Accounting 202 - Chapter 7 Mixed

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The changes in cost and volume of the output have an effect on the company’s operating and net income. We have already covered what there is on calculation and effect of these changes to the organization. The quiz below is designed to test your understanding of this topic so far. Give it a try!

• 1.

The unit contribution margin is computed by:

• A.

Dividing the variable cost per unit by the sales revenue.

• B.

Subtracting the sales price per unit from the variable cost per unit

• C.

Subtracting the variable cost per unit from the sales price per unit

• D.

Dividing the sales revenue by variable cost per unit

C. Subtracting the variable cost per unit from the sales price per unit
Explanation
The unit contribution margin is a measure of the profitability of each unit sold. It is calculated by subtracting the variable cost per unit from the sales price per unit. This calculation allows a company to determine how much each unit contributes towards covering fixed costs and generating profit. By subtracting the variable cost per unit from the sales price per unit, the company can determine the amount of revenue that is left over to cover fixed costs and contribute to profit.

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• 2.

Contribution margin ratio is computed by dividing:

• A.

Contribution margin by sales revenue.

• B.

contribution margin by operating income.

• C.

Sales revenue by contribution margin.

• D.

Operating income by contribution margin.

A. Contribution margin by sales revenue.
Explanation
The contribution margin ratio is calculated by dividing the contribution margin by the sales revenue. This ratio helps to determine the percentage of each sales dollar that is available to cover fixed costs and contribute to profits. By dividing the contribution margin (which is the sales revenue minus variable costs) by the sales revenue, we can determine the proportion of each dollar of sales that is available to cover fixed costs and generate profit.

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• 3.

The contribution margin ratio explains the percentage of each sales dollar that contributes towards:

• A.

Variable costs

• B.

Sales revenue

• C.

Fixed costs and generating a profit

• D.

Period expenses

C. Fixed costs and generating a profit
Explanation
The contribution margin ratio is a measure that indicates the percentage of each sales dollar that contributes towards covering fixed costs and generating a profit. It helps in understanding the profitability of a company by showing how much of the revenue from each sale is available to cover fixed costs and contribute to the bottom line. By analyzing the contribution margin ratio, a company can make informed decisions about pricing, cost control, and overall profitability.

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• 4.

To compute the unit contribution margin, __________ should be subtracted from the sales price per unit.

• A.

A. only variable period costs

• B.

only variable inventoriable product costs

• C.

All variable costs

• D.

All fixed costs

C. All variable costs
Explanation
To compute the unit contribution margin, all variable costs should be subtracted from the sales price per unit. This is because the unit contribution margin is the amount of money left over from each unit sold after deducting all variable costs. By subtracting all variable costs, the company can determine how much each unit contributes towards covering fixed costs and generating profit.

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• 5.

Managers can quickly forecast the operating income by multiplying _________ and then subtracting fixed costs.

• A.

Projected sales revenue by the contribution margin ratio

• B.

Projected sales units by the contribution margin ratio

• C.

Projected sales revenue by the unit contribution margin

• D.

Projected sales units by the variable cost ratio

A. Projected sales revenue by the contribution margin ratio
Explanation
Managers can quickly forecast the operating income by multiplying projected sales revenue by the contribution margin ratio and then subtracting fixed costs. The contribution margin ratio represents the percentage of each sales dollar that contributes to covering fixed costs and generating profit. By multiplying the projected sales revenue by the contribution margin ratio, managers can determine the amount of contribution margin available to cover fixed costs. Subtracting fixed costs from the contribution margin gives the operating income, allowing managers to forecast the profitability of the business.

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• 6.

Managers can quickly forecast the total contribution margin by dividing the projected:

• A.

Sales revenue by the contribution margin ratio.

• B.

Sales units by the contribution margin ratio.

• C.

Sales revenue by the unit contribution margin.

• D.

Sales units by the variable cost ratio.

A. Sales revenue by the contribution margin ratio.
Explanation
Managers can quickly forecast the total contribution margin by dividing the projected sales revenue by the contribution margin ratio. The contribution margin ratio is calculated by dividing the contribution margin (which is the difference between sales revenue and variable costs) by the sales revenue. This ratio helps managers determine the percentage of each sales dollar that contributes to covering fixed costs and generating profit. By dividing the projected sales revenue by the contribution margin ratio, managers can estimate the total contribution margin and make informed decisions about the profitability of the business.

