Fundamentals of Business Mathematics in Canada 3Rd Edition By Jerome - Test Bank

Fundamentals of Business Mathematics in Canada 3Rd Edition By Jerome – Test Bank

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Chapter 05
Cost-Volume-Profit Analysis

Multiple Choice Questions

Kuldip’s factory manufactures toys that sell for $29.95 each. The variable cost per toy is $11, and the total fixed costs for the month are $45,000. What is the break-even point in units per month?
A.2,100 units
B. 2,375 units
C. 2,300 units
D. 2`,450 units
E. 2,575 units

Accessibility: Keyboard Navigation
Difficulty: Easy
Gradable: automatic
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

Kuldip’s factory manufactures toys that sell for $29.95 each. The variable cost per toy is $11, and the total fixed costs for the month are $45,000. What is the break-even point in revenue per month?
A.$70,000
B. $75,480
C. $71,121
D. $73,215
E. $71,500

Kuldip’s factory manufactures toys that sell for $29.95 each. The variable cost per toy is $11, and the total fixed costs for the month are $45,000. What would unit sales have to be to attain a net income over $8,000?
A.2,700 units
B. 2,650 units
C. 2,756 units
D. 2,797 units
E. 2,765 units

Accessibility: Keyboard Navigation
Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

Kuldip’s factory manufactures toys that sell for $29.95 each. The variable cost per toy is $11, and the total fixed costs for the month are $45,000. What would unit sales have to be to attain a net income over $12,000?
A.3,050 units
B. 2,900 units
C. 2,950 units
D. 2,996 units
E. 3,008 units

Kuldip’s factory manufactures toys that sell for $29.95 each. The variable cost per toy is $11, and the total fixed costs for the month are $45,000. Calculate the unit contribution margin.
A.$18.95
B. $17.95
C. $19.00
D. $17.50
E. $11.00

A manufacturing company is considering producing a new product. The variable cost of the new product is $60 per unit, and the total fixed costs are $75,000 for a month. The company could produce 1,500 units per month, and sell the product for $125 each. What is the break-even point as a percent of capacity?
A.81.2%
B. 76.9%
C. 75%
D. 72.4%
E. 63%

A manufacturing company is considering producing a new product. The variable cost of the new product is $60 per unit, and the total fixed costs are $75,000 for a month. The company could produce 1,500 units per month, and sell the product for $125 each. What would be the net income at 90% capacity?
A.$10,000
B. $15,000
C. $12,750
D. $12,225
E. $16,000

A manufacturing company is considering producing a new product. The variable cost of the new product is $60 per unit, and the total fixed costs are $75,000 for a month. The company could produce 1,500 units per month, and sell the product for $125 each. What would be the net income at 75% capacity?
A.loss $3,500
B. loss $250
C. loss $1,800
D. loss $1,875
E. loss $2,025

A manufacturing company is considering producing a new product. The variable cost of the new product is $60 per unit, and the total fixed costs are $75,000 for a month. The company could produce 1500 units per month, and sell the product for $125 each. What sales would result in a net income of $16,000?
A.1200 units
B. 1250 units
C. 1300 units
D. 1375 units
E. 1400 units

A manufacturing company is considering producing a new product. The variable cost of the new product is $60 per unit, and the total fixed costs are $75,000 for a month. The company could produce 1,500 units per month, and sell the product for $125 each. Calculate the unit contribution margin.
A.65
B. 50
C. 60
D. 125
E. 80

M Studios retails their own brand of camera that they manufacture in their plant for $500. The plant capacity is 1,000 units per month and variable costs are $225 per camera. Total fixed costs for the year are $2.16 million. Calculate the break-even point as a percentage of capacity.
A.34.5%
B. 65.5%
C. 50%
D. 60%
E. 62.5%

M Studios retails their own brand of camera that they manufacture in their plant for $500. The plant capacity is 1,000 units per month and variable costs are $225 per camera. Total fixed costs for the year are $2.16 million. How many cameras must be sold per month to have a net income of $40,000?
A.850
B. 900
C. 800
D. 750
E. 825

M Studios retails their own brand of camera that they manufacture in their plant for $500. The plant capacity is 1,000 units per month and variable costs are $225 per camera. Total fixed costs for the year are $2.16 million. If fixed costs increase by 10%, what will be the net income at full capacity?
A.$85,000
B. $75,000
C. $80,000
D. $77,000
E. $75,500

M Studios retails their own brand of camera that they manufacture in their plant for $500. The plant capacity is 1,000 units per month and variable costs are $225 per camera. Total fixed costs for the year are $2.16 million. If fixed costs increase by 10%, how many cameras per month would have to be sold to maintain a net income of $49,500?
A.950 units
B. 875 units
C. 850 units
D. 925 units
E. 900 units

M Studios retails their own brand of camera that they manufacture in their plant for $500. The plant capacity is 1,000 units per month and variable costs are $225 per camera. Total fixed costs for the year are $2.16 million. Calculate the contribution margin per camera.
A.275
B. 250
C. 225
D. 300
E. 325

Accessibility: Keyboard Navigation
Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis

A manufacturer produces a product which it sells for $60 per unit. The variable cost per unit is $20 and the fixed cost per month is $10,000.

How many units must be sold per month to break even?
A.167
B. 500
C. 400
D. 250
E. none of these

Determine the monthly profit (loss) if it sells 325 units per month.
A.$1,500
B. ($1,500)
C. $3,000
D. $0
E. none of these

How many units must be sold per month to earn a profit of $7,000?
A.342
B. 425
C. 675
D. 575
E. none of these

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the contribution margin per unit.
A.$24
B. $9
C. $8
D. $6
E. $5

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the break-even point in units per month.
A.320
B. 533
C. 800
D. 200
E. 400

Accessibility: Keyboard Navigation
Difficulty: Easy
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the revenue per month required to break-even.
A.$4,800
B. $7,200
C. $12,000
D. $14,400
E. $16,000

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the number of units that must be sold to return a net income of $2,100 per month.
A.1,400
B. 1,150
C. 767
D. 533
E. 350

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the net income on sales of 850 units per month.
A.$12,750
B. $7,950
C. $5,100
D. $1,150
E. $300

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the net income on revenue of $10,000 per month.
A.$4,000
B. $5,200
C. $1,200
D. ($800) Loss
E. ($1,200) Loss

The selling price of a widget is $15 and the fixed cost per month is $4,800. The variable cost per widget is $9. Calculate the contribution margin rate.
A.30%
B. 40%
C. 50%
D. 60%
E. 70%

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate the budgeted net income.
A.$6,400,000
B. $2,400,000
C. $1,200.000
D. $800,000
E. ($4,000,000) Loss

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate break-even revenue per year.
A.$7,200,000
B. $7,000,000
C. $5,600,000
D. $3,200,000
E. $8,000,000

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate the net income if total revenue for the year exceeds the budget by $1,000,000.
A.$2,400,000
B. $2,200,000
C. $2,000,000
D. $1,800,000
E. $1,600,000

