COM 316 QUESTIONS WITH CORRECT VERIFIED
ANSWERS / GRADED A+/ GUARANTEED PASS
What 5 influences on profits help managers understand relationships between cost, volume, and profit?
- ANSWER 1. Price of Product
2. Volume or Level of Activity
3. Per Unit Variable Costs
4. Total Fixed Costs
5. Mix of Products Sold
What is needed to conduct a cost-volume-profit analysis? - ANSWER A contributed income statement to
illustrate where impacts on profit, due to changes, occur.
What is a break even point? - ANSWER Neither loss nor profit was achieved, for that period because just
enough sales were generated to just cover all the fixed costs
How much will operation income increase by once the break even point is achieved? - ANSWER
Operating income will increase by the unit contribution margin for each additional unit sold. To estimate
profits at any sales level above the break even point multiply the number of units sold in excess of the
break-even point by the unit contribution margin.
What are the X and Y axis on a cost-volume-profit graph? - ANSWER X axis: unit volume
Y axis: Dollar amount
What lines are plotted on a cost-volume-profit graph? - ANSWER -Total fixed costs (plotted parallel to the
X-axis)
-Total expenses (fixed and variable costs) plotted at various activity levels
,-Total sales dollar (plotted at various activity levels)
How can the anticipated profit or loss at any given sales level be determined on a cost-volume-profit
graph? - ANSWER By measuring the vertical distance between the total revenue line and the total
expenses line.
How and where can the break even point be found? - ANSWER 1. Where the total revenue and total
expense lines cross of a cost-volume-profit graph
2. Using the equation method: Profits = (Sales - Variable Expenses) - Fixed Expenses or Sales = Variable
Expenses*Quantity of items sold + Fixed Expenses + Profits
3. Using the formula method: Break-even point in units sold (sales dollars) = Fixed Expenses/Unit
Contribution Margin (contribution margin ratio)
#3 is useful when a company has multiple product lines and wishes to compute a single break even point
for the company as a whole.
What is the contribution margin ratio? - ANSWER The sales revenue, variable expenses, and contribution
margin, expressed as a percentage of sales
Contribution Margin Ratio = (Unit) Contribution Margin/(Unit) Selling Price
Why is the contribution approach helpful? - ANSWER An income statement does not have to be made to
estimate profits at a particular sales volume
What does the contribution margin ratio show? - ANSWER How much the contribution margin is affected
by a change in total sales. (It will increase by the contribution margin ratio for every dollar increase)
When is the contribution margin particularly valuable? - ANSWER When trade-offs need to be made
between more dollar sales of one product compared to more dollar sales of another product.
, How can profits be estimated when the number of units sold is above the break even point? - ANSWER
Multiply the number of units sold by the contribution margin per unit amount
When will operating income increase by the contribution margin ratio? - ANSWER When the fixed costs
are assumed to not be affected by the increase in sales (within the relevant range)
When trying to increase sales, which product should be chosen? - ANSWER The one which yields the
greatest amount of contributed margin per dollar of sales
What is the variable expense ratio? - ANSWER The ratio of variable expenses to sales.
Formula: variable expenses/sales
How is the contribution margin ratio and the variable expense ratio related? - ANSWER Contribution
margin ratio = 1 - variable expense ratio
What is an incremental analysis? - ANSWER An analytical approach that focuses only on those items of
revenue, cost, and volume
Why is it unnecessary to create an income statement when using an incremental approach analysis? -
ANSWER The incremental approach is more direct and focuses attention on the specific items involved
only
When assessing changes in fixed costs, what are 2 ways the difference in operating income between the
current sales and the projected sales can be calculated? - ANSWER 1: Multiply the total sales by the
contribution ratio expected from both the changes in fixed costs and the current fixed costs. Subtract the
proposed change in fixed costs from the difference between the expected and current contribution
margins to determine the change in operating income.
2: Determine the incremental contribution margin then subtract the incremental fixed expenses
proposal to determine the change in operating income.