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• 7.

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

• A.

Gross margin

• B.

Unit contribution margin

• C.

Net income

• D.

Operating income

B. Unit contribution margin
Explanation
The unit contribution margin represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit. It is calculated by subtracting the variable cost per unit from the selling price per unit. This measure helps businesses understand how much each unit contributes to covering fixed costs and generating profit.

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• 8.

Contribution margin ratio is computed by dividing:

• A.

Contribution margin by sales revenue.

• B.

Contribution margin by operating income.

• C.

Sales revenue by contribution margin.

• D.

Operating income by contribution margin.

A. Contribution margin by sales revenue.
Explanation
The contribution margin ratio is calculated by dividing the contribution margin (which is the sales revenue minus variable costs) by the sales revenue. This ratio helps in determining the percentage of each sales dollar that is available to cover fixed costs and contribute towards profit.

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• 9.

On a contribution margin income statement, to what is contribution margin equal?

• A.

Fixed expenses plus variable expenses

• B.

Sales revenues minus variable expenses

• C.

Fixed expenses minus variable expenses

• D.

Sales revenues minus fixed expenses

B. Sales revenues minus variable expenses
Explanation
The contribution margin is equal to the sales revenues minus the variable expenses. This is because the contribution margin represents the amount of revenue that is available to cover fixed expenses and contribute to profit after variable expenses have been deducted. Subtracting the variable expenses from the sales revenues gives us the contribution margin.

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• 10.

Akron Laser Wash sells deluxe car washes for \$15 per customer. Variable costs are \$9 per wash. Fixed costs are \$40,000 per month. What is Akron Laser Wash’s contribution margin per car wash?

• A.

\$0.40

• B.

\$9.00

• C.

\$6.00

• D.

\$2.50

C. \$6.00
Explanation
The contribution margin per car wash is calculated by subtracting the variable costs per wash (\$9) from the selling price per wash (\$15). Therefore, the contribution margin per car wash for Akron Laser Wash is \$15 - \$9 = \$6.00.

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• 11.

Akron Laser Wash sells deluxe car washes for \$15 per customer. Variable costs are \$9 per wash. Fixed costs are \$40,000 per month. What is Akron Laser Wash’s contribution margin ratio?

• A.

40%

• B.

250%

• C.

6%

• D.

60%

A. 40%
Explanation
The contribution margin ratio is calculated by subtracting the variable costs per unit from the selling price per unit, and then dividing the result by the selling price per unit. In this case, the selling price per unit is \$15 and the variable costs per unit are \$9.

(\$15 - \$9) / \$15 = \$6 / \$15 = 0.4

Multiplying this result by 100 gives the contribution margin ratio as 40%. This means that for every dollar of sales, Akron Laser Wash contributes 40 cents towards covering the fixed costs and generating profit.

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• 12.

Akron Laser Wash sells deluxe car washes for \$15 per customer. Variable costs are \$9 per wash. Fixed costs are \$40,000 per month. What is the projected monthly income if 12,000 patrons visit the car wash each month?

• A.

\$180,000

• B.

\$108,000

• C.

\$72,000

• D.

None of the above

C. \$72,000
Explanation
The projected monthly income can be calculated by subtracting the total variable costs and fixed costs from the total revenue. In this case, the total revenue can be calculated by multiplying the price per customer (\$15) by the number of patrons (12,000), which equals \$180,000. The total variable costs can be calculated by multiplying the variable cost per wash (\$9) by the number of patrons (12,000), which equals \$108,000. Subtracting the total variable costs (\$108,000) and fixed costs (\$40,000) from the total revenue (\$180,000) gives us the projected monthly income of \$72,000.

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• 13.

The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is:

• A.

(fixed expenses + operating income) / contribution margin ratio.

• B.

(fixed expenses + operating income) / contribution margin per unit.

• C.

(fixed expenses - operating income) / contribution margin ratio.

• D.