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate the net income if total revenue for the year falls below the budget by $1,000,000.
A.$400,000
B. $0
C. ($200,000) Loss
D. ($220,000) Loss
E. ($800,000) Loss

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate the total sales revenue for the year that would be needed for a profit of $2,750,000.
A.$10,437,500
B. $9,387.500
C. $8,250,000
D. $9,750,000
E. $10,750,000

The current annual budget for Armstrong Ltd. indicates total revenue of $8,000,000. The total variable costs are $1,600,000 and fixed costs are $5,600,000. Calculate the contribution rate.
A.20%
B. 40%
C. 50%
D. 70%
E. 80%

Accessibility: Keyboard Navigation
Difficulty: Easy
Gradable: automatic
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

Ace Corporation’s variable costs are equal to 43% of sales revenue. Their fixed costs per month are $600,000. Calculate total revenue at the break-even point.
A.$1,395,349
B. $858,000
C. $942,000
D. $1,052,632
E. $1,355,400

Ace Corporation’s variable costs are equal to 43% of sales revenue. Their fixed costs per month are $600,000. Calculate the net income on sales of $2,000,000 per month.
A.$540,000
B. $260,000
C. $798,000
D. $1,140,000
E. $280,000

Ace Corporation’s variable costs are equal to 43% of sales revenue. Their fixed costs per month are $600,000. Calculate the contribution rate.
A.22%
B. 34%
C. 43%
D. 53%
E. 57%

Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. How many hot dogs must Weiner sell in a month to break even?
A.1,800
B. 2,000
C. 2,400
D. 2,750
E. 720

Weiner’s Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. How much profit should Weiner realize on the sale of 3,000 hot dogs?
A.$7,500
B. $1,500
C. $1,016
D. $850
E. $450

Weiner’s Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. If Weiner’s fixed cost per month was to increase to $2,880, to what level would he have to reduce his variable cost per hot dog in order to maintain the current break-even point in units?
A.$1.20
B. $1.30
C. $1.40
D. $1.50
E. $1.60

Accessibility: Keyboard Navigation
Difficulty: Difficult
Gradable: automatic
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

At this time, Weiner’s Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. Weiner is considering some changes. If Weiner increases his selling price to $2.75 per hot dog, and reduce his variable cost per hot dog to $1.15, what level of fixed cost per month would reduce his break-even point in units by 50% from what it is now?
A.$900
B. $1,050
C. $1,450
D. $1,920
E. $2,400

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. What is the break-even point expressed in dollars of revenue?
A.$12,000
B. $10,000
C. $15,000
D. $12,500
E. $14,750

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. What is the break-even point expressed as a percent of capacity?
A.75%
B. 80%
C. 70%
D. 85%
E. 65%

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. How many dolls must be sold each week to produce a net income of $1125?
A.400 dolls
B. 425 dolls
C. 450 dolls
D. 475 dolls
E. 375 dolls

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. How many dolls must be sold each week to produce a net income of $2250?
A.375 dolls
B. 400 dolls
C. 425 dolls
D. 500 dolls
E. 525 dolls

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. If fixed costs are increased by 10% per week, by how much will this lower the net income?
A.$750
B. $1,000
C. $1250
D. $800
E. $900

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. At full capacity, what is Cliff’s net income?
A.$12,000
B. $10,000
C. $15,000
D. $7500
E. $14,500

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. At 75% capacity, what is Cliff’s net income?
A.$4,800
B. $6,000
C. $7,200
D. $7,800
E. $8,400

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What is the break-even point expressed as a percent of capacity?
A.75%
B. 80%
C. 50%
D. 60%
E. 70%

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What number of meals must be sold to break-even?
A.1,200 meals
B. 1,400 meals
C. 1,500 meals
D. 1,000 meals
E. 1,250 meals

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What number of meals must be sold to generate a net income of $7,800?
A.1,550 meals
B. 1,600 meals
C. 1,700 meals
D. 1,750 meals
E. 1,650 meals

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the break-even volume per month?
A.750 lamps
B. 800 lamps
C. 900 lamps
D. 1,000 lamps
E. 600 lamps

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the monthly net income at a volume of 1800 lamps per month?
A.$76,000
B. $84,000
C. $80,000
D. $88,000
E. $72,000

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the monthly net income if Cando operates at 60% capacity?
A.$44,000
B. $84,000
C. $36,000
D. $52,000
E. $28,000

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. At what percent utilization would the monthly net income be $44,000?
A.60%
B. 55%
C. 50%
D. 65%
E. 70%

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. At what percent utilization would the monthly net income be $52,000?
A.55%
B. 65%
C. 75%
D. 80%
E. 70%

Juniper Ltd. Manufactured 98,000 units of a product last year and identified the following manufacturing and overhead costs (V denotes variable cost and F denotes fixed cost).

Materials used (V)	$441,000
Production Labour (V)	710,500
Wages paid to Management (F)	80,000
Other materials used (V)	122,500
Power to run plant (V)	490,000
Other utilities (F)	30,000
Depreciation (F)	45,000
Property Taxes (F)	15,000

If variable cost and fixed costs remain unchanged, calculate the total cost to produce 62,000 units.
A. $1,286,000
B. $1,486,000
C. $1,686,000
D. $1,976,000
E. $2,076,000

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

Anderson Ltd. Manufactured 10,000 units of a product last year and identified the following manufacturing and overhead costs (V denotes variable cost and F denotes fixed cost).

Materials used (V)	$100,000
Production Labour (V)	250,000
Wages paid to Management (F)	120,000
Other materials used (V)	30,000
Power to run plant (V)	50,000
Other utilities (F)	15,000
Depreciation (F)	30,000
Property Taxes (F)	20,000

If variable cost and fixed costs remain unchanged, calculate the total cost to produce 12,000 units.
A. $698,000
B. $699,000
C. $700,000
D. $701,000
E. $702,000

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

Mentis Ltd. Manufactured 350,000 units of a product last year and identified the following manufacturing and overhead costs (V denotes variable cost and F denotes fixed cost).

Materials used (V)	$11,200,000
Production Labour (V)	15,750,000
Wages paid to Management (F)	2,400,000
Other materials used (V)	2,800,000
Power to run plant (V)	2,450,000
Other utilities (F)	1,100,000
Depreciation (F)	450,000
Property Taxes (F)	600,000

If variable cost and fixed costs remain unchanged, calculate the total cost to produce 385,000 units.
A. $39,970,000
B. $40,170,000
C. $41,370,000
D. $43,670,000
E. $44,440,000

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

Sherry Tomason is considering the start-up of a delivery company service. She has compiled information on costs as follows:

Truck insurance and licence	$3,000	/year
Fuel	100	every	400 km
Oil change	70	every	5,000 km
Helper’s wages	2,500	/month
Proprietor wages	3,500	/month
EI & CPP premiums	300	/month
Tires	900	every	75,000 km
Cell phone	75	/month
Other truck repairs and maintenance	1,000	per	10,000 km
Business licence	180	/year
Depreciation	180	per	1,000 km

With the cost data provided, determine the fixed costs per month.
A. $5,680
B. $7,130
C. $8,840
D. $3,160
E. $6,640

