs that are not related to inventory such as distribution costs and administrative expenses
but are associated with fixed costs?
a. calendar costs
b. non-inventory costs
c. accounting costs
d. period costs
ANS: D
PTS: 1
REF: 210
31. Which of the following is a period cost?
a. office salaries
b. direct labour
c. raw materials
d. purchases
ANS: A
PTS: 1
REF: 210
32. Which of following is an out-of-pocket cost for a retail store?
a. purchases
b. advertising
c. office salaries
d. depreciation
ANS: A
PTS: 1
REF: 211
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33. When does the break-even point take place on a break-even chart?
a. when the revenue line intersects the total fixed cost line
b. when the revenue line intersects the total cost line
c. when the revenue line intersects the total variable cost line
d. when the revenue line intersects the total semi-variable cost line
ANS: B
PTS: 1
REF: 220
34. What is the contribution margin divided into to calculate the revenue break-even point?
a. sales revenue
b. variable costs
c. total costs
d. fixed costs
ANS: D
PTS: 1
REF: 223
35. Given the following information, what is the contribution margin?
Fixed costs
$200
Sales revenue
1,000
Variable costs
750
a.
b.
c.
d.
$250
$1,950
$50
$800
ANS: A
PTS: 1
REF: 216
36. What is the formula to calculate the PV ratio?
a. revenue ÷ contribution margin
b. revenue x contribution margin
c. contribution margin ÷ revenue
d. revenue - contribution margin
ANS: C
PTS: 1
REF: 217
37. Given the following information, what is the PV ratio?
Contribution margin
$250
Fixed costs
200
Operating profit
50
Revenue
1,000
Variable cost
750
a.
b.
c.
d.
0.75
0.25
0.05
25
ANS: B
PTS: 1
REF: 217
38. If a company decides to increase the unit selling price of its product, while keeping variable cost per
unit, units sold, and fixed costs unchanged which of the following will occur?
a. total variable costs will decrease
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b. fixed costs will increase
c. profit before tax will increase
d. total variable costs will increase
ANS: C
PTS: 1
REF: 216
39. If a company sells more units strictly on the basis of “image” improvement and if variable costs per
unit, selling price per unit, and fixed costs remain unchanged, which of the following will occur?
a. profit for the year will remain the same
b. revenue will increase
c. variable costs will decrease
d. fixed costs will increase
ANS: B
PTS: 1
REF: 21
40. If a company finds a way to decrease its fixed costs while its variable cost per unit, units sold, and
selling price per unit remain unchanged, which of the following will occur?
a. fixed costs will increase
b. variable costs will increase
c. profit before tax will increase
d. revenue will decrease
ANS: C
PTS: 1
REF: 216
41. If a supplier has just informed a company about an increase in the cost per unit, while units sold, unit
selling price, and fixed costs remain unchanged, which of the following will occur?
a. profit before tax will decrease
b. contribution margin will increase
c. revenue will increase
d. fixed costs will decrease
ANS: A
PTS: 1
REF: 216
42. What does the following formula calculate?
Fixed costs
--------------------------------------------Price per unit - variable costs per unit
a. unit break-even point
b. profit break-even point
c. contribution margin ratio
d. revenue break-even point
ANS: A
PTS: 1
43. What does the following formula calculate?
Fixed costs
------------PV
a. revenue break-even point
b. profit break-even point
c. contribution margin ratio
REF: 223
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
d. unit break-even point
ANS: A
PTS: 1
REF: 223
44. Given the following information, what is the revenue break-even point?
Revenue
$1,000 (1,000 units sold)
Variable costs
750
Fixed costs
200
a.
b.
c.
d.
$ 1,000
$
800
$
250
$ 2,666
ANS: B
PTS: 1
REF: 223
45. Given the following information, what is the unit break-even point?
Revenue
$2,000 (1,000 units sold)
Variable costs
1,500
Fixed costs
400
a.
b.
c.
d.