(fixed expenses - operating income) / contribution margin per unit.

B. (fixed expenses + operating income) / contribution margin per unit.
Explanation
The correct answer is (fixed expenses + operating income) / contribution margin per unit. This formula is used to calculate the number of units that need to be sold in order to break even or generate a target profit. By adding the fixed expenses and operating income and dividing it by the contribution margin per unit, we can determine the number of units required to cover the costs and achieve the desired profit.

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• 14.

The formula used to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit is:

• A.

(fixed expenses + operating income) / contribution margin ratio.

• B.

(fixed expenses + operating income) /contribution margin per unit.

• C.

(fixed expenses - operating income) / contribution margin ratio.

• D.

(fixed expenses - operating income) / contribution margin per unit.

A. (fixed expenses + operating income) / contribution margin ratio.
Explanation
The correct answer is (fixed expenses + operating income) / contribution margin ratio. This formula is used to determine the sales revenue needed to either break even or achieve a target profit. It takes into account the fixed expenses and operating income, which are subtracted from the sales revenue to calculate the contribution margin. The contribution margin ratio is then used to divide the sum of fixed expenses and operating income, giving the required sales revenue.

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• 15.

Sales below the breakeven point indicate a ______, whereas sales above the breakeven point indicate a ____.

• A.

Loss; loss

• B.

Loss; profit

• C.

Profit; profit

• D.

Profit; loss

B. Loss; profit
Explanation
Sales below the breakeven point indicate a loss because the company is not generating enough revenue to cover its fixed and variable costs. On the other hand, sales above the breakeven point indicate a profit because the company is generating more revenue than its costs, resulting in a positive financial outcome.

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• 16.

The Sweet Factory produces and sells specialty fudge. The selling price per pound is \$20, variable costs are \$12 per pound, and total fixed costs are \$6,000. How many pounds of fudge must The Sweet Factory sell to breakeven?

• A.

15,000

• B.

300

• C.

750

• D.

188

C. 750
Explanation
The breakeven point is the point at which a company's revenue equals its total costs, resulting in zero profit or loss. To calculate the breakeven point, we need to divide the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit. In this case, the contribution margin per pound is \$20 - \$12 = \$8. Therefore, the breakeven point is \$6,000 / \$8 = 750 pounds of fudge.

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• 17.

Which of the following statements is TRUE if the sales price per unit increases while the variable cost per unit and total fixed costs remain constant?

• A.

The contribution margin increases and the breakeven point decreases.

• B.

The contribution margin decreases and the breakeven point decreases.

• C.

The contribution margin increases and the breakeven point increases .

• D.

The contribution margin decreases and the breakeven point increases.

A. The contribution margin increases and the breakeven point decreases.
Explanation
When the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, the contribution margin increases. The contribution margin is the difference between the sales price per unit and the variable cost per unit. As the sales price per unit increases, the contribution margin also increases. Additionally, the breakeven point decreases. The breakeven point is the point at which the total revenue equals the total costs, and it is calculated by dividing the total fixed costs by the contribution margin. When the contribution margin increases, the breakeven point decreases.

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• 18.

Which of the following statements is TRUE if the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant?

• A.

The contribution margin increases and the breakeven point decreases.

• B.

The contribution margin decreases and the breakeven point decreases.

• C.

The contribution margin increases and the breakeven point increases.

• D.

The contribution margin decreases and the breakeven point increases.

A. The contribution margin increases and the breakeven point decreases.
Explanation
If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, the contribution margin will increase. This is because the contribution margin is calculated by subtracting the variable cost per unit from the sales price per unit. With a decrease in variable cost per unit, the difference between the sales price and variable cost per unit will increase, resulting in a higher contribution margin. Additionally, as the contribution margin increases, the breakeven point will decrease. This is because the breakeven point is the point at which total revenue equals total costs, and with a higher contribution margin, the breakeven point can be reached with fewer units sold.

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• 19.

Which of the following statements is TRUE if the fixed costs increase while the sales price per unit and variable costs per unit remain constant?

• A.

The contribution margin increases and the breakeven point decreases.

• B.

The contribution margin decreases and the breakeven point increases.

• C.