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-02 Fixed Costs and Variable Costs

Mike Babchuck is considering the start-up of a service company. He has compiled information on costs as follows:

Truck insurance and licence	$2,500	/year
Fuel	150	every	200 km
Oil change	125	every	7,000 km
Helper’s wages	1,500	/month
Proprietor wages	4,000	/month
EI & CPP premiums	450	/month
Tires	1,500	every	100,000 km
Cell phone	90	/month
Other truck repairs and maintenance	800	per	15,000 km
Business licence	250	/year
Depreciation	325	per	1,000 km

With the cost data provided, determine the variable cost per km.
A. $1.348
B. $1.161
C. $1.087
D. $1.031
E. $0.825

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-02 Fixed Costs and Variable Costs

Shannon Vale is considering the start-up of a service company. She has compiled information on costs as follows:

Truck insurance and licence	$1,950	/year
Fuel	225	every	300 km
Oil change	90	every	9,000 km
Helper’s wages	2,200	/month
Proprietor wages	3,000	/month
EI & CPP premiums	280	/month
Tires	1,000	every	80,000 km
Cell phone	65	/month
Other truck repairs and maintenance	725	per	25,000 km
Business licence	225	/year
Depreciation	150	per	1,000 km

With the cost data provided, determine the fixed costs and variable cost per km.
A. Fixed costs: $4425; Variable costs: $1.031
B. Fixed costs: $5,186; Variable costs: $0.818
C. Fixed costs: $6,200; Variable costs: $0.966
D. Fixed costs: $5,726; Variable costs: $0.952
E. Fixed costs: $7,752; Variable costs: $1.048

Difficulty: Moderate
Gradable: automatic
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-02 Fixed Costs and Variable Costs

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $80. The new production line would manufacture up to 9,000 units at a variable cost of $15 per unit. Fixed costs would be $150,000. Variable selling and administration expenses would amount to $5. Determine the break-even point as a percent of capacity.
A.27.78%
B. 28.55%
C. 29.32%
D. 32.45%
E. 41.62%

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $75. The new production line would manufacture up to 150,000 units at a variable cost of $47 per unit. Fixed costs would be $975,000. Variable selling and administration expenses would amount to $15. Determine the break-even point as a percent of capacity.
A.30%
B. 40%
C. 50%
D. 60%
E. 70%

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $105. The new production line would manufacture up to 825,000 units at a variable cost of $64 per unit. Fixed costs would be $1,515,000. Variable selling and administration expenses would amount to $18. Determine the units needed to earn operating income of $4,000,000.
A.241,571
B. 166,276
C. 527,685
D. 239,783
E. 313,913

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $24. The new production line would manufacture up to 19,500 units at a variable cost of $7.80 per unit. Fixed costs would be $72,500. Variable selling and administration expenses would amount to $2.20. Determine the units needed to earn operating income of $75,000.
A.14,970
B. 13,869
C. 12,758
D. 11,647
E. 10,536

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $100. The new production line would manufacture up to 42,000 units at a variable cost of $67 per unit. Fixed costs would be $580,000. Variable selling and administration expenses would amount to $12. Determine operating income at 80% of capacity.
A.$124,700
B. $125,600
C. $126,500
D. $127,400
E. $128,300

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $56. The new production line would manufacture up to 95,000 units at a variable cost of $35 per unit. Fixed costs would be $400,000. Variable selling and administration expenses would amount to $7. Determine operating income at 95% capacity.
A.$863,500
B. $874,500
C. $885,500
D. $895,500
E. $905,500

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $18.50. The new production line would manufacture up to 14,500 units at a variable cost of $6.25 per unit. Fixed costs would be $34,000. Variable selling and administration expenses would amount to $3. Determine the dollar sales needed to earn operating loss of $2,500.
A.$66,000
B. $65,000
C. $64,000
D. $63,000
E. $62,000

A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $7. The new production line would manufacture up to 19,250 units at a variable cost of $1.85 per unit. Fixed costs would be $50,000. Variable selling and administration expenses would amount to $1.15. Determine the dollar sales needed to earn operating loss of $4,000.
A.$81,000
B. $80,500
C. $80,000
D. $79,500
E. $79,000

A new product is expected to sell for $12. The company would manufacture up to 22,000 units at a variable cost of $5 per unit. Fixed costs would be $150,000. Variable selling and administration expenses would amount to $2.50. Determine the contribution margin per unit and contribution margin rate.
A.Per unit CM $4.50; CM rate = .375
B. Per unit CM $5.50; CM rate = .395
C. Per unit CM $6.50; CM rate = .415
D. Per unit CM $7.50; CM rate = .435
E. Per unit CM $8.50; CM rate = .455

Accessibility: Keyboard Navigation
Difficulty: Easy
Gradable: automatic
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

A new product is expected to sell for $20. The company would manufacture up to 46,500 units at a variable cost of $8 per unit. Fixed costs would be $220,000. Variable selling and administration expenses would amount to $3. Determine the contribution margin per unit and contribution margin rate.
A.Per unit CM $9.00; CM rate = .45
B. Per unit CM $9.50; CM rate = .47
C. Per unit CM $9.75; CM rate = .49
D. Per unit CM $10.00; CM rate = .51
E. Per unit CM $10.50; CM rate = .53

Short Answer Questions

Below is a list of costs. Classify each of them as variable, fixed, or mixed (a combination of variable and fixed components.)
a) Cost of raw materials used in producing a firm’s products.
b) Property taxes.
c) Wages of sales staff paid on a salary plus commission basis.
d) Wages of hourly paid production-line workers.
e) Site licence for software.
f) Leasing costs for a delivery truck ($600 per month plus $0.40 per km.)
g) Packaging materials for products.
h) Insurance.
a) Variable cost; b) Fixed cost; c) Mixed cost; d) Variable cost; e) Fixed cost; f) Mixed cost; g) Variable cost; h) Fixed cost

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-02 Fixed Costs and Variable Costs

A company’s sales revenue decreased by 15% from one operating period to the next.
Assuming no change in the prices of its inputs and outputs, by what percentage did:

a) Fixed costs change?
b) Unit variable costs change?
c) Total variable costs change?
a) 0%. By definition, fixed costs do not change when the sales volume changes;
b) 0%;
c) -15%. By definition, total variable costs change by the same percentage as the sales volume.

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-02 Fixed Costs and Variable Costs

Triax Corp. produced 50,000 gizmos at a total cost of $1,600,000 (including $400,000 of fixed costs) in the fiscal year just completed. If fixed costs and unit variable costs do not change next year, how much will it cost to produce 60,000 gizmos?

$1,840,000

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

Dynacan Ltd. manufactured 10,000 units of product last year and identified the following manufacturing and overhead costs. (V denotes “variable cost” and F denotes “fixed cost.”)