1,000 units
800 units
500 units
2,000 units
ANS: B
PTS: 1
REF: 223
46. If a company’s break-even point is 5,000 units and the president sets a profit objective, what will the
company have to do in order to realize the objective?
a. increase its fixed costs
b. sell exactly 5,000 units
c. sell more than 5,000 units
d. sell less than 5,000 units
ANS: C
PTS: 1
REF: 224
47. If an entrepreneur is absolutely certain to sell 10,000 units in his new company and the break-even
point is 3,000 units, what should the entrepreneur do?
a. do not start the company because the risk is too high
b. launch the company because the risk of not reaching the break-even point is high
c. launch the company because there is little risk since the break-even point is well below
expected sales
d. do not start the company because according to the calculation, the break-even point will
not be reached
ANS: C
PTS: 1
REF: 216
48. If product A has a contribution margin of $100 while product B has a contribution margin of $50,
which of the following statements is true?
a. changing the sales mix will not affect the profit level
b. the company should concentrate on selling product B because it has a lower CM and will
produce higher profit
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c. the company should concentrate on selling product A because it has a lower CM and will
produce higher profit
d. the company should concentrate on selling product A because it has a higher CM and will
produce higher profit
ANS: D
PTS: 1
REF: 216
49. What is the correct matching?
Words
A. fixed costs
B. semi-variable costs
C. variable costs
Definitions
1. change disproportionately with changes in output level
2. fluctuate directly with changes in volume
3. remain constant at varying levels of production
a. A-1, B-2, C-3
b. A-2, B-3, C-1
c. A-3, B-2, C-1
d. A-3, B-1, C-2
ANS: D
PTS: 1
REF: 210-212
50. What is the correct matching if the per unit cost is $1.00?
Units produced
Cost A
Cost B
0
1,000
2,000
3,000
4,000
5,000
a.
b.
c.
d.
$10,000
10,000
10,000
10,000
10,000
10,000
$0
1,000
2,000
3,000
4,000
5,000
cost A - variable; cost B - semi-variable; cost C – fixed
cost A - fixed; cost B - variable; cost C - semi-variable
cost A - variable; cost B - fixed; cost C - semi-variable
cost A - fixed; cost B - semi-variable; cost C – variable
ANS: B
PTS: 1
REF: 210-212
51. Which of the following are variable costs?
a. general expenses
b. direct labour
c. administrative expenses
d. depreciation
ANS: B
PTS: 1
52. Which of the following are period costs?
a. general expenses
b. purchases
c. contribution margin
d. electricity
REF: 211
Cost C
$5,000
5,500
6,000
6,500
7,000
7,500
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
ANS: D
PTS: 1
REF: 210|211
53. Given the following information, what is the contribution margin?
Revenue
Direct material
Direct labour
Manufacturing overhead
Administration overhead
a.
b.
c.
d.
$1,000,000
500,000
250,000
150,000
50,000
$ 250,000
$ 750,000
$ 200,000
$ 50,000
ANS: A
PTS: 1
REF: 216
54. What is the contribution margin?
a. the difference between revenue and fixed costs
b. the sum of revenue and variable costs
c. the revenue minus variable and direct costs
d. the difference between revenue and variable costs
ANS: D
PTS: 1
REF: 216
55. Given the following information, what is the PV ratio?
Variable cost per unit
Unit selling price per unit
a.
b.
c.
d.
$100
$200
0.50%
2.0
$20,000
0.50
ANS: D
PTS: 1
REF: 217
56. Given the following information, what is the unit break-even point?
Selling price per unit
$200
Variable cost per unit
100
Total fixed costs
100,000
a.
b.
c.
d.
1,000 units
100,000 units
10,500 units
20,000 units
ANS: A
PTS: 1
REF: 223
57. Given the following information, what is the revenue break-even point?
Selling price per unit
$200
Variable cost per unit
100
Total fixed costs
100,000
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a.
b.
c.
d.
$ 500,000
$ 100,000
$ 250,000
$ 200,000
ANS: D
PTS: 1
REF: 223
58. Given the following information, what is the profit break-even point?
Selling price per unit
$300
Variable cost per unit
100
Total fixed costs
100,000
Profit objective
10,000
a.
b.
c.
d.
