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Managerial Accounting, 2e Braun/Tietz/Harrison Test Item File Chapter 7: Cost-Volume-Profit Analysis 7.1-1 CVP stands for Cost–Volume–Profit. Answer: True LO: 7-1 Diff: 1 EOC: S7-5 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-2 CVP assumes that inventory levels change. Answer: False LO: 7-1 Diff: 1 EOC: S7-5 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-3 When using the contribution margin ratio, managers project operating income based upon sales units. Answer: False LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-4 A product’s contribution margin per unit is the excess value of the selling price per unit over the fixed cost of obtaining and selling each unit. Answer: False LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-5 The contribution margin derived from different products is used to motivate the sales force to increase sales of the most profitable products. Answer: True LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-6 The contribution margin ratio is the unit contribution margin divided by the sales price per unit. Answer: True LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-7 If a unit sells for $11.40 and has a variable cost of $3.80, its contribution margin per unit is $7.60. Answer: True LO: 7-1 Diff: 2 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-8 Contribution margin on an income statement is equal to sales revenue minus variable expenses. Answer: True LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-9 Gross margin is another term for net income. Answer: False LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-10 CVP analysis assumes that the only factor that affects costs is a change in volume. Answer: True LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-11 The unit contribution margin is computed by: A. dividing the variable cost per unit by the sales revenue. B. subtracting the sales price per unit from the variable cost per unit. C. subtracting the variable cost per unit from the sales price per unit. D. dividing the sales revenue by variable cost per unit. Answer: C LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-12 The contribution margin ratio explains the percentage of each sales dollar that contributes towards: A. variable costs. B. sales revenue. C. fixed costs and generating a profit. D. period expenses. Answer: C LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-13 CVP analysis assumes all of the following EXCEPT that: A. a change in volume is the only factor that affect costs. B. inventory levels will increase. C. revenues are linear throughout the relevant range. D. the mix of products will not change. Answer: B LO: 7-1 Diff: 1 EOC: S7-5 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-14 To compute the unit contribution margin, __________ should be subtracted from the sales price per unit. A. only variable period costs B. only variable inventoriable product costs C. all variable costs D. all fixed costs Answer: C LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-15 Managers can quickly forecast the operating income by multiplying ____________ and then subtracting fixed costs. A. projected sales revenue by the contribution margin ratio B. projected sales units by the contribution margin ratio C. projected sales revenue by the unit contribution margin D. projected sales units by the variable cost ratio Answer A LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-16 Managers can quickly forecast the total contribution margin by dividing the projected: A. sales revenue by the contribution margin ratio. B. sales units by the contribution margin ratio. C. sales revenue by the unit contribution margin. D. sales units by the variable cost ratio. Answer: A LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-17 Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit? A. Gross margin B. Unit contribution margin C. Net income D. Operating income Answer: B LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-18 Contribution margin ratio is computed by dividing: A. contribution margin by sales revenue. B. contribution margin by operating income. C. sales revenue by contribution margin. D. operating income by contribution margin. Answer: A LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-19 On a contribution margin income statement, to what is contribution margin equal? A. Fixed expenses plus variable expenses B. Sales revenues minus variable expenses C. Fixed expenses minus variable expenses D. Sales revenues minus fixed expenses Answer: B LO: 7-1 Diff: 2 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-20 Akron Laser Wash sells deluxe car washes for $15 per customer. Variable costs are $9 per wash. Fixed costs are $40,000 per month. What is Akron Laser Wash’s contribution margin ratio? A. 40% B. 250% C. 6% D. 60% Answer: A Calculations: Sales $ 15 Less Variable costs 9 = Contribution Margin 6 divided by $15 sales = 40% LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.1-21 Akron Laser Wash sells deluxe car washes for $15 