Materials used in manufacturing (V)	$50,400,000
Wages paid to production workers (V)	93,000,000
Wages paid to management and salaried employees (F)	22,200,000
Other materials and supplies (V)	16,000,000
Power to run plant equipment (V)	14,200,000
Other utilities (F)	19,200,000
Depreciation (straight line) on plant and equipment (F)	9,600,000
Property taxes (F)	5,000,000

If unit variable costs and fixed costs remain unchanged, calculate the total cost to produce 9700 units this year.

$224,392,000

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

Toys-4-U manufactures a toy that it sells for $30 each. The variable cost per toy is $10 and the fixed costs for this product line are $100,000 per year.
a) What is the break-even point in units?
b) What is the break-even sales revenue?
a) 5,000 toys per year; b) $150,000 per year

Difficulty: Easy
Gradable: manual
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

Reliable Plastics makes containers that it sells for $2.55 each. Its fixed costs for this product are $2,000 per month and the variable cost per unit is $1.30.
a) What is the break-even point in units?
b) What is the break-even sales revenue?
a) 1,600 containers per month; b) $4,080 per month

Ingrid processes and bottles jam in her home-based business. Her fixed costs are $250 per month and the variable cost per jar is $1.20. She sells the jam to local grocery stores for $3.20 each.
a) How many jars must she sell per year to break even?
b) What will be her profit if she sells 3,000 jars in a year?
a) 1,500 jars; b) $3,000

Use the Texas Instruments BAII plus break-even worksheet to solve the following.
Recall:
FC: total fixed costs
VC: Variable costs per unit
P: Selling price per unit (S in textbook)
PFT: Profit or Net Income
Q: Number of units sold (x in textbook)

Reliable Plastics makes containers that it sells for $12.75 each. Its fixed costs for this product are $2,500 per month and the variable cost per unit is $5.30. What is the break-even point in units?

348 units

Difficulty: Easy
Gradable: manual
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-05 Breakeven Worksheet on the Texas Instruments BA II Plus

Use the Texas Instruments BAII plus break-even worksheet to solve the following.
Recall:
FC: total fixed costs
VC: Variable costs per unit
P: Selling price per unit (S in textbook)
PFT: Profit or Net Income
Q: Number of units sold (x in textbook)

Toys-4-U manufactures a toy that it sells for $65.00 each. The variable cost per toy is $15 and the fixed costs for this product line are $250,000 per year. What is the break-even point in units?

5,000 units

Use the Texas Instruments BAII plus break-even worksheet to solve the following.
Recall:
FC: total fixed costs
VC: Variable costs per unit
P: Selling price per unit (S in textbook)
PFT: Profit or Net Income
Q: Number of units sold (x in textbook)

Toys-4-U manufactures a toy that it sells for $65.00 each. The variable cost per toy is $15 and the fixed costs for this product line are $250,000 per year. What number of sales would generate a profit of $5000?

5,100 units

Canada Bagel Company manufactures packages of bagels that it sells for $2.50. The variable costs per package are $1.00.
a) To just break even, how many packages of bagels must be sold per month if the fixed costs are $60,000 per month?
b) What must unit sales be in order to have a profit of $7,500 per month?
a) 40,000 CD-ROMs; b) 45,000 CD-ROMs

Home Security Specialists Inc. assembles and packages home security systems from standard components. Its basic home security system is sold to customers who prefer to install the system themselves in their own homes. Each system is assembled from components costing $1,400 per system and sells for $2,000. Labour costs for assembly are $100 per system. This product line’s share of overhead costs is $10,000 per month.
a) How many basic security systems must be sold each month to break even on this product line?
b) What will be the profit or loss for a month in which 15 basic home security systems are sold?
a) 20 systems per month; b) $2,500 loss

Huntsville Office Supplies (HOS) is evaluating the profitability of leasing a photocopier for its customers to use on a self-serve basis at 10¢per copy. The copier may be leased for $300 per month plus 1.5¢ per copy on a full-service contract. HOS can purchase paper at $5 per 500-sheet ream. Toner costs $100 per bottle, which in normal use will last for 5,000 pages. HOS is allowing for additional costs (including electricity) of 0.5¢ per copy.
a) How many copies per month must be sold in order to break even?
b) What will be the increase in monthly profit for each 1,000 copies sold above the break-even point?
a) 6,000 copies; b) $50

Jordan is developing a business plan for a residential building inspection service he may start. Rent and utilities for an office would cost $1,000 per month. The fixed costs for a vehicle would be $450 per month. He estimates that the variable office costs (word processing and supplies) will be $50 per inspection and variable vehicle costs will be $25 per inspection. Jordan would also spend $200 per month to lease a computer, and $350 per month for advertising.
a) If he charges $275 per inspection, how many inspections per month are required before he can “pay himself?”
b) How many inspections per month are required for Jordan to be able to withdraw a salary of $4,000 per month?
a) 10 inspections; b) 30 inspections

A small manufacturing operation can produce up to 250 units per week of a product that it sells for $20 per unit. The variable cost per unit is $12, and the fixed cost per week is $1200.
a) How many units must it sell per week to break even?
b) Determine the firm’s weekly profit or loss if it sells:
(i) 120 units per week (ii) 250 units per week
c) At what level of sales will the net income be $400 per week?
a) 150 units per week; b) i) loss of $240 per week ii) profit of $800 per week; c) 200 units per week

Alpha Corp. expects to operate at 80% of capacity next year. Its forecast operating budget is:

Sales revenue	$1,200,000
Fixed costs	$300,000
Total variable costs	$800,000
Total costs	$1,100,000
Net income	$100,000

a) What is Alpha’s break-even revenue?
b) What would be Alpha’s net income if it operates at full capacity?
a) $900,000; b) $200,000

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

Beta Inc. has based its budget forecast for next year on the assumption it will operate at 90% of capacity. The budget is

Sales revenue	$18,000,000
Fixed costs	$10,000,000
Total variable costs	$6,000,000
Total costs	$16,000,000
Net income	$2,000,000

a) At what percentage of capacity would Beta break even?
b) What would be Beta’s net income if it operates at 70% of capacity?
a) 75% capacity; b) $666,667 loss

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

The Armour Company had the following revenue and costs in the most recently completed fiscal year:

Total revenue	$10,000,000
Total fixed costs	$2,000,000
Total variable costs	$6,000,000
Total units produced and sold	1,000,000

a) What is the unit sales volume at the break-even point?
b) How many units must be produced and sold for the company to have a net income of $1,000,000 for the year?
a) 500,000 units; b) 750,000 units

Samantha manufactures rings which sell in her boutique for $60 each. For 100 rings, the material cost is $15 each, and estimated fixed costs are $900. How many rings must Larissa sell to beak-even?