550 units
1,000 units
55 units
200 units
ANS: A
PTS: 1
REF: 224
59. If a company wants to make a $10,000 profit by selling 500 units, by how much should the selling
price per unit be increased?
Selling price per unit
$300
Variable cost per unit
100
Total fixed costs
100,000
a.
b.
c.
d.
$
5
$ 50
$ 33
$ 20
ANS: D
PTS: 1
REF: 224
60. If a company wants to make a $10,000 profit, without changing the selling price, and by selling 500
units, by how much should fixed costs be reduced?
Selling price per unit
$300
Variable cost per unit
100
Total fixed costs
100,000
a.
b.
c.
d.
$
5,000
$ 10,000
$ 30,000
$100,000
ANS: B
PTS: 1
REF: 224
61. Given the following information, what should be the maximum fixed costs that the company should
incur in order to break even?
Revenue
Cost of sales
Product X
Product Y
$ 40,000
24,000
45%
50
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Product Z
a.
b.
c.
d.
35,000
60
$ 60,000
$ 55,000
$ 48,000
$ 58,000
ANS: C
PTS: 1
REF: 224
62. Which of the following are fixed costs?
a. freight in
b. purchases
c. salaries (selling)
d. sales commission
ANS: B
PTS: 1
REF: 210-211
63. Which of the following are variable costs?
a. office salaries
b. property taxes
c. purchases
d. telephone
ANS: C
PTS: 1
REF: 211
64. By using the following information, if a company increases its selling price by 5% and increases its
fixed costs by $100,000, how much more (or less) profit will the company realize?
Revenue
$2,500,000
Total variable costs
1,700,000
Total fixed costs
700,000
a.
b.
c.
d.
increase of $ 25,000
decrease of $ 25,000
decrease of $ 50,000
increase of $ 50,000
ANS: A
PTS: 1
REF: 224
65. By using the following information, if a company increases its advertising budget by $30,000, how
much more revenue will have to be realized in order to maintain the same profit level?
Revenue
$2,500,000
Total variable costs
1,700,000
Total fixed costs
700,000
a.
b.
c.
d.
$ 22,812
$ 14,443
$ 20,833
$ 93,750
ANS: D
PTS: 1
REF: 224
66. If a company hires a new sales representative at an estimated cost of $60,000, what would be the
company’s new revenue break-even point?
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
Revenue
Total variable costs
Total fixed costs
a.
b.
c.
d.
$2,500,000
1,700,000
700,000
$ 2,375,000
$ 2,675,000
$ 2,575,000
$ 2,187,500
ANS: A
PTS: 1
REF: 223
67. If a company reduces its variable costs by 5%, what would be the company’s new revenue break-even
point?
Revenue
$ 2,500,000
Total variable costs
1,700,000
Total fixed costs
700,000
a.
b.
c.
d.
variable costs would be $1,615,000 and the PV ratio would be 0.32
PV ratio would be 0.354 and the break-even would be $ 1,977,401
contribution margin would be $855,000 and the break-even point would be $2,187,500
PV ratio would be 0.32 and the break-even would be $2,187,500
ANS: B
PTS: 1
REF: 223
68. Given the following information, what is the company’s cash break-even point?
Revenue
$ 3,700,000
Total variable costs
2,300,000
Total fixed costs
1,100,000 including depreciation
Depreciation
100,000
a.
b.
c.
d.
$ 1,642,553
$ 2,220,245
$ 2,642,857
$ 1,500,553
ANS: C
PTS: 1
REF: 224
TRUE/FALSE
1. Break-even analysis is a straightforward and very powerful financial analytical technique than can help
managers make a wide range of important decisions related to cash flows.
ANS: F
PTS: 1
2. Break-even analysis can help managers improve their decisions related to pricing and modernization.
ANS: T
PTS: 1
3. Pricing and automation decisions can be made more clearly with break-even analysis.
ANS: T
PTS: 1
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4. Break-even analysis is an effective decision-making tool for market share analysis.
