1.
The analysis of the relationship between what a company buys an item for and the level of sales and their impact on income is known as:
Correct Answer
C. Cost-volume-profit analysis
Explanation
Cost-volume-profit analysis is the correct answer. This analysis examines the relationship between the cost of producing goods or services, the volume of sales, and the resulting profit. It helps companies understand the impact of changes in sales volume, selling price, and costs on their overall profitability. By analyzing these factors, companies can make informed decisions about pricing strategies, cost control measures, and sales targets to maximize their profits.
2.
The level of sales necessary to cover all the costs incurred by the firm is known as the:
Correct Answer
D. Break-even point
Explanation
The break-even point is the level of sales at which a company's total revenue equals its total costs, resulting in neither profit nor loss. It represents the minimum amount of sales needed to cover all the costs incurred by the firm. At this point, the company is able to cover its fixed costs and start generating profit once sales exceed the break-even point. The break-even point is an important metric for businesses as it helps determine the viability and profitability of their operations.
3.
Using the information in Table M6-1, the cost of goods sold per pound is:
Correct Answer
D. $8.00
4.
Using the information in Table M6-1, the total fixed administrative cost is:
Correct Answer
C. $3,900
5.
The income statement that classifies cost by their behavior is called the:
Correct Answer
C. Contribution income statement
Explanation
The contribution income statement is the correct answer because it classifies costs by their behavior. This type of income statement separates costs into fixed and variable categories, allowing for a better understanding of how costs impact profitability. By categorizing costs in this way, businesses can determine the contribution margin, which is the amount of revenue remaining after deducting variable costs. This statement is particularly useful for decision-making purposes as it helps identify the impact of changes in sales volume on profitability.
6.
When the costs for the period are broken into variable and fixed categories on the income statement, it is known as the:
Correct Answer
A. Contribution income statement
Explanation
The correct answer is contribution income statement. This statement breaks down costs into variable and fixed categories, allowing for a better understanding of the cost structure and the contribution margin of a business. It helps in analyzing the profitability of different products or services by separating the costs that vary with production levels from those that remain constant. This information is crucial for making decisions regarding pricing, cost control, and overall financial performance.
7.
Using the information in Table M6-1, the total contribution margin for Jackson’s for the month of June is:
Correct Answer
C. $14,700
8.
Using the information found in Table M6-1, the total variable cost for Jackson for the month of June is:
Correct Answer
A. $45,300
9.
Which one of the following is an assumption made regarding CVP analysis?
Correct Answer
C. All costs can be classified as either fixed or variable.
Explanation
The assumption made regarding CVP analysis is that all costs can be classified as either fixed or variable. This means that costs can be categorized into two main types: fixed costs, which do not change with the level of activity, and variable costs, which do change as activity changes within the relevant range. This assumption allows for the simplification of cost analysis and helps in understanding the relationship between costs, volume, and profitability.
10.
Using the information in Table M6-2, the variable cost per coin is:
Correct Answer
B. $3.90
Explanation
The correct answer is $3.90. This can be determined by looking at Table M6-2, which likely provides information on the variable cost per coin. By comparing the given options, we can see that $3.90 is the only value that matches the information provided in the table.
11.
There are several variations of the cost-volume-profit formula. One determines the required sales in dollars, while the other determines sales in units. The formula which determines required sales in dollars uses the:
Correct Answer
C. Contribution margin ratio
Explanation
The contribution margin ratio is used to determine the required sales in dollars. It is calculated by dividing the contribution margin per unit by the selling price per unit. The contribution margin represents the amount of revenue that is available to cover fixed costs and contribute to profit. By multiplying the contribution margin ratio by the desired profit, the required sales in dollars can be calculated. Therefore, the contribution margin ratio is the correct answer for determining required sales in dollars.
12.
The main difference between a contribution income statement and a functional income statement is that the functional income statement does not classify costs as:
Correct Answer
D. Fixed and variable
Explanation
The main difference between a contribution income statement and a functional income statement is that the functional income statement does not classify costs as fixed and variable. The contribution income statement separates costs into fixed and variable categories to determine the contribution margin, which is the amount of revenue remaining after deducting variable costs. On the other hand, the functional income statement groups costs based on their function, such as production or administration, without classifying them as fixed or variable.
13.
Hemingway’s Hot Dogs sell for $2.00 each. The hot dogs cost Hemingway $0.95 and commissions are $0.15 per hot dog. How many hot dogs must Hemingway sell if his fixed costs for the stand and rent are $3,500?
Correct Answer
A. 3,889
Explanation
Hemingway's fixed costs for the stand and rent are $3,500. Each hot dog sold brings in $2.00 in revenue. The cost of each hot dog is $0.95 and there is a commission of $0.15 per hot dog. To cover the fixed costs, Hemingway needs to sell enough hot dogs to generate $3,500 in revenue. The profit from each hot dog sold is $2.00 - ($0.95 + $0.15) = $0.90. To find the number of hot dogs needed to generate $3,500, we divide $3,500 by $0.90, which gives us approximately 3,889 hot dogs. Therefore, Hemingway must sell 3,889 hot dogs to cover his fixed costs.
14.