Fisher Publishing Inc. is doing a financial feasibility analysis for a new book. Editing and preproduction costs are estimated at $45,000. The printing costs are a flat $7,000 for setup plus $8.00 per book. The author’s royalty is 8% of the publisher’s net price to bookstores. Advertising and promotion costs are budgeted at $8,000.
a) If the price to bookstores is set at $35, how many books must be sold to break even?
b) In a highest cost scenario, fixed costs might be $5,000 higher and the printing costs might be $9.00 per book. By how many books would the break-even volume be raised?
c) The marketing department is forecasting sales of 4800 books at the $35 price. What will be the net income from the project at this volume of sales?
d) The marketing department is also forecasting that, if the price is reduced by 10%, unit sales will be 15% higher. Which price should be selected? (Show calculations that support your recommendation.)
a) 2,479 books; b) $56,160; c) select the $35; d) 323 books

To raise funds for its community activities, a Lions’ Club chapter is negotiating with International Carnivals to bring its midway rides and games to town for a three-day opening. The event will be held on part of the parking lot of a local shopping centre, which is to receive 10% of the gross revenue. The Lions’ Club members will sell the ride and game tickets at the site. International Carnivals requires either $15,000 plus 30% of revenue or $10,000 plus 50% of revenue. Contacts in other towns that have held the event indicate that customers spend an average of $10 per person on rides and games.
a) What is the break-even attendance under each basis for remunerating International Carnivals?
b) For each alternative, what will be the club’s profit or loss if the attendance is: (i) 3,000? (ii) 2,200?
c) How would you briefly explain the advantages and disadvantages of the two alternatives to a club member?
a) Plan 1 = $2,500 and Plan 2 = $2,500; b) i) Plan 1 = $3,000 and Plan 2 = $2,000, ii) Plan 1 = -$1,800 and Plan 2 = -$1,200; c) If attendance surpasses the break-even point, the 30% commission rate generates the higher profit. However, if attendance falls short of the 2,500 break-even point, the 30% commission will produce the larger loss.

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

The monthly fixed costs of operating a 30-unit motel are $28,000. The price per unit per night for next year is set at $110. Costs arising from rentals on a per-unit per-day basis are $12 for maid service, $6 for supplies and laundry, and $6 for heat and utilities.
a) Based on a 30-day month, at what average occupancy rate will the motel break even?
b) What will the motel’s net income be at an occupancy rate of: (i) 40%? (ii) 30%?
c) Should the owner reduce the price from $110 to $94 per unit per night if it will result in an increase in the average occupancy rate from 40% to 50%? Present calculations that justify your answer.
a) 36.2%; b) i) $2,960 per month, ii) loss of $4,780 per month; c) The owner should reduce the rental rate to $94 per unit per night since the net income will increase by $3,500 – $2,960 = $540 per month.

Valley Peat Ltd. sells peat moss for $10 per bag. Variable costs are $7.50 per bag and annual fixed costs are $100,000.
a) How many bags of peat must be sold to break even?
b) What will be the net income for a year in which 60,000 bags of peat are sold?
c) How many bags must be sold for a net income of $60,000 in a year?
d) What annual sales in terms of bags and in terms of dollars would produce a loss of $10,000?
e) How much do the break-even unit sales and break-even revenue increase per $1,000 increase in annual fixed costs?
a) 40,000 bags per year; b) $50,000; c) 64,000 bags per year; d) 36,000 bags per year; e) 400 units or $4,000 to break even

Memex Corp. manufactures memory expansion boards for laptop computers. The average selling price of its finished product is $180 per unit. The average variable cost per unit is $110. Memex incurs fixed costs of $1,260,000 per year.
a) What is the break-even point in unit sales per year?
b) What sales revenue must Memex achieve in order to break even?
c) What will be the company’s profit or loss at the following levels of sales for a year: 20,000 units? 17,500 units?
a) 18,000 units; b) $3,240,000; c) Unit sales = 20,000, profit = $140,000; Unit sales = 17,500, profit = -$35,000

Bentley Plastics Ltd. has annual fixed costs of $450,000 and variable costs of $15 per unit. The selling price per unit is $25. The production line can manufacture up to 60,000 units per year.
a) What annual revenue is required to break even?
b) What annual unit sales are required to break even?
c) What will be the annual net income at annual sales of:
(i) 50,000 units? (ii) $1,000,000? iii) 90% of capacity
d) What minimum annual unit sales are required to limit the annual loss to $20,000?
e) If the unit selling price and fixed costs remain the same, what are the changes in break-even unit sales and break-even revenue for a $1 increase in variable costs?
a) $1,125,000; b) 45,000 units per year; c) i) $50,000 ii) loss of $125,000; iii) $90,000 profit d) 40,000; e) The break-even unit sales increases by 5,000 units and revenue = $125, 000

In the year just ended, a small appliance manufacturer sold its product at the wholesale price of $37.50. The unit variable costs were $13.25, and the monthly fixed costs were $5,600.
a) If unit variable costs are expected to rise to $15.00 and fixed costs to $6,000 per month for the next year, at what amount should the product be priced in order to have the same break-even volume as last year?
b) What should be the product’s price in order to have the same profit as last year on sales of 300 units per month in both years?
a) $40.97; b) $40.58

A farmer is trying to decide whether to rent his neighbour’s land to grow additional hay for sale to feedlots at $180 per delivered tonne. The land can be rented at $400 per hectare for the season. Cultivation and planting will cost $600 per hectare; spraying and fertilizer will cost $450 per hectare. It will cost $42 per tonne to cut, condition, and bale the hay, and $24 per tonne to transport it to the feedlots.
a) How many tonnes per hectare must be produced to break even?
b) What is the profit or loss at the $180 per tonne price if the crop yield is:
(i) 15 tonnes per hectare? (ii) 10 tonnes per hectare?
c) What is the new break-even tonnage if the selling price is increased to $190 per tonne?
a) 12.72 tonnes per hectare; b) i) $260 per hectare, ii) -$310 per hectare c) 11.694 tonnes/hectare

Once a business is operating beyond the break-even point, why doesn’t each additional dollar of revenue add a dollar to net income?

At the break-even point, all fixed costs and all variable costs (for production at the break-even volume) are covered and NI = 0. Production beyond the break-even point results in additional variable costs. Therefore, only the difference between additional revenue ($1) and additional variable costs (CR ´ $1) contributes to net income.

Norwood Industries has annual fixed costs of $1.8 million. Unit variable costs are currently 55% of the unit selling price.
a) What annual revenue is required to break even?
b) What revenue would result in a loss of $100,000 in a year?
c) What annual revenue would produce an operating profit of $300,000?
d) Market research indicates that if prices are increased by 10%, total revenue will remain at the part c amount because the higher prices will be offset by reduced sales volume. Will the operating profit remain at $300,000? Present calculations to justify your answer.
a) $4.0 million; b) $3,777,778; c) $4,666,667; d) increase to $533,334

Cambridge Manufacturing is evaluating the introduction of a new product that would have a unit selling price of $100. The total annual fixed costs are estimated to be $200,000 and the unit variable costs are projected at $60. Forecast sales volume for the first year is 8,000 units.
a) What sales volume (in units) is required to break even?
b) What volume is required to generate a net income of $100,000?
c) What would be the net income at the forecast sales volume?
d) At the forecast sales volume, what will be the change in the net income if fixed costs are: (i) 5% higher than expected? (ii) 10% lower than expected?
e) At the forecast sales volume, what will be the change in the net income if unit variable costs are: (i) 10% higher than expected? (ii) 5% lower than expected?
f) At the forecast sales volume, what will be the change in the net income if the unit selling price is: (i) 5% higher? (ii) 10% lower?
g) At the forecast sales volume, what will be the change in the net income if unit variable costs are 10% higher than expected and fixed costs are simultaneously 10% lower than expected?
a) 5,000 units; b) 7,500 units; c) $120,000; d) i) $10,000 lower, ii) $20,000 higher; e) i) $48,000 lower, ii) $24,000 higher; f) i) $40,000 higher, ii) $80,000 lower; g) $28,000 lower

The Woodstock plant of Goodstone Tires manufactures a single line of automobile tires. In its first fiscal quarter, the plant had total revenue of $4,500,000 and net income of $900,000 from the production and sale of 60,000 tires. In the subsequent quarter, the net income was $700,000 from the production and sale of 50,000 tires. Calculate the unit selling price, the total revenue in the second quarter, the variable costs per tire, and the total fixed costs per calendar quarter.