ANS: F
PTS: 1
5. Fixed costs remain constant at varying levels of production.
ANS: T
PTS: 1
6. Sales commissions are considered a fixed cost.
ANS: F
PTS: 1
7. Costs that fluctuate directly with changes in volume of production are called semi-variable.
ANS: F
PTS: 1
8. Cost of sales is considered a variable cost.
ANS: T
PTS: 1
9. Packing materials is considered is a semi-variable cost because this type of cost varies almost
automatically with volume of production.
ANS: F
PTS: 1
10. Semi-variable costs change disproportionately with changes in output levels.
ANS: T
PTS: 1
11. Finance costs on a mortgage are considered fixed costs because they vary directly with sales volume.
ANS: F
PTS: 1
12. Depreciation expense is usually considered a fixed cost.
ANS: T
PTS: 1
13. The factors that affect profit levels are: market share, price/earnings ratio, fixed costs and variable
costs.
ANS: F
PTS: 1
14. Changes in product mix can have an impact on the level of the break-even point.
ANS: T
PTS: 1
15. Break-even point takes place when revenue equals fixed costs.
ANS: F
PTS: 1
16. When total costs meet revenue, it is the point where break-even is achieved.
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
ANS: T
PTS: 1
17. The contribution margin is the difference between revenue and variable costs.
ANS: T
PTS: 1
18. You can calculate the PV ratio by dividing the contribution margin by variable costs.
ANS: F
PTS: 1
19. The higher the PV ratio the better it is.
ANS: T
PTS: 1
20. Changes in variables costs can alter the PV ratio.
ANS: T
PTS: 1
21. The break-even point can be calculated by dividing the total costs by the unit contribution margin.
ANS: F
PTS: 1
22. Relevant range means costs (fixed and variable) that apply to a certain level of production.
ANS: T
PTS: 1
23. Relevant costs are costs alternatives that managers can choose from to operate their business.
ANS: T
PTS: 1
24. The break-even chart shows a graphic effect of change in both revenue and market share.
ANS: F
PTS: 1
25. Total cost line includes all variable and fixed costs.
ANS: T
PTS: 1
26. The break-even point can be calculated in two ways: dividing fixed costs by either the unit
contribution margin or the PV ratio.
ANS: T
PTS: 1
27. The cash break-even point shows the number of units or revenue that can be reached in order to cover
total cash variable costs less depreciation.
ANS: F
PTS: 1
28. To calculate the cash break-even point, one has to deduct depreciation from the variable costs.
ANS: F
PTS: 1
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29. To calculate the cash break-even point, one should divide all fixed costs less depreciation by the PV
ratio.
ANS: T
PTS: 1
30. To calculate the profit break-even point, one has to add the profit objective to the fixed costs and
divide this number by the unit contribution margin.
ANS: T
PTS: 1
31. To calculate the profit break-even point, one has to add the profit objective to the total fixed costs and
divide it by the PV ratio.
ANS: T
PTS: 1
32. Sensitivity analysis is a technique that shows to what extent a change in an investment decision
impacts on the break-even point.
ANS: F
PTS: 1
33. Break-even analysis can be applied in any type of business as long as there is revenue and fixed costs.
ANS: F
PTS: 1
34. Break-even analysis can be applied to any types of businesses such as retail stores, service centres,
movie theatres or manufacturing plants.
ANS: T
PTS: 1
35. To calculate the break-even point for a retail store, the unit contribution margin is more useful than the
PV ratio.
ANS: F
PTS: 1
36. The break-even wedge method helps managers determine the most appropriate way to structure
operating costs (fixed versus variable).
ANS: T
PTS: 1
37. Committed costs are considered variable costs and do not have to be incurred in order to operate a
business.
ANS: F
PTS: 1
38. Operating managers can control discretionary fixed costs.
ANS: T
PTS: 1
39. Controllable costs are usually indirect costs that managers are not accountable for.
ANS: F
PTS: 1
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40. Operating managers are accountable for both, controllable and direct costs.
ANS: T
PTS: 1
COMPLETION
1. _______________________________ analysis is a tool used for analyzing how volume, price, product
mix, and product costs relate to one another.
ANS: Cost-volume-profit
PTS: 1
2. __________________ costs remain constant at varying levels of production.
