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Cost Volume Profit Questions

Cost-Volume-Profit Analysis
Self-Test Questions
1. The difference between the sales price and the total variable costs is the contribution margin. (D)
2. The breakeven volume in units (perfume sticks) for 2005 is
TR-VC-FC=PBT MR=900000/1800 = 500
TR-VC-FC=0 VC/Q = 495000/1800 = 275
Q*MR - Q(VC/Q) = FC
Q = _____FC_____
MR-VC/Q
Q = 247500/(500 – 275)
Q=1100 Therefore (B)
3. If sales volume is expected to be 2100 units with prices/costs same, after-tax net income is expected to be
TR-VC-FC=PBT
Q*MR-Q(VC/Q)-FC=PBT
2100(500) – 2100(275) – 247500 = PBT = 225000
After income taxes of 32%:
225000 – (225000)(.32) = 153000 Therefore (A)
4. Sell 1500 at 450, reject some business from regular customers.
TR-VC-FC=PBT
Q*MR-Q(VC/Q)-FC=PBT
1500(450)+1500(500) – 3000(275) – 247500 = 352500
After income taxes
352500 – 352500(.32) = 239700 Therefore (C)
5. Prices decline by 10%, variable costs increase $40/unit, no change in FC. Q needed to earn after-tax net income of 107100.
After tax income of 107100 requires PBT = X, where
X – (0.32)X = 107100 VC/Q = 315
X = 157500 MR = 450
TR-VC-FC=157500
Q(450) – Q(315) – 247500 = 157500
Q(135) = 405000
Q = 3000
Sales volume required is 3000(450)=1,350,000 Therefore (D)
6. Degree of operating leverage = contribution margin ÷ profit before tax
OLo = 650000÷440000 = 1.48 Therefore (C)
7. CM%=CM/TR Expected Level of production/sales 10000
VC/Q = 5+10+3.5=18.5 TR = Q*MR
(MR-18.5)/(MR) = .30
0.3MR = MR – 18.5
18.5 = 0.7MR MR = 26.43 Therefore (B)

8. MR=28, what must Q be to generate income of 10000.
Q*MR – Q*(VC/Q) – FC = 10000
CM = 9.5
Q*CM = Total Fixed Costs + Desired Income
Q*CM = (0.65*10*10000) + 10000
9.5*Q = 75000
Q = 7895 Therefore (C)
9. Variable costing is direct costing that treats includes only variable production costs (DM, DL, VOH) as product of inventoriable costs and FOH is a period cost.
300K + 100K + 50K = 450000 Therefore (B)
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