S = $75 per tire; TR = $3,750,000; VC = $55 per tire; FC = $300,000

Difficulty: Difficult
Gradable: manual
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

The Kelowna division of Windstream RVs builds the Wanderer model. The division had total revenue of $4,785,000 and a profit of $520,000 on the sale of 165 units in the first half of its financial year. Sales declined to 117 units in the second half of the year, resulting in a profit of only $136,000. Determine the selling price per unit, the total revenue in the second half, the unit variable costs, and the annual fixed costs.

S = $29,000 per unit; TR = $3,393,000 in second half; VC = $21,000; FC = $1,600,000 per year

In the past year, the Greenwood Corporation had sales of $1,200,000, fixed costs of $400,000, and total variable costs of $600,000.
a) At what sales figure would Greenwood have broken even last year?
b) If sales increase by 15% in the year ahead (but all prices remain the same), how much (in $) will the net income increase?
c) If fixed costs are 10% lower in the year ahead (but sales and variable costs remain the same as last year), how much (in $) will the net income increase?
d) If variable costs are 10% higher in the year ahead (but sales and fixed costs remain the same as last year), how much (in $) will the net income decrease?
a) $800,000 at breakeven; b) $90,000; c) $40,000; d) $60,000

Difficulty: Difficult
Gradable: manual
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

A college ski club is planning a weekend package for its members. The members will each be charged $270. For a group of 15 or more, the club can purchase a 2-day downhill pass and 2 nights’ accommodation for $220 per person. A 36-passenger capacity bus can be chartered for $1400.
a) How many must sign up for the package for all costs to be covered?
b) If the bus is filled, how much profit will the club make?
c) If the student government agrees to cover any loss up to $400, what is the minimum number of participants required?
a) 28 participants; b) $400; c) 20

Genifax reported the following information for September:

Sales	$180,000
Fixed manufacturing costs	$22,000
Fixed marketing and overhead costs	$14,000
Unit price	$9

a) Determine the unit sales required to break even.
b) What unit sales would generate a net income of $30,000?
c) What unit sales would generate a profit of 20% of the sales dollars?
d) What sales dollars are required to produce a profit of $20,000?
e) If unit variable costs are reduced by 10% with no change in the fixed costs, what will the break-even point become?
a) 12,000 units; b) 22,000 units; c) 30,000 units; d) $168,000; e) 10,000

This problem is designed to illustrate how the relative proportions of fixed and variable costs affect a firm’s net income when the sales volume changes.
Two hypothetical firms, Hi-Tech and Lo-Tech, manufacture and sell the same product at the same price of $50. Firm A is highly mechanized with monthly fixed costs of $4,000 and unit variable costs of $10. Firm B is labour-intensive and can readily lay off or take on more workers as production requirements warrant. B’s monthly fixed costs are $1,000, and its unit variable costs are $40.

a) Calculate the break-even volume for both firms.
b) At each firm’s break-even point, calculate the proportion of the firm’s total costs that are fixed and the proportion that are variable.
c) For a 10% increase in sales above the break-even point, calculate the dollar increase in each firm’s net income. Explain the differing results.
d) For a 10% decrease in sales below the break-even point, calculate the dollar decrease in each firm’s net income. Explain the differing results.
e) What is each firm’s net income at sales of 150 units per month and each firm’s loss at sales of 50 units per month?
a) A = 100 units and B = 100 units; b) A = 20% are variable and 80% are fixed and B = 20% are variable and 80% are fixed; c) A = $400 per month and B = $100 per month; d) A = $400 per month and B = $100 per month; e) A = If X = 150, then NI = $2,000 per month, If X = 50, then NI = -$2,000 per month and B = If X = 150, then NI = $500 per month, If X = 50, then NI = -$500 per month.

Mickey’s Restaurant had a net income last year of $40,000 after fixed costs of $130,000 and total variable costs of $80,000.
a) What was the restaurant’s break-even point in sales dollars?
b) If fixed costs in the current year rise to $140,000 and variable costs remain at the same percentage of sales as for last year, what will be the break-even point?
c) What sales in the current year will result in a profit of $50,000?
a) $191,176; b) $205,882 c) $279,412

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Learning Objective: 05-02 Use the revenue and cost function approach to perform cost-volume-profit analysis
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS
Topic: 05-04 Revenue and Cost Function Approach to CVP analysis

Use the graphical approach to CVP analysis to solve the following problem.
Canada Bagel Company manufactures packages of bagels that it sells for $2.50. The variable costs per package are $1.00.

a) To just break even, how many packages of bagels must be sold per month if the fixed costs are $60,000 per month?
b) What must unit sales be in order to have a profit of $7,500 per month?
a) 40,000 packages b) $45,000 in unit sales

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
Home Security Systems Inc. assembles and packages home security systems from brand-name components. Its basic home security system is sold to customers who prefer to install the system themselves in their own home. Each system is assembled from components costing $1400 per system and sells for $2,000. Labour costs for assembly are $100 per system. This product line’s share of overhead costs is $10,000 per month.

a) How many basic security systems must be sold each month to break even on this product line?
b) What will be the profit or loss for a month in which 15 basic home security systems are sold?
a) 20 systems/month b) $2500 loss

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
Huntsville Office Supplies (HOS) is evaluating the profitability of leasing a photocopier for its customers to use on a self-serve basis at 10¢ per copy. The copier may be leased for $300 per month plus 1.5¢ per copy on a full-service contract. HOS can purchase paper at $5 per 500-sheet ream. Toner costs $100 per bottle, which in normal use will last for 5,000 pages. HOS is allowing for additional costs (including electricity) of 0.5¢ per copy.

a) How many copies per month must be sold in order to break even?
b) What will be the increase in monthly profit for each 1,000 copies sold above the break-even point?
a) 6000 copies/month b) $50 per month

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
Jordan is developing a business plan for a residential building inspection service he wants to start up. Rent and utilities for an office would cost $1,000 per month. The fixed costs for a vehicle would be $450 per month. He estimates that the variable office costs (word processing and supplies) will be $50 per inspection and variable vehicle costs will be $25 per inspection. Jordan would also spend $200 per month to lease a computer, and $350 per month for advertising.