ANS: Fixed
PTS: 1
3. Costs that fluctuate directly with changes in volume of production are referred to as
_______________________ costs.
ANS: variable
PTS: 1
4. _________________________ costs change in a disproportionate way with output levels.
ANS: Semi-variable
PTS: 1
5. Rent and interest charges are considered _______________________ costs.
ANS: fixed
PTS: 1
6. The main factors that affect levels of profit are volume of production, ________________ , costs
(fixed and variable) and changes in product mix.
ANS: unit price
PTS: 1
7. Break-even point is the level of production where revenue equals ___________________ costs.
ANS: total
PTS: 1
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
8. The contribution margin is calculated by finding the different between revenue and the
__________________ costs.
ANS: variable
PTS: 1
9. The contribution margin is the level of profit that contributes for paying ________________ costs.
ANS: fixed
PTS: 1
10. The letters PV stands for ___________________________ ratio.
ANS: profit-volume
PTS: 1
11. To calculate the PV ratio, you need to divide the __________________________ margin by revenue.
ANS: contribution
PTS: 1
12. The __________________ range means that costs (fixed and variable) apply to a certain level of
production.
ANS: relevant
PTS: 1
13. Changes in __________________ costs can alter the PV ratio.
ANS: variable
PTS: 1
14. To calculate the break-even point, you need to divide the fixed costs by the PV ratio or the unit
__________________ margin.
ANS: contribution
PTS: 1
15. You can find the break-even point in units by dividing fixed costs by the ______________
contribution margin.
ANS: unit
PTS: 1
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
16. You can find the revenue break-even point by dividing fixed costs by the ___________________ ratio.
ANS: PV
PTS: 1
17. To calculate the cash break-even point, you need to deduct _____________________ from fixed costs
so that this sum can be divided by the contribution margin.
ANS: depreciation
PTS: 1
18. The cash break-even point can be defined as the number of units or revenue that must be reached in
order to cover total cash __________________ costs.
ANS: fixed
PTS: 1
19. To calculate the profit break-even point, you need to add the profit objective to the
__________________ costs so that the sum can be divided by the unit contribution.
ANS: fixed
PTS: 1
20. __________________ analysis is a technique that shows to what extent a change in one variable (e.g.,
selling price, fixed costs) impacts on the break-even point.
ANS: Sensitivity
PTS: 1
21. The break-even __________________ is a method that helps determine the most appropriate way of
structure operating costs (fixed versus variable).
ANS: wedge
PTS: 1
22. ____________________ fixed costs must be incurred in order to operate a business.
ANS: Committed
PTS: 1
23. _______________________ fixed costs are those that can be controlled by managers from one period
to another if necessary.
ANS: Discretionary
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
PTS: 1
24. Costs that operating managers are accountable for are ____________________ costs.
ANS: controllable
PTS: 1
25. ____________________ costs are necessary in the production cycle but that cannot be clearly
allocated to specific products or services.
ANS: Indirect
PTS: 1
MATCHING
Match the words with the term.
a. electricity
b. rent
c. purchases
d. tool
e. margin
1.
2.
3.
4.
5.
semi-variable cost
variable cost
fixed cost
cost-volume-profit analysis
contribution
1.
2.
3.
4.
5.
ANS:
ANS:
ANS:
ANS:
ANS:
A
C
B
D
E
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
a. break-even
b. purchases
c. amortization
d. PV
e. relevant range
6.
7.
8.
9.
10.
applies to a certain level of production
variable costs
non-cash expense
ratio
revenue equals total costs
6. ANS: E
PTS: 1
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
7.
8.
9.
10.
ANS:
ANS:
ANS:
ANS:
B
C
D
A
PTS:
PTS:
PTS:
PTS:
1
1
1
1
Match the words with the term.
a. PV ratio
b. gross profit
c. total costs
d. fixed costs
e. variable costs
11.
12.
13.
14.
15.
fixed and variable costs
change with level of volume
constant
revenue less cost of sales
contribution margin ÷ revenue
11.
12.
13.
14.
15.
ANS:
ANS:
ANS:
ANS:
ANS:
C
E
D
B
A
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
a. constant
b. change
c. disproportionate
d. revenue
e. total costs
16.
