PM - Ch-5 (Cost Volume Profit analysis)

A business manufactures a single product which it sells for $50. The variable costs of production are $10 a unit. Next month fixed costs will be $800,000. The Finance Director wants to realise a profit of $120,000. How many units must be sold to generate this profit?

• 21000

• 23000

• 22000

• None of these

Which of the following is the correct formula to calculate the break-even sales volume (in units) for a business?

• Fixed costs/c/s ratio

• Variable costs/contribution per unit

• Variable costs /c/s ratio

• Fixed costs/ contribution per unit

A company makes a single product which it sells for $30 per unit.

Fixed costs are $18,000 per month. The contribution/sales ratio is 40%.

Next month the company’s profit target is $36,000.

What sales volume is required to achieve next month’s profit target?

• 1,200 units

• 1,500 units

• 3,000 units

• 4,500 units

ZT Ltd produces and sells three products, A,B and C in the ratio 1:2:1.

Sales price and variable cost data for the products is as follows:

A B C

Selling price ($) 8 8 10

Variable cost ($) 5 4.50 6

ZT Ltd has fixed costs of $70,000

What is ZT’s break-even sales revenue?

• 160000

• 180000

• 170000

• Nil

A profit-volume chart can illustrate the relationship between

• Sales revenue and costs

• Sales volume and costs

• Sales volume, revenue and costs

• Sales volume and profit

A company makes a single product which it sells for $2 per unit.

Fixed costs are $13,000 per month.

The contribution/sales ratio is 40%. Sales revenue is $62,500.

What is the margin of safety in units?

• 14000

• 10000

• 1000

• 15000

Matt Milk Bar is planning to invest in a new blending machine, which will expand the range of drinks it can offer. Its owner has estimated the following daily results for drinks associated with the new machine: $

Sales (200 units) 600

Variable costs (450)

Contribution 150

Incremental fixed costs (45)

Profit 105

Which of the following statements that relate to the sensitivity of the investment are true?

• The margin of safety is 92.5%.

• If variable costs increase by 25% the investment will make a loss.

• The margin of safety is 82.5%.

• All of the above

The following statements have been made about Cost-Volume-Profit analysis:

(1) CVP analysis allows for fluctuating selling prices.

(2) CVP analysis assumes productivity remains unchanged.

(3) CVP analysis assumes that the only factor affecting cost is volume.

Which of the above statements is/are true?

• (1) only

• (2) only

• (1), (2) and (3)

• (2) and (3) only

A company makes and sells a single product. When sales per month are $6.8 million, total costs are $6.56 million. When sales per month are $5.2 million, total costs are $5.44 million. There is a step cost increase of $400,000 in fixed costs when sales are $6.0 million, but variable unit costs are constant at all levels of output and sales. What is the breakeven point for sales revenue per month?

• $6.0 million

• There are two breakeven points: $5.64 million and $6.36 million

• $5.64 million only

• $6.36 million only

H Co uses a marginal cost plus pricing system to determine the selling price for one of its products, Product X. Product X has the following costs: $

Direct materials 12

Direct labour 5

Variable overheads 3

Fixed overheads 40

Fixed overheads are $20,000 for the year. Budgeted output and sales for the year are 500 units and this should be sufficient for Product X to break even. What profit mark-up would H Co need to add to the marginal cost to allow H Co to break even?

• 200%

• 20%

• 40%

• 100%