a) If he charges $275 per inspection, how many inspections per month are required before he can “pay himself?”
b) How many inspections per month are required for Jordan to be able to draw a salary of $4,000 per month?
a) 10 inspections/month b) 30 inspections/month

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
A small manufacturing operation can produce up to 250 units per week of a product that it sells for $20 per unit. The variable cost per unit is $12, and the fixed costs per week are $1200.

a) How many units must the firm sell per week to break even?
b) Determine the firm’s weekly profit or loss if it sells:
(i) 120 units per week (ii) 250 units per week
c) At what level of sales will the net income be $400 per week?
a) 150 units b) i) $240 loss ii) $800 profits c) 200 units

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
Valley Peat Ltd. sells peat moss for $10 per bag. Variable costs are $7.50 per bag and annual fixed costs are $100,000.

a) How many bags of peat must be sold to break even?
b) What will be the net income for a year in which 60,000 bags of peat are sold?
c) How many bags must be sold for a net income of $60,000 in a year?
d) What volume of sales would produce a loss of $10,000?
a) $40,000 bags/year b) $50,000 c) 64,000 bags/year d) 36,000 bags/year

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

What effect will each of the following have on a product’s unit contribution margin? In each case, assume that all other variables remain unchanged.
a. The business raises the selling price of the product.
b. The prices of some raw materials used in manufacturing decrease.
c. The local regional government increases the business’s property tax.
d. The company’s president is given a raise.
e. The production workers receive a raise in their hourly rate.
Since CM = S – VC, CM will increase if S is increased.
b. Raw materials are part of VC. VC will decrease if the cost of raw materials decreases. Therefore, CM will increase.
c. The property tax is part of FC. There will no change in CM.
d. The salaries of executives are part of FC. There will no change in CM.
e. Wages of production workers are part of VC. VC will increase and CM will decrease.

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis

Once a business is operating beyond the break-even point, why doesn’t each additional dollar of revenue add a dollar to net income?

At the break-even point, all fixed costs and all variable costs are covered and NI = 0. Production beyond the break-even point results in additional variable costs. Therefore, only the difference between additional revenue ($1) and additional variable costs (CR´$1) contributes to net income.

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis

What effect will each of the following have on a firm’s break-even point? In each case, assume that all other variables remain unchanged.
a. Fixed costs decrease.
b. Variable costs increase.
c. Sales volume increases.
d. Unit selling price decreases.
e. The contribution ratio increases.
The break-even volume will be lowered since fewer units need to be sold to cover the reduced fixed costs.
b. If unit variable costs (VC) increase, the contribution margin (CM = S – VC) decreases and more units must be sold to cover the unchanged fixed costs. Therefore, the break-even point is higher.
c. No change-the actual sales volume does not affect the break-even point.
d. If S decreases, the contribution margin (CM = S – VC) decreases and more units must be sold to cover the unchanged fixed costs. Therefore, the break-even point is higher.
e. If the contribution rate (or ratio) CR increases, a larger portion of each unit’s selling price is available to pay fixed costs. Therefore, the break-even point is lower.

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

Alpha Corp. expects to operate at 80% of capacity next year. Its forecast operating budget is:

Sales Revenue		$1,200,000
Fixed costs	$300,000
Total variable costs	$800,000
Total costs		$1,100,000
Net income		$100,000

a) What is Alpha’s break-even revenue?
b) What would be Alpha’s net income if it operates at full capacity?
a) $900,000 b) $200,000

Morgan is planning to run a small lawn care business this summer. He can rent a ride-on lawn tractor for $680 per month. He estimates it will cost $5 in gasoline to cut the average lawn, and he intends to charge a flat rate of $25 per law.
a) What is the contribution rate that Morgan’s business is expected to generate?
b) What is Morgan’s break-even level of revenue per month?
c) How many lawns per month must Morgan cut in order to break even?
a) 80% b) $850 c) 34 lawns

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

A small business calculates that its monthly fixed costs are $3,200. If the business calculates it contribution rate to be 0.42, what level of monthly sales must be generated in order to break even?

$7,619.05

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

A company makes gadgets selling for $15 each. For 20,000 gadgets, the cost is $3 each, and the estimated fixed costs are $150,000. What is the break-even volume and revenue?

12,500; 187,500

ChildCare Industries manufactures infant car seats that it sells to retailers for $155 each. The costs to manufacture each additional seat are $65, and the monthly fixed costs are $18,000.
a) How many seats must be sold per year to break even?
b) What will ChildCare’s loss be if it sells 2,000 seats in a year?
a) 2,400 seats; b) $36,000

M Studios estimates that it can sell 1,500 camera lenses at $150 each. Total fixed costs are $120,000, and variable costs are $30 per lens. What unit sales are required to break even? What is the profit generated if all units are sold?

1,000; $60,000

Difficulty: Easy
Gradable: manual
Learning Objective: 05-01 Distinguish between fixed costs and variable costs
Topic: 05-03 COST-VOLUME-PROFIT (CVP) ANALYSIS

A company expects to sell 30,000 ball hats at $35 each. The estimated variable cost of each hat is $12.50, and the fixed costs are estimated to be $450,000. Calculate the contribution margin per unit and the break-even point in units and revenue.

22.5; 20,000; $700,000

Difficulty: Easy
Gradable: manual
Learning Objective: 05-04 Use the contribution margin approach to perform cost-volume-profit analysis
Topic: 05-07 Contribution Margin Approach to CVP Analysis

During an economic slowdown, an automobile plant lost $6,000,000 on the production and sale of 9,000 cars. Total revenue for the year was $135,000,000. If the break-even volume for the plant is 10,000 cars per year, calculate:
a) The plant’s total fixed costs for a year.
b) The net income if unit sales for the year had been equal to the 5-year average of 12,000.
a) $60 million per year; b) $12 million

Durable Toys Inc. wants to calculate from recent production data the monthly fixed costs and unit variable costs on its Mountain Trike product line. In the most recent month, it produced 530 Trikes at a total cost of $24,190. In the previous month, it produced 365 Trikes at a total cost of $18,745. What are the fixed costs per month and the unit variable costs? Hint: Recall that Total costs = Fixed costs + (Unit variable costs) ´ (Number of units produced)

VC = $33.00 and FC = $6700

Reflex Manufacturing Corp. manufactures composters at a unit variable cost of $43. It sells them for $70 each. It can produce a maximum of 3,200 composters per month. Annual fixed costs total $648,000.
a) What is the break-even volume?
b) What is the monthly net income at a volume of 2500 composters per month?
c) What is the monthly net income if Reflex operates at 50% of capacity during a recession?
d) At what percent utilization would the annual net income be $226,800?
e) If fixed and variable costs remain the same, how much do the monthly break-even unit sales change for a $1 increase in the selling price?
a) 2,000 composters per month; b) $13,500 per month; c) $10,800 per month; d) 84.4% of capacity; e) decreases by 71 composters per month

A sporting goods manufacturer lost $400,000 on sales of $3 million in a year during the last recession. The production lines operated at only 60% of capacity during the year. Variable costs represent one-third of the sales dollars.
a) At what percent of capacity must the firm operate in order to break even?
b) What would its net income be at 80% of capacity?
c) What dollar sales would generate a net income of $700,000?
d) How much does each additional dollar of sales increase the net income?
e) How much does a $1 increase in fixed costs raise the break-even sales?
a) 72%; b) $266,667; c) $4,650,000; d) CR = $0.66 for each $1 of sales; e) FC requires $1.50 of sales to cover it.

