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Module 16 - Multiple Choice in Class with Answers

accounting
Course

Operations management (MBA 706)

23 Documents
Students shared 23 documents in this course
Academic year: 2023/2024
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Lagos State University

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Chapter 16 – Multiple Choice for in Class with Answers

  1. A basic assumption of the cost-volume-profit model is that: A) All costs can be accurately classified as either fixed or variable B) Cost drivers can be organized into unit-level, batch-level, product-level and facility-level factors C) Higher volumes of product require lower prices D) The mix of products changes over time Answer: A Rationale: The basic CVP model requires all cost to be treated as either fixed or variable.
  2. The contribution margin is: A) The difference between sales price and total variable cost B) The difference between total sales and total cost of goods sold C) The difference between total revenue and total variable cost D) Total sales minus total cost of goods sold Answer: C Rationale: Contribution margin is calculated as revenues minus variable costs. It can be calculated on either an aggregate or per-unit basis.
  3. In a contribution income statement: A) All fixed costs are grouped together and subtracted from gross profit. B) Net income plus all fixed expenses equal the contribution margin. C) The contribution margin is computed as the difference between sales revenue and fixed costs. D) The gross margin is computed as the difference between sales revenue and the cost of goods sold. Answer: B Rationale: Contribution margin minus fixed costs equals net income; therefore net income plus fixed costs equals contribution margin.
  4. Herman’s income statement is as follows: Sales (5,000 units) $75, Less variable costs (24,000) Contribution margin $51, Less fixed costs (12,000) Net income $ 39, What is the unit contribution margin? A) $12. B) $ 7. C) $10. D) $ 5. Answer: C Rationale: Contribution margin of $51,000 divided by 5,000 units equals a unit contribution margin of $10.
  5. In a cost-volume-profit graph: A) An increase in unit variable costs would decrease the slope of the total costs line B) An increase in the unit selling price would shift the break-even sales point to the left

C) An increase in the unit selling price would shift the break-even sales point to the right D) The total revenues line crosses the horizontal axis at the break-even point Answer: B Rationale: An increase in selling price increases the slope of the total revenue line, thereby causing its intersection with the total cost line to shift to the left. 6. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will: A) Not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs B) Reduce the break-even sales volume by 20 percent C) Reduce total costs by 20 percent D) Reduce the slope of the total costs line by 20 percent Answer: D Rationale: The slope of the total cost line is equal to the variable cost per unit of activity; therefore, if the variable cost per unit is decreased by 20%, the slope of the total cost line will decrease by 20%. 7. The total contribution margin at the break-even point: A) Equals total fixed costs B) Is zero C) Is greater than total variable costs D) Plus total fixed costs equal total revenues Answer: A Rationale: Contribution margin is defined as total revenue minus total variable costs; therefore, at break-even point contribution margin is sufficient to cover fixed costs but provide no profit. 8. Adam Company sells one product at a price of $50 per unit. Variable expenses are 40 percent of sales, and fixed expenses are $50,000. The sales dollars level required to break even are: A) $ 2, B) $10, C) $83, D) $41, Answer: C Rationale: Break even in sales dollars = Fixed costs divided by contribution margin percentage

= $50,000 / (100% – 40%) = $83,333.

  1. The following information pertains to Napa Valley Inc.: Selling price per unit $ Variable costs per unit $ Total fixed costs $212, Tax rate 40% The sales volume required to obtain a target after-tax profit of $54,000 is: A) 15,125 units B) 4,572 units C) 6,500 units D) 5,000 units Answer: A Rationale: Pre-tax profit = After-tax profit / (1- tax rate)
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Module 16 - Multiple Choice in Class with Answers

Course: Operations management (MBA 706)

23 Documents
Students shared 23 documents in this course

University: Lagos State University

Was this document helpful?
Chapter 16 – Multiple Choice for in Class with Answers
1. A basic assumption of the cost-volume-profit model is that:
A) All costs can be accurately classified as either fixed or variable
B) Cost drivers can be organized into unit-level, batch-level, product-level and facility-level factors
C) Higher volumes of product require lower prices
D) The mix of products changes over time
Answer: A
Rationale: The basic CVP model requires all cost to be treated as either fixed or variable.
2. The contribution margin is:
A) The difference between sales price and total variable cost
B) The difference between total sales and total cost of goods sold
C) The difference between total revenue and total variable cost
D) Total sales minus total cost of goods sold
Answer: C
Rationale: Contribution margin is calculated as revenues minus variable costs. It can be calculated
on either an aggregate or per-unit basis.
3. In a contribution income statement:
A) All fixed costs are grouped together and subtracted from gross profit.
B) Net income plus all fixed expenses equal the contribution margin.
C) The contribution margin is computed as the difference between sales revenue and fixed costs.
D) The gross margin is computed as the difference between sales revenue and the cost of goods
sold.
Answer: B
Rationale: Contribution margin minus fixed costs equals net income; therefore net income plus fixed
costs equals contribution margin.
4. Herman’s income statement is as follows:
Sales (5,000 units) $75,000
Less variable costs (24 ,000)
Contribution margin $51,000
Less fixed costs (12 ,000)
Net income $ 39 ,000
What is the unit contribution margin?
A) $12.00
B) $ 7.20
C) $10.20
D) $ 5.10
Answer: C
Rationale: Contribution margin of $51,000 divided by 5,000 units equals a unit contribution margin of
$10.20.
5. In a cost-volume-profit graph:
A) An increase in unit variable costs would decrease the slope of the total costs line
B) An increase in the unit selling price would shift the break-even sales point to the left

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