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Management Accounting

Willie Seal, University of Essex, UK
Ray Garrison, Brigham Young University, Provo, Utah, USA
Eric Noreen, INSEAD, France

Cost-Volume-Profit Relationships

Self-test Questions


1	The break even point is 10,000 units, sales are 12,000 units. The margin of safety expressed as a percentage of the break-even point is therefore: (Learning Objective 7 Ch 7)
		A)	25%
		B)	80%
		C)	120%
		D)	20%


2	The margin of safety for a firm in a very volatile market is 10%. Which of the following is true? (Learning Objective 7 Ch 7)
		A)	The margin of safety is probably too high
		B)	The margin of safety is probably too low
		C)	The margin of safety is adequate
		D)	We can't tell


3	Contribution per unit is £1. Fixed costs are £5,000. Production and sales are 7,500 units. When sales rise (Learning Objective 1 Ch 7)
		A)	Contribution margin rises by an amount greater than profit
		B)	Contribution margin rises by an amount smaller than profit
		C)	Contribution margin and profit rise by the same amount
		D)	Contribution margin drops


4	Contribution per unit is £1. Fixed costs are £5,000. Production and sales are 7,500 units. Contribution margin is (Learning Objective 1 Ch 7)
		A)	£2,500
		B)	£5,000
		C)	£7,500
		D)	nil


5	Contribution per unit is £1. Fixed costs are £5,000. Production and sales are 7,500 units. Profit is (Learning Objective 1 Ch 7)
		A)	£2,500
		B)	£5,000
		C)	£7,500
		D)	nil


6	Contribution per unit is £1. Fixed costs are £5,000. Production and sales are 7,500 units, Selling price is £2 per unit. Contribution Margin Ratio is (Learning Objective 2 Ch 7)
		A)	200%
		B)	75%
		C)	50%
		D)	100%


7	Contribution Margin Ratio is 50%. The fixed costs are £30,000. The break even point is (Learning Objective 4 Ch 7)
		A)	£120,000
		B)	£60,000
		C)	£30,000
		D)	£15,000


8	Variable cost is £4 per unit, Fixed cots are £80,000, Selling price per unit is £9, Sales are 5,000 units. If Selling Price increases by £1, Contribution Margin increases by (Learning Objective 3 Ch 7)
		A)	£10,000
		B)	£1
		C)	£5,000
		D)	£80,000


9	Variable cost is £4 per unit, Fixed cots are £80,000, Selling price per unit is £9, Sales are 5,000 units. If Variable Cost per unit decreases by £1, Contribution Margin decreases by (Learning Objective 3 Ch 7)
		A)	£10,000
		B)	£1
		C)	£5,000
		D)	£80,000


10	Variable cost is £4 per unit, Fixed costs are £80,000, Selling price per unit is £9, Sales are 5,000 units. If Fixed Costs increase by £10,000, Contribution Margin (Learning Objective 3 Ch 7)
		A)	Increases by £10,000
		B)	Decreases by £10,000
		C)	Says the same
		D)	We can't tell


11	Variable cost is £4 per unit, Fixed cots are £80,000, Selling price per unit is £9, Sales are 5,000 units. If sales decrease by 2,000 units, Contribution Margin (Learning Objective 3 Ch 7)
		A)	Increases by £10,000
		B)	Decreases by £10,000
		C)	Says the same
		D)	We can't tell


12	Variable cost is £4 per unit, Fixed cots are £80,000, Selling price per unit is £9, Sales are 5,000 units. The target profit is £100,000. What must the sales revenue be? (Learning Objective 6 Ch 7)
		A)	£324,000
		B)	£200,000
		C)	£160,000
		D)	£353,000


13	Contribution margin is £200,000. Net profit is £50,000. Calculate the degree of operating leverage of sales. (Learning Objective 8 Ch 7)
		A)	0.25
		B)	3
		C)	4
		D)	2


14	Company B sells two products: Product A: Contribution Margin Ratio = 20% Sales = £100,000 Product B Contribution Margin Ratio = 40% Sales = £200,000 If actual were sales £200,000 and B were £100,000. The Contribution Margin would: (Learning Objective 9 Ch 7)
		A)	increase by £20,000
		B)	decrease by £20,000
		C)	increase by £40,000
		D)	decrease by £40,000


15	Company B sells two products: Product A: Contribution Margin Ratio = 20% Sales = £100,000 Product B Contribution Margin Ratio = 40% Sales = £200,000 If actual were sales £200,000 and B were £100,000. Fixed Costs are £50,000. The break even point in Sales Revenue would be (Learning Objective 9 Ch 7)
		A)	£175,000
		B)	£200,000
		C)	£150,000
		D)	£187,970


16	One of the following is not an assumption that underlies CVP analysis (Learning Objective 1-9 Ch 7)
		A)	Fixed costs per unit will remain the same throughout the relevant range
		B)	Variable cost per unit will increase as sales increase
		C)	Variable Costs have a linear relationship with sales.
		D)	Selling price is constant throughout the relevant range

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