OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
Multiple Choice
1. LO 3.1 The amount of a unit’s sales price that helps to cover fixed expenses is its ________.
A. contribution margin
B. profit
C. variable cost
D. stepped cost
Solution
A
2. LO 3.1 A company’s product sells for $150 and has variable costs of $60 associated with the
product. What is its contribution margin per unit?
A. $40
B. $60
C. $90
D. $150
Solution
C
3. LO 3.1 A company’s product sells for $150 and has variable costs of $60 associated with the
product. What is its contribution margin ratio?
A. 10%
B. 40%
C. 60%
D. 90%
Solution
C
4. LO 3.1 A company’s contribution margin per unit is $25. If the company increases its activity
level from 200 units to 350 units, how much will its total contribution margin increase?
A. $1,250
B. $3,750
C. $5,000
D. $8,750
Solution
B
5. LO 3.2 A company sells its products for $80 per unit and has per-unit variable costs of $30.
What is the contribution margin per unit?
A. $30
B. $50
C. $80
D. $110
Solution
B
6. LO 3.2 If a company has fixed costs of $6,000 per month and their product that sells for $200
has a contribution margin ratio of 30%, how many units must they sell in order to break even?
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,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
A. 100
B. 180
C. 200
D. 2,000
Solution
A
7. LO 3.2 Company A wants to earn $5,000 profit in the month of January. If their fixed costs
are $10,000 and their product has a per-unit contribution margin of $250, how many units must
they sell to reach their target income?
A. 20
B. 40
C. 60
D. 120
Solution
C
8. LO 3.2 A company wants to earn an income of $60,000 after-taxes. If the tax rate is 32%,
what must be the company’s pre-tax income in order to have $60,000 after-taxes?
A. $88,235
B. $19,200
C. $79,200
D. $143,000
Solution
A. $60,000/(1 – 0.32)
9. LO 3.2 A company has pre-tax or operating income of $120,000. If the tax rate is 40%, what
is the company’s after-tax income?
A. $300,000
B. $240,000
C. $48,000
D. $72,000
Solution
D. $120,000 × .40 = $48,000 tax expense; $120,000 – 48,000 = $72,000
10. LO 3.3 When sales price increases and all other variables are held constant, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a lower contribution margin
Solution
C
11. LO 3.3 When sales price decreases and all other variables are held constant, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a higher contribution margin
Solution
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,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
B
12. LO 3.3 When variable costs increase and all other variables remain unchanged, the break-
even point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a higher contribution margin
Solution
B
13. LO 3.3 When fixed costs decrease and all other variables remain unchanged, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a lower contribution margin
Solution
C
14. LO 3.3 When fixed costs increase and all other variables remain unchanged, the contribution
margin will ________.
A. remain unchanged
B. increase
C. decrease
D. increase variable costs per unit
Solution
A
15. LO 3.4 If the sales mix in a multi-product environment shifts to a higher volume in low
contribution margin products, the break-even point will ________.
A. remain unchanged because all products are included in the calculation of break-even
B. increase because the low contribution margin products have little effect on break-even
C. increase because the per composite unit contribution margin will decrease
D. decrease because the per composite unit contribution margin will increase
Solution
C
16. LO 3.4 Break-even for a multiple product firm ________.
A. can be calculated by dividing total fixed costs by the contribution margin of a composite
unit
B. can be calculated by multiplying fixed costs by the contribution margin ratio of a
composite unit
C. can only be calculated when the proportion of products sold is the same for all products
D. can be calculated by multiplying fixed costs by the contribution margin ratio of the most
common product in the sales mix
Solution
A
17. LO 3.4 Waskowski Company sells three products (A, B, and C) with a sales mix of 3:2:1.
Unit sales price are shown. What is the sales price per composite unit?
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, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
A. $17.00
B. $25.00
C. $35.00
D. $20.00
Solution
C
18. LO 3.4 Beaucheau Farms sells three products (E, F, and G) with a sale mix ratio of 3:1:2.
Unit sales price are shown. What is the sales price per composite unit?
A. $28.00
B. $20.00
C. $59.00
D. $41.00
Solution
C
19. LO 3.4 A company sells two products, Model 101 and Model 202. For every one unit of
Model 101, they sell they sell two units of Model 202. Sales and cost information for the two
products is shown. What is the contribution margin for a composite unit based on the sales mix?
A. $14
B. $21
C. $35
D. $56
Solution
D
20. LO 3.5 Wallace Industries has total contribution margin of $58,560 and net income of
$24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What
are the degree of operating leverage and the expected percent change in income for Wallace
Industries?
A. 0.42 and 2.2%
B. 0.42 and 5%
C. 2.4 and 12%
D. 2.5 and 13%
Solution
C
21. LO 3.5 Macom Manufacturing has total contribution margin of $61,250 and net income of
$24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What
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Chapter 3: Cost-Volume-Profit Analysis
Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
Multiple Choice
1. LO 3.1 The amount of a unit’s sales price that helps to cover fixed expenses is its ________.
A. contribution margin
B. profit
C. variable cost
D. stepped cost
Solution
A
2. LO 3.1 A company’s product sells for $150 and has variable costs of $60 associated with the
product. What is its contribution margin per unit?