The contribution margin stays the same and the breakeven point decreases.

• D.

The contribution margin stays the same and the breakeven point increases.

D. The contribution margin stays the same and the breakeven point increases.
Explanation
If the fixed costs increase while the sales price per unit and variable costs per unit remain constant, the contribution margin (sales price per unit minus variable costs per unit) will stay the same. However, since the fixed costs have increased, the breakeven point (the point at which total revenue equals total costs) will increase because more units need to be sold to cover the higher fixed costs. Therefore, the statement "The contribution margin stays the same and the breakeven point increases" is true.

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• 20.

If the sale price per unit decreases and variable costs remain the same, what will be the effect on the contribution margin ratio?

• A.

It will increase.

• B.

It will decrease.

• C.

It will remain the same.

• D.

It is impossible to determine with the given information.

B. It will decrease.
Explanation
If the sale price per unit decreases and variable costs remain the same, the contribution margin ratio will decrease. The contribution margin ratio is calculated by subtracting variable costs from the sale price per unit and dividing it by the sale price per unit. When the sale price per unit decreases, the numerator of the ratio decreases while the denominator remains the same, resulting in a lower contribution margin ratio.

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• 21.

Which of the following statements is TRUE if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant?

• A.

Breakeven point in units increases.

• B.

Breakeven point in units decreases.

• C.

Breakeven point in units remains the same.

• D.

Contribution margin ratio increases.

A. Breakeven point in units increases.
Explanation
If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, the breakeven point in units will increase. This is because the breakeven point is the point at which the total revenue equals the total cost, and an increase in variable cost per unit will require more units to be sold in order to cover the fixed costs and break even. Therefore, the breakeven point in units will increase.

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• 22.

Which of the following statements is TRUE if total fixed costs decrease while the sale price per unit and variable costs per unit remain constant?

• A.

Contribution margin increases.

• B.

Contribution margin decreases.

• C.

Breakeven point in units decreases.

• D.

Breakeven point in units increases.

C. Breakeven point in units decreases.
Explanation
If total fixed costs decrease while the sale price per unit and variable costs per unit remain constant, the breakeven point in units will decrease. This is because the breakeven point is the point at which total revenue equals total costs, and a decrease in fixed costs means that the company needs to sell fewer units to cover its costs and reach the breakeven point. Therefore, the correct answer is that the breakeven point in units decreases.

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• 23.

Which of the following statements is TRUE if both fixed expenses and the sale price per unit increase while variable costs per unit are unchanged?

• A.

Breakeven point in units could increase, decrease, or remain the same.

• B.

Breakeven point in units increases.

• C.

Breakeven point in units decreases.

• D.

Breakeven point in units remains unchanged.

A. Breakeven point in units could increase, decrease, or remain the same.
Explanation
The breakeven point in units is the point at which the total revenue equals the total cost, resulting in zero profit or loss. If both fixed expenses and the sale price per unit increase while variable costs per unit remain unchanged, the breakeven point in units could increase if the increase in fixed expenses and sale price per unit is greater than the increase in variable costs per unit. Alternatively, the breakeven point in units could decrease if the increase in fixed expenses and sale price per unit is smaller than the increase in variable costs per unit. Lastly, the breakeven point in units could remain unchanged if the increase in fixed expenses and sale price per unit is equal to the increase in variable costs per unit.

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• 24.

Fixed costs divided by weighted-average contribution margin per unit equals:

• A.

Contribution margin ratio.

• B.

Margin of safety ratio.

• C.

Break-even sales in dollars.

• D.

Break-even sales in units.

D. Break-even sales in units.
Explanation
The formula to calculate the break-even sales in units is fixed costs divided by the weighted-average contribution margin per unit. This formula helps determine the number of units that need to be sold in order to cover all fixed costs and reach the break-even point. By dividing the fixed costs by the contribution margin per unit, we can determine how many units need to be sold to cover those costs and break even. Therefore, the correct answer is break-even sales in units.

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• 25.

Contribution margin less fixed costs yields:

• A.

Operating income.

• B.

Sales.

• C.

Variable costs.

• D.

None of the above.