# 2 does not require knowledge of previous sales.
ANSWERS / GRADED A+/ GUARANTEED PASS
What 5 influences on profits help managers understand relationships between cost, volume, and profit?
- ANSWER 1. Price of Product
2. Volume or Level of Activity
3. Per Unit Variable Costs
4. Total Fixed Costs
5. Mix of Products Sold
What is needed to conduct a cost-volume-profit analysis? - ANSWER A contributed income statement to
illustrate where impacts on profit, due to changes, occur.
What is a break even point? - ANSWER Neither loss nor profit was achieved, for that period because just
enough sales were generated to just cover all the fixed costs
How much will operation income increase by once the break even point is achieved? - ANSWER
Operating income will increase by the unit contribution margin for each additional unit sold. To estimate
profits at any sales level above the break even point multiply the number of units sold in excess of the
break-even point by the unit contribution margin.
What are the X and Y axis on a cost-volume-profit graph? - ANSWER X axis: unit volume
Y axis: Dollar amount
What lines are plotted on a cost-volume-profit graph? - ANSWER -Total fixed costs (plotted parallel to the
X-axis)
-Total expenses (fixed and variable costs) plotted at various activity levels
,-Total sales dollar (plotted at various activity levels)
How can the anticipated profit or loss at any given sales level be determined on a cost-volume-profit
graph? - ANSWER By measuring the vertical distance between the total revenue line and the total
expenses line.
How and where can the break even point be found? - ANSWER 1. Where the total revenue and total
expense lines cross of a cost-volume-profit graph
2. Using the equation method: Profits = (Sales - Variable Expenses) - Fixed Expenses or Sales = Variable
Expenses*Quantity of items sold + Fixed Expenses + Profits
3. Using the formula method: Break-even point in units sold (sales dollars) = Fixed Expenses/Unit
Contribution Margin (contribution margin ratio)
#3 is useful when a company has multiple product lines and wishes to compute a single break even point
for the company as a whole.
What is the contribution margin ratio? - ANSWER The sales revenue, variable expenses, and contribution
margin, expressed as a percentage of sales
Contribution Margin Ratio = (Unit) Contribution Margin/(Unit) Selling Price
Why is the contribution approach helpful? - ANSWER An income statement does not have to be made to
estimate profits at a particular sales volume
What does the contribution margin ratio show? - ANSWER How much the contribution margin is affected
by a change in total sales. (It will increase by the contribution margin ratio for every dollar increase)
When is the contribution margin particularly valuable? - ANSWER When trade-offs need to be made
between more dollar sales of one product compared to more dollar sales of another product.
, How can profits be estimated when the number of units sold is above the break even point? - ANSWER
Multiply the number of units sold by the contribution margin per unit amount
When will operating income increase by the contribution margin ratio? - ANSWER When the fixed costs
are assumed to not be affected by the increase in sales (within the relevant range)
When trying to increase sales, which product should be chosen? - ANSWER The one which yields the
greatest amount of contributed margin per dollar of sales
What is the variable expense ratio? - ANSWER The ratio of variable expenses to sales.
Formula: variable expenses/sales
How is the contribution margin ratio and the variable expense ratio related? - ANSWER Contribution
margin ratio = 1 - variable expense ratio
What is an incremental analysis? - ANSWER An analytical approach that focuses only on those items of
revenue, cost, and volume
Why is it unnecessary to create an income statement when using an incremental approach analysis? -
ANSWER The incremental approach is more direct and focuses attention on the specific items involved
only
When assessing changes in fixed costs, what are 2 ways the difference in operating income between the
current sales and the projected sales can be calculated? - ANSWER 1: Multiply the total sales by the
contribution ratio expected from both the changes in fixed costs and the current fixed costs. Subtract the
proposed change in fixed costs from the difference between the expected and current contribution
margins to determine the change in operating income.
2: Determine the incremental contribution margin then subtract the incremental fixed expenses
proposal to determine the change in operating income.
# 2 does not require knowledge of previous sales.