17.
18.
19.
20.
semi-variable costs
fixed costs
variable costs
fixed and variable costs
units multiplied by selling price
16.
17.
18.
19.
20.
ANS:
ANS:
ANS:
ANS:
ANS:
C
A
B
E
D
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
a. freight
b. property taxes
c. telephone
d. depreciation
e. profit
21. semi-variable costs
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
22.
23.
24.
25.
difference between revenue and total costs
variable costs
fixed costs
non-cash expense
21.
22.
23.
24.
25.
ANS:
ANS:
ANS:
ANS:
ANS:
C
E
A
B
D
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
a. depreciation
b. variables
c. PV ratio
d. relevant range
e. objective
26.
27.
28.
29.
30.
sensitivity analysis
revenue and contribution margin
costs that apply to level of production
cash break-even point
profit break-even point
26.
27.
28.
29.
30.
ANS:
ANS:
ANS:
ANS:
ANS:
B
C
D
A
E
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
a. accountable
b. purchases
c. overhead
d. must be incurred
e. depreciation
31.
32.
33.
34.
35.
non-cash cost
committed costs
controllable costs
direct costs
indirect costs
31.
32.
33.
34.
35.
ANS:
ANS:
ANS:
ANS:
ANS:
E
D
A
B
C
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
Match the words with the term.
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
a.
b.
c.
d.
e.
committed
change
controllable
non-cash cost
indirect
36.
37.
38.
39.
40.
must be incurred
depreciation
overhead costs
variable costs
managers are accountable for these costs
36.
37.
38.
39.
40.
ANS:
ANS:
ANS:
ANS:
ANS:
A
D
E
B
C
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
PROBLEM
With the following information, answer the following questions!
Total fixed costs allocated to the department are $25,000. Total number of units expected to be sold
based on a market study are 12,000. Total variable costs are $24,000 and the unit selling price is $6.50
1. The break-even point in units is ___________________.
ANS:
The break-even point in units is 5,555.
Unit selling price
Unit variable costs
Contribution margin
$ 6.50
2.00 ($24,000 units ÷ 12,000)
$ 4.50
Fixed costs
Contribution margin
$ 25,000 ÷
$
4.50
PTS: 1
2. The break-even point in revenue is ___________________.
ANS:
The break-even point in revenue is $ 36,107.50.
Number of units
Unit selling price
5,555 x
$ 6.50
PTS: 1
3. Should the project be accepted? ___________________ .
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
ANS:
Yes.
PTS: 1
4. Why? ________________________________________________ .
ANS:
Why?
Because the break-even point is realized at 46.3% of the objective.
Break-even point in revenue
Revenue objective
$ 36,107 ÷
$ 78,000
PTS: 1
5. If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the PV ratio would be ___________________ .
ANS:
If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the PV ratio would be .692
Revenue
Variable costs
Contribution margin
Contribution margin
Sales revenue
$ 78,000 (12,000 x $ 6.50)
24,000 (12,000 x $ 2.00)
$ 54,000
$ 54,000 ÷
$ 78,000
PTS: 1
6. If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the new break even point in units would be ___________________ .
ANS:
If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the new break-even point in units would be 6,667.
New fixed costs
Unit contribution
$ 30,000 ÷ ($ 25,000 + $ 5,000)
$
4.50
PTS: 1
7. If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the new break-even revenue would be ___________________ .
ANS:
If fixed costs were increased by $5,000 and variable costs and unit selling price remained unchanged,
the new revenue break-even point would be $ 43,353.
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
New fixed costs
$ 30,000 ÷ ($ 25,000 + $ 5,000)
.692
Number of units
Unit selling price
6,667 x
$ 6.50
PTS: 1
With the following information, answer the following questions!
A supplier approaches a company to sell a new product line. Based on the supplier's estimates, the
company could sell as many as 2,500 units. The suggested retail price for each unit is $17.50. The
purchase price for each unit is $8.00. The amount of fixed costs allocated to that particular department
is $9,000.
8. The contribution margin is ___________________ .
ANS:
The contribution margin is $ 23,750.