A. Operating income.
Explanation
Contribution margin is the difference between sales revenue and variable costs. Fixed costs are expenses that do not change with the level of production or sales. Subtracting fixed costs from the contribution margin gives us operating income, which is the profit earned from normal business operations before taxes and interest expenses. Therefore, the correct answer is operating income.

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• 26.

Vango Industries sells two products, Basic models and Deluxe models. Basic models sell for \$40 per unit with variable costs of \$30 per unit. Deluxe models sell for \$48 per unit with variable costs of \$40 per unit. Total fixed costs for the company are \$76,000. Vango Industries typically sells three Basic models for every Deluxe model. What is the breakeven point in total units?

• A.

6,909 units

• B.

8,000 units

• C.

13,818 units

• D.

4,000 units

B. 8,000 units
Explanation
The breakeven point is the point at which the company's total revenue equals its total costs, resulting in no profit or loss. To calculate the breakeven point, we need to determine the contribution margin per unit for each product. The contribution margin is the difference between the selling price and the variable cost per unit. For Basic models, the contribution margin is \$10 (\$40 - \$30), and for Deluxe models, it is \$8 (\$48 - \$40). Since the company typically sells three Basic models for every Deluxe model, the weighted average contribution margin per unit is ((\$10 * 3) + (\$8 * 1)) / 4 = \$9.50. To cover the fixed costs of \$76,000, the company needs to sell 8,000 units (\$76,000 / \$9.50). Therefore, the breakeven point in total units is 8,000 units.

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• 27.

Reynold Coffee sells three large coffees for every two small ones. A small coffee sells for \$4 per cup, with a variable cost of \$2 per cup. A large coffee sells for \$5 per cup with a variable cost of \$3 per cup. What is the weighted- average contribution margin?

• A.

\$2.00

• B.

\$0.40

• C.

\$7.20

• D.

\$0.50

A. \$2.00
Explanation
The weighted-average contribution margin is calculated by finding the average contribution margin for each type of coffee, weighted by the proportion of sales for each type. In this case, since Reynold Coffee sells three large coffees for every two small ones, the proportion of sales for large coffees is 3/5 and the proportion of sales for small coffees is 2/5.

The contribution margin for a small coffee is \$2 (\$4 selling price - \$2 variable cost) and the contribution margin for a large coffee is \$2 (\$5 selling price - \$3 variable cost).

To calculate the weighted-average contribution margin, we multiply the contribution margin for each type of coffee by its respective proportion of sales and sum the results:

(3/5) * \$2 + (2/5) * \$2 = \$1.20 + \$0.80 = \$2.00

Therefore, the correct answer is \$2.00.

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• 28.

A company’s margin of safety can be stated:

• A.

In units.

• B.

In dollars.

• C.

As a percentage of sales.

• D.

As any of the above.

D. As any of the above.
Explanation
The company's margin of safety can be stated in units, dollars, or as a percentage of sales. This means that it can be expressed in different ways depending on the information available or the preference of the person analyzing the data.

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• 29.

A company’s margin of safety is computed as:

• A.

Expected sales – actual sales.

• B.

Actual sales – expected sales.

• C.

Expected sales – sales at breakeven.

• D.

Sales at breakeven – expected sales.

B. Actual sales – expected sales.
Explanation
The margin of safety is a measure of how much a company's actual sales exceed its breakeven point. It represents the cushion that a company has in case of a decrease in sales. Therefore, the correct answer is "actual sales - expected sales" because it calculates the difference between the actual sales and the expected sales, indicating the amount of sales that are above the breakeven point.

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• 30.

Total predicted sales (in units) minus total break-even sales in units divided by total predicted sales (in units) yields:

• A.

Contribution margin ratio.

• B.

Contribution margin per unit.

• C.

Margin of safety percentage.

• D.

Percent of sales mix.

C. Margin of safety percentage.
Explanation
The given formula calculates the margin of safety percentage. Margin of safety is the difference between the actual or projected sales and the break-even point. It represents the amount by which sales can decrease before the company reaches the break-even point. Dividing this margin of safety by the total predicted sales gives the margin of safety percentage, which indicates the proportion of sales that can be lost before the company starts incurring losses.

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