The social committee of a college’s student government is planning the annual graduation dinner and dance. The preferred band can be signed for $500 plus 10% of ticket revenues. A hall can be rented for $2,200. Fire regulations limit the hall to 400 guests plus the band and caterers. A food caterer has quoted a price of $12 per person for the dinner.
The committee thinks that the event will be a sellout if ticket prices are set at $23 per person. Some on the committee are in favour of less crowding at the dance and argue for a ticket price of $28. They estimate that 300 will attend at the higher price.

a) Calculate the number of tickets that need to be sold at each price to break even.
b) What will the profit be at the predicted sales at each ticket price?
a) 310 and 205; b) $780 and $1,260

Morgan Company produces two products, G and H, with the following characteristics:

	Product G	Product H
Selling price per unit	$5	$6
Variable costs per unit	$3	$2
Forecast sales (units)	100,000	150,000

Total fixed costs for the year are expected to be $700,000.

a) What will be the net income if the forecast sales are realized?
b) Determine the break-even volumes of the two products. Assume that the product mix (that is, the ratio of the unit sales for the two products) remains the same at the break-even point.
c) If it turns out that Morgan sells twice as many units of H as of G, what will be the break-even volumes of the two products?

a) $100,000; b) 131,250 units of H; c) 140,000 units of H

Enrique is studying the feasibility of producing a new product. His existing facilities could be expanded to manufacture 2,000 new units per month. The unit cost is $75. Estimated fixed costs are $3.36 mil per year and variable costs are $25 per unit. Competitors sell a similar product for $350 each.
a) What is the break-even point as a percent of capacity?
b) What would the net income be at 80% capacity?
c) What would unit sales have to be to attain a net income of $100,000?
d) If sales dropped to 60% of capacity, what would the resulting net income be?
a) 56%; b) $120,000; c) 1520; d) $20,000

Sam manufactures a product that is selling so well, he has decided to expand his operation to 50,000 units per month. The unit cost is $7, estimated fixed costs are $1.8 mil per year and variable costs are $5 per unit. The product currently sells for $20.
a) What is the break even-point as a percent of capacity?
b) What would the net income be at 75% capacity?
c) What would unit sales have to be to attain a net income of $100,000?
d) If sales dropped to 50% of capacity, what would the resulting net income be?
a) 37.5%; b) $150,000; c) 31,250; d) $50,000

Larissa manufactures rings which sell in her boutique for $60 each. For 100 rings, the material cost is $15 each, and estimated fixed costs are $900. How many rings must Larissa sell to break even? Use the graphical approach to CVP analysis to solve.

Difficulty: Easy
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

A company makes gadgets selling for $15 each. For 20,000 gadgets, the cost is $3 each, and the estimated fixed costs are $150,000. What is the break-even volume and revenue? Use the graphical approach to CVP analysis to solve.

approx 12,500; approx 187,500

Difficulty: Easy
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

M Studios estimates that it can sell 1,500 camera lenses at $150 each. Total fixed costs are $120,000, and variable costs are $30 per lens. What unit sales are required to break even? What is the revenue generated if all units are sold? Use the graphical approach to CVP analysis to solve.

1,000; $225,000

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

A company expects to sell 30,000 hats at $35 each. The estimated variable cost of each hat is $12.50, and the fixed costs are estimated to be $450,000. Calculate the break-even point in units and revenue. Use the graphical approach to CVP analysis to solve.

20,000; $700,000

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Enrique is studying the feasibility of producing a new product. His existing facilities could be expanded to manufacture 2,000 new units per month. The unit cost is $75. Estimated fixed costs are $3.36 mil per year and variable costs are $25 per unit. Competitors sell a similar product for $350 each. Use the graphical approach to CVP analysis to solve the following:
a) What would the net income be at 80% capacity?
b) What would unit sales have to be to attain a net income of $100,000?
c) If sales dropped to 60% of capacity, what would the resulting net income be?

$120,000; approx.1520; $20,000

Difficulty: Difficult
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Sam manufactures a product that is selling so well, he has decided to expand his operation to 50,000 units per month. The unit cost is $7, estimated fixed costs are $1.8 mil per year and variable costs are $5 per unit. The product currently sells for $20. Use the graphical approach to CVP analysis to solve the following:
a) What is the break-even point as a percent of capacity?
b) What would the net income be at 75% capacity?
c) What would unit sales have to be to attain a net income of $100,000?
d) If sales dropped to 50% of capacity, what would the resulting net income be?
a) approx 37.5%; b) approx $150,000; c) approx 31,250; d) approx $50,000

Difficulty: Difficult
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Use the graphical approach to CVP analysis to solve the following problem.
Reflex Manufacturing Corp. manufactures borgels at a unit variable cost of $43. It sells them for $70 each. It can produce a maximum of 3,200 borgels per month. Annual fixed costs total $648,000.

a) What is the break-even volume per month?
b) What is the monthly net income at a volume of 2500 borgels per month?
c) What is the monthly net income if Reflex operates at 50% of capacity during a recession?
a) 2,000 borgels b) $13,500 profit c) $10,800 loss

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-03 Construct and use a break-even chart to perform cost-volume-profit analysis
Topic: 05-06 Graphical Approach to CVP Analysis

Moens Corp. expects to operate at 90% of capacity next year. Its forecast operating budget is:

Sales Revenue		$1,400,000
Fixed costs	$250,000
Total variable costs	$700,000
Total costs		$950,000
Net income		$450,000

a) What is Moen’s break-even revenue?
b) What would be Moen Corp.’s net income if it operates at full capacity?
a) $500,000 b) $527,777.78

Saheed is planning to run a small web hosting business this year for fellow college students. He can rent a web server for $100 per month. He estimates it will cost
$10/month per web page hosted, and he intends to charge a flat rate of $20 to every customer for initial setup fees.

a) What is the contribution rate that Saheed’s business is expected to generate?
b) What is Saheed’s break-even level of revenue per month?
c) How many web pages per month must Saheed host in order to break even?
a) 50% b) $200 c) 10 webpages

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

A small business calculates that its monthly fixed costs are $4,200. If the business calculates it contribution rate to be 0.32, what level of monthly sales must be generated in order to break even?

$13,125

Difficulty: Moderate
Gradable: manual
Learning Objective: 05-05 Use the contribution rate approach to perform cost-volume-profit analysis
Topic: 05-08 Contribution Rate Approach to CVP Analysis

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Fundamentals of Business Mathematics in Canada 3Rd Edition By Jerome - Test Bank

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