A. $40
B. $60
C. $90
D. $150
Solution
C
3. LO 3.1 A company’s product sells for $150 and has variable costs of $60 associated with the
product. What is its contribution margin ratio?
A. 10%
B. 40%
C. 60%
D. 90%
Solution
C
4. LO 3.1 A company’s contribution margin per unit is $25. If the company increases its activity
level from 200 units to 350 units, how much will its total contribution margin increase?
A. $1,250
B. $3,750
C. $5,000
D. $8,750
Solution
B
5. LO 3.2 A company sells its products for $80 per unit and has per-unit variable costs of $30.
What is the contribution margin per unit?
A. $30
B. $50
C. $80
D. $110
Solution
B
6. LO 3.2 If a company has fixed costs of $6,000 per month and their product that sells for $200
has a contribution margin ratio of 30%, how many units must they sell in order to break even?
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,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
A. 100
B. 180
C. 200
D. 2,000
Solution
A
7. LO 3.2 Company A wants to earn $5,000 profit in the month of January. If their fixed costs
are $10,000 and their product has a per-unit contribution margin of $250, how many units must
they sell to reach their target income?
A. 20
B. 40
C. 60
D. 120
Solution
C
8. LO 3.2 A company wants to earn an income of $60,000 after-taxes. If the tax rate is 32%,
what must be the company’s pre-tax income in order to have $60,000 after-taxes?
A. $88,235
B. $19,200
C. $79,200
D. $143,000
Solution
A. $60,000/(1 – 0.32)
9. LO 3.2 A company has pre-tax or operating income of $120,000. If the tax rate is 40%, what
is the company’s after-tax income?
A. $300,000
B. $240,000
C. $48,000
D. $72,000
Solution
D. $120,000 × .40 = $48,000 tax expense; $120,000 – 48,000 = $72,000
10. LO 3.3 When sales price increases and all other variables are held constant, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a lower contribution margin
Solution
C
11. LO 3.3 When sales price decreases and all other variables are held constant, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a higher contribution margin
Solution
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,OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
B
12. LO 3.3 When variable costs increase and all other variables remain unchanged, the break-
even point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a higher contribution margin
Solution
B
13. LO 3.3 When fixed costs decrease and all other variables remain unchanged, the break-even
point will ________.
A. remain unchanged
B. increase
C. decrease
D. produce a lower contribution margin
Solution
C
14. LO 3.3 When fixed costs increase and all other variables remain unchanged, the contribution
margin will ________.
A. remain unchanged
B. increase
C. decrease
D. increase variable costs per unit
Solution
A
15. LO 3.4 If the sales mix in a multi-product environment shifts to a higher volume in low
contribution margin products, the break-even point will ________.
A. remain unchanged because all products are included in the calculation of break-even
B. increase because the low contribution margin products have little effect on break-even
C. increase because the per composite unit contribution margin will decrease
D. decrease because the per composite unit contribution margin will increase
Solution
C
16. LO 3.4 Break-even for a multiple product firm ________.
A. can be calculated by dividing total fixed costs by the contribution margin of a composite
unit
B. can be calculated by multiplying fixed costs by the contribution margin ratio of a
composite unit
C. can only be calculated when the proportion of products sold is the same for all products
D. can be calculated by multiplying fixed costs by the contribution margin ratio of the most
common product in the sales mix
Solution
A
17. LO 3.4 Waskowski Company sells three products (A, B, and C) with a sales mix of 3:2:1.
Unit sales price are shown. What is the sales price per composite unit?
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, OpenStax Principles of Accounting, Volume 2: Managerial Accounting
Chapter 3: Cost-Volume-Profit Analysis
A. $17.00
B. $25.00
C. $35.00
D. $20.00
Solution
C
18. LO 3.4 Beaucheau Farms sells three products (E, F, and G) with a sale mix ratio of 3:1:2.
Unit sales price are shown. What is the sales price per composite unit?
A. $28.00
B. $20.00
C. $59.00
D. $41.00
Solution
C
19. LO 3.4 A company sells two products, Model 101 and Model 202. For every one unit of
Model 101, they sell they sell two units of Model 202. Sales and cost information for the two
products is shown. What is the contribution margin for a composite unit based on the sales mix?
A. $14
B. $21
C. $35
D. $56
Solution
D
20. LO 3.5 Wallace Industries has total contribution margin of $58,560 and net income of
$24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What
are the degree of operating leverage and the expected percent change in income for Wallace
Industries?
A. 0.42 and 2.2%
B. 0.42 and 5%
C. 2.4 and 12%
D. 2.5 and 13%
Solution
C
21. LO 3.5 Macom Manufacturing has total contribution margin of $61,250 and net income of
$24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What
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