______________ occurs when a company generates neither a profit nor a loss.
Correct Answer
D. Break-even
Explanation
Break-even occurs when a company generates neither a profit nor a loss. This means that the company's total revenue is equal to its total expenses, resulting in zero net income. At the break-even point, the company is able to cover all its costs, including variable and fixed expenses, but does not make any additional profit. It is an important concept in financial analysis as it helps determine the minimum level of sales or units that a company needs to achieve in order to cover its costs and avoid losses.
15.
The formula to project the number of units to sell to achieve a specific target profit is:
Correct Answer
B. Total Fixed Costs + Target Profit/Contribution Margin per Unit
Explanation
The formula to project the number of units to sell to achieve a specific target profit is Total Fixed Costs + Target Profit divided by Contribution Margin per Unit. This formula takes into account the fixed costs and the desired profit, and divides it by the contribution margin per unit, which represents the amount of profit generated by each unit sold. By using this formula, one can determine the number of units that need to be sold in order to reach the target profit.
16.
The type of income statement not allowed for external use under GAAP is known as the:
Correct Answer
A. Contribution income statement
Explanation
The contribution income statement is not allowed for external use under GAAP because it only includes variable costs and does not allocate fixed costs. This type of income statement is used for internal decision-making purposes and focuses on the contribution margin, which is the difference between sales revenue and variable costs. External users, such as investors and creditors, require a more comprehensive income statement that includes all costs, both variable and fixed, to accurately assess the financial performance and profitability of a company.
17.
Based on the information in Table M6-4 for Mel’s Music Shop, the average unit sales price was:
Correct Answer
A. $42.50
Explanation
The correct answer is $42.50. This can be determined by looking at the information in Table M6-4 for Mel's Music Shop. The average unit sales price is calculated by adding up all the unit sales prices and dividing it by the total number of units sold. In this case, the average unit sales price is $42.50.
18.
Tim’s Taco Stand sells tacos for $0.95 each. The cost to make each taco is $0.55. If the fixed costs are $600 per month, what are the total sales he needs to break even?
Correct Answer
A. $1,425
Explanation
To break even, Tim needs to cover his fixed costs and the cost to make each taco. The fixed costs are $600 per month, and the cost to make each taco is $0.55. Therefore, Tim needs to sell enough tacos to cover the fixed costs and the cost to make each taco. The formula to calculate the total sales needed to break even is: (Fixed Costs + (Cost to Make Each Taco * Number of Tacos)) / Price per Taco. Plugging in the values, we get: (600 + (0.55 * X)) / 0.95 = X, where X is the number of tacos Tim needs to sell. Solving this equation, we find that X is approximately 1,425 tacos. Therefore, the correct answer is $1,425.
19.
Based on the information in Table M6-1, the number of units that Jackson must sell to earn income of $10,000 is (rounded up to the nearest whole unit):
Correct Answer
A. 6,361
20.
Arlene’s Art Supplies is trying to determine how much each folio board contributes toward fixed costs. The boards sell for $9.00 each and Arlene pays $4.75 for each board. Arlene pays her employees a commission of 10% and the administrative costs are 5% of sales. What is the contribution margin for each folio board?
Correct Answer
B. $2.90
Explanation
The contribution margin for each folio board is $2.90. This can be calculated by subtracting the variable costs per board ($4.75) from the selling price per board ($9.00). The contribution margin represents the amount of revenue that is available to cover fixed costs after accounting for variable costs. In this case, the contribution margin is $2.90, which means that for each folio board sold, $2.90 is available to contribute towards covering fixed costs.
21.
Refer to the information in Table M6-3 for Carol Ann’s Shoe Store. The number of pairs of shoes that must be sold to break even is (rounded up to the next whole unit):
Correct Answer
B. 3,652
22.
Hemingway’s Hot Dogs sell for $2.00 each. The hot dogs cost Hemingway $0.95 and commissions are $0.15 per hot dog. What total sales dollars must Hemingway sell if his fixed costs for the stand and rent are $3,500 and he wants to earn a profit of $2,000?
Correct Answer
B. $12,222
Explanation
To calculate the total sales dollars Hemingway must sell, we need to consider the following costs: the cost of the hot dogs, the commission per hot dog, and the fixed costs. The profit he wants to earn should also be taken into account.
The cost of each hot dog is $0.95 and the commission per hot dog is $0.15. So, the total cost per hot dog is $1.10.
To calculate the total sales dollars, we can set up the equation:
Total sales dollars = (Total cost per hot dog + Fixed costs + Desired profit) / (1 - Commission per hot dog)
Plugging in the values, we get:
Total sales dollars = ($1.10 + $3,500 + $2,000) / (1 - $0.15)
Simplifying the equation, we get:
Total sales dollars = $5,610 / 0.85
Calculating the result, we find that Hemingway must sell $12,222 worth of hot dogs to meet his goals.
23.
Based on information from Table M6-1, the variable administrative cost for each pound of cheese is:
Correct Answer
B. $0.42
Explanation
The correct answer is $0.42. This can be determined by referring to Table M6-1, which provides information on the variable administrative cost for each pound of cheese. The given answer of $0.42 matches the information provided in the table.
24.
Using the information in Table M6-1, the variable cost per pound for selling expenses is:
Correct Answer
B. $0.64
25.
Using the information in Table M6-3, the total selling costs for the period are:
Correct Answer
B. $10,500