Revenue
Variable costs
Contribution margin
$ 43,750 (2,500 x $ 17.50)
20,000 (2,500 x $ 8.00)
$ 23,750
PTS: 1
9. The PV ratio is ___________________ .
ANS:
The PV ratio is .543
PTS: 1
10. The revenue break-even point is ___________________ .
ANS:
The revenue break-even point is $ 16,574.
Fixed costs
PV ratio
$ 9,000 ÷
.543
PTS: 1
11. The profit realized is ___________________ .
ANS:
The profit realized is $ 14,750.
Revenue
Variable costs
Contribution margin
Fixed costs
$ 43,750 (2,500 x $ 17.50)
20,000 (2,500 x $ 8.00)
23,750
9,000
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
Profit
$ 14,750
PTS: 1
With the following information, answer the following questions!
Revenue for product A - $ 55,000
Revenue for product B - $ 25,000
Revenue for product C - $ 45,000
Cost of sales for the above product lines are 40%, 45%, and 50% of revenue respectively. Fixed costs
are estimated at $40,000. The company would like to realize $ 25,000 in profit.
12. The total variable costs are ___________________ .
ANS:
The total variable costs are $ 55,750.
Revenue
Product A
Product B
Product C
$
Total
$ 125,000
Cost of sales
55,000
25,000
45,000
x
x
x
40%
45%
50%
=
=
=
$ 55,750
PTS: 1
13. The contribution margin is ___________________ .
ANS:
The contribution margin is $ 69,250.
Revenue
Cost of sales
Contribution margin
$
$ 125,000
55,750
69,250
PTS: 1
14. The PV ratio is ___________________ .
ANS:
The PV ratio is .554.
Contribution margin
Revenue
$ 22,000
11,250
22,500
$
69,250 ÷
$ 125,000
PTS: 1
15. The revenue break-even point is ___________________ .
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
ANS:
The revenue break-even point is $ 72,202.
Fixed costs
PV ratio
$ 40,000 ÷
.554
PTS: 1
16. Profit break-even point is ___________________ .
ANS:
Profit break-even point is $ 117,328.
Fixed costs
Profit objective
Total
PV ratio
$ 40,000
25,000
$ 65,000 ÷
.554
PTS: 1
With the following information, answer the following questions.
Advertising
$
Depreciation
Freight in
Finance costs
Leasing
Office salaries
40,000
Office supplies
5,000
Purchases
Salaries (selling)
Sales commission.
Revenue
Travelling
20,000
50,000
17 ,000
18,000
9,000
250,000
65,000
26,000
550,000
7,000
17. The profit is ___________________.
ANS:
The profit is $ 43,000.
Revenue
Variable costs
Freight-in
Purchases
Sales commission
Total variable costs
Contribution margin
Fixed costs
Advertising
Depreciation
Finance costs
Leasing
550,000
($ 17,000)
(250,000)
(26,000)
(293,000)
257,000
($ 20,000)
(50,000)
(18,000)
(9,000)
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
Office salaries
Office supplies
Salaries (selling)
Travelling
Total fixed costs
(40,000)
(5,000)
(65,000)
(7,000)
(214,000)
Profit
$
PTS: 1
18. PV ratio is ___________________.
ANS:
The PV ratio is .467.
Contribution margin
Revenue
$ 257,000 ÷
550,000
PTS: 1
19. The break-even point in revenue is ___________________ .
ANS:
The break-even point in revenue is $ 458,244.
Fixed costs
Contribution margin
$ 214,000
.467
PTS: 1
20. Total variable costs are ___________________ .
ANS:
Total variable costs are $ 293,000 (see above for breakdown).
PTS: 1
21. Total fixed costs are ___________________.
ANS:
Total fixed costs are $ 214,000 (see above for breakdown).
PTS: 1
22. The cash break-even point is ___________________ .
ANS:
The cash break-even point is $ 351,178.
Total fixed costs
Depreciation
$ 214,000
(50,000)
43,000
Full file at http://testbanksite.eu/Finance-for-Non-Financial-Managers-6th-Edition-Test-Bank
Cash fixed costs
PV ratio
PTS: 1
$ 164,000 ÷
.467