per customer. Variable costs are $9 per wash. Fixed costs are $40,000 per month. What is Akron Laser Wash’s contribution margin per car wash? A. $0.40 B. $9.00 C. $6.00 D. $2.50 Answer: C Calculations: Sales $ 15 Less Variable costs 9 = Contribution Margin 6 LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-22 Branson Movies sells movie tickets for $13 per movie patron. Variable costs are $8 per movie patron and fixed costs are $60,000 per month. The company’s relevant range extends to 35,000 movie patrons per month. What is Branson’s projected operating income if 28,000 movie patrons see movies during a month? A. $364,000 B. $140,000 C. $304,000 D. $ 80,000 Answer: D Calculations: Sales $ 13 Less Variable costs = Contribution Margin 5 x 28,000 = $ 140,000 Less Fixed 60,000 Operating Income $ 80,000 LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-23 Express Bus Company operates a bus route that takes passengers from Cleveland to Chicago every day. Assume the bus tickets sell for $50 per rider; the bus line’s variable costs are $35 per rider; and its fixed costs are $75,000 each month. What is the contribution margin per rider? A. $15.00 B. $ 0.30 C. $35.00 D. $ 3.33 Answer: A Calculations: Sales $ 50 Less Variable costs 35 = Contribution Margin 15 LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-24 Express Bus Company operates a bus route that takes passengers from Cleveland to Chicago every day. Assume the bus tickets sell for $50 per rider; the bus line’s variable costs are $35 per rider; and its fixed costs are $75,000 each month. What is the contribution margin ratio? A. 70% B. 30% C. 333% D. 15% Answer: B Calculations: Sales $ 50 Less Variable costs 35 = Contribution Margin 15 divided by $50 sales = 30% LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-25 The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each. The cost of providing dinner is $30 per ticket, and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 15,000 patrons each month. What is the contribution margin per passenger? A. $ 2.50 B. $30.00 $ 0.40 D. $20.00 Answer: D Calculations: Sales $ 50 Less Variable costs 30 = Contribution Margin 20 LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-26 The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each. The cost of providing dinner is $30 per ticket, and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 15,000 patrons each month. What is the contribution margin ratio? A. 40% B. 250% C. 60% D. 20% Answer: A Calculations: Sales $ 50 Less Variable costs 30 = Contribution Margin 20 divided by $ 50 = 40% LO: 7-1 Diff: 1 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-27 The Burr Mystery Dinner Theater sells tickets for dinner and a show for $50 each. The cost of providing dinner is $30 per ticket, and the fixed cost of operating the theater is $100,000 per month. The company can accommodate 15,000 patrons each month. What is the projected monthly income if 12,000 patrons visit the theater each month? A. $200,000 B. $340,000 C. $140,000 D. $240,000 Answer: C Calculations: Sales $ 50 Less Variable costs 30 = Contribution Margin 20 x 12,000 = $ 240,000 Less fixed = 100,000 Operating Income $ 140,000 LO: 7-1 Diff: 1 EOC: S7-2 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Cornell Corporation gathered the following information for the year just ended: Fixed costs: Manufacturing $125,000 Marketing 48,000 Administrative 25,000 Variable costs: Manufacturing $120,000 Marketing 32,000 Administrative 38,000 During the year, Cornell produced and sold 60,000 units of product at a sale price of $8.00 per unit. There was no beginning inventory of product at the start of the year. What is the contribution margin for the year? A. $ 92,000 B. $282,000 C. $480,000 D. $290,000 Answer: D Calculations: Variable costs: Manufacturing $ 120,000 Marketing 32,000 Administrative 38,000 Total $ 190,000 Sales $ 8 x 60,000 = $ 480,000 Less Variable costs 190,000 Contribution Margin $ 290,000 LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Cornell Corporation gathered the following information for the year just ended: Fixed costs: Manufacturing $125,000 Marketing 48,000 Administrative 25,000 Variable costs: Manufacturing $120,000 Marketing 32,000 Administrative 38,000 During the year, Cornell produced and sold 60,000 units of product at a sale price of $8.00 per unit. There was no beginning inventory of product at the start of the year. What is the operating income (loss) for the year? A. $92,000 B. $480,000 C. $282,000 D. $290,000 Answer: A Calculations: Variable costs: Manufacturing $ 120,000 Marketing 32,000 Administrative 38,000 Total $ 190,000 Sales $ 8 x 60,000 = $ 480,000 Less Variable costs 190,000 Contribution Margin $ 290,000 Less Fixed $ 198,000 Operating Income $ 92,000 LO: 7-1 Diff: 1 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-30 The Sage Group produces a single product selling for $60 per unit. Variable costs are $12 per unit and total fixed costs are $6,000. What is the contribution margin ratio? A. 0.48 B. 0.20 C. 0.80 D. 1.25 Answer: C Calculations: Sales $ 60 Less Variable costs 12 = Contribution Margin 48 Divided by $ 60 = 80% LO: 7-1 Diff: 1 EOC: S7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-31 The following selected data relates to Lazarus Corporation: Total fixed costs $22,000 Sale price per unit $25 Variable costs per unit $18 Assuming 8,000 units are sold, what is the contribution margin? A. $56,000 B. $78,000 C. $34,000 D. $344,000 Answer: A Calculations: Sales $ 25 Less Variable costs 18 = Contribution Margin 7 x 8,000 = $ 56,000 LO: 7-1 Diff: 1 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-32 The following selected data relates to Lazarus Corporation: Total fixed costs $22,000 Sale price per unit $25 Variable costs per unit $18 If sales revenue per unit increases to $27 and 8,000 units are sold, what is the contribution margin? A. $ 50,000 B. $ 72,000 C. $ 56,000 D. $360,000 Answer: B Calculations: Sales $ 27 Less Variable costs 18 = Contribution Margin 9 x 8,000 = $ 72,000 LO: 7-1 Diff: 1 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Izzy Creations provides the following information about its single product: Targeted operating income $40,000 Selling price per unit $20.00 Variable cost per unit $12.00 Total fixed cost $80,000 What is the contribution margin ratio? A. 2.50 B. 0.08 C. 0.40 D. 0.60 Answer: C Calculations: Sales $ 20 Less Variable costs 12 = Contribution Margin 8 divided by $ 20 = 40% LO: 7-1 Diff: 1 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-34 First Robotics Company sells basic kits to build robots for $112 each. The variable costs for each kit are $72. The total contribution margin for 20 kits is: A. $ 2,240. B. $ 3,680. C. $ 1,440. D. $ 800. Answer: D Calculations: Sales $ 112 Less Variable costs 72 = Contribution Margin 40 x 20 = $ 800 LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-35 Gibbs Company has a product which sells for $100 and has a unit contribution margin of $45. It has fixed costs of $30/unit at the current production volume. Gibbs Company’s contribution margin ratio is: A. 45%. B. 30%. C. 85%. D. 75%. Answer: A Calculations: Contribution Margin $ 45 divided by $ 100 = 45% LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-36 Mario's Pizza sells pizzas for $10. The variable costs for each pizza are $4, while the total fixed costs are $1,500. The contribution margin for 1,000 pizzas is: A. $ 8,500. B. $ 4,500. C. $ 6,000. D. $10,000. Answer: C Calculations: Sales $ 10 Less Variable costs 4 = Contribution Margin 6 x 1,000 = $ 6,000 LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-37 Anthony Office Supplies sells refills on printer ink cartridges for $16 per refill. Variable costs are $4 per refill. Fixed costs are $2,000 per month. What is the contribution margin ratio for the printer ink cartridge refills? A. 133% B. 12% C. 25% D. 75% Answer: D Calculations: Sales $ 16 Less Variable costs 4 = Contribution Margin 12 divided by $ 16 = 75% LO: 7-1 Diff: 2 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-38 Anthony Office Supplies sells Refills on printer ink cartridges for $16 per refill. Variable costs are $4 per refill. Fixed costs are $2,000 per month. What is the contribution margin per refill? A. $ 1.33 B. $ 0.75 C. $12.00 D. $ 4.00 Answer: C Calculations: Sales $ 16 Less Variable costs 4 = Contribution Margin 12 LO: 7-1 Diff: 2 EOC: S7-1 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making The following information for the past year for the Lambert Company has been provided: Fixed costs: Manufacturing $150,000 Marketing 28,000 Administrative 21,000 Variable costs: Manufacturing $132,000 Marketing 32,000 Administrative 43,000 During the year, the Lambert Company produced and sold 50,000 units of product at a sale price of $10.00 per unit. There was no beginning inventory of product at the beginning of the year. What is the contribution margin for the year? A. $ 94,000 B. $293,000 C. $301,000 D. $500,000 Answer: B Calculations: Variable costs : Manufacturing $ 132,000 Marketing 32,000 Administrative 43,000 Total $ 207,000 Sales $ 10 x 50,000 = $ 500,000 Less Variable costs 207,000 Contribution Margin $ 293,000 LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making The following information for the past year for the Lambert Company has been provided: Fixed costs: Manufacturing $150,000 Marketing 28,000 Administrative 21,000 Variable costs: Manufacturing $132,000 Marketing 32,000 Administrative 43,000 During the year, the Lambert Company produced and sold 50,000 units of product at a sale price of $10.00 per unit. There was no beginning inventory of product at the beginning of the year. What is the operating income (loss) for the year? A. $94,000 B. $301,000 C. $500,000 D. $293,000 Answer: A Calculations: Variable costs : Manufacturing $ 132,000 Marketing 32,000 Administrative 43,000 Total $ 207,000 Fixed Expenses: Manufacturing $ 150,000 Marketing 28,000 Administrative 21,000 Total $ 199,000 Sales $ 10 x 50,000 = $ 500,000 Less Variable costs 207,000 Contribution Margin $ 293,000 Less Fixed Expenses 199,000 Operating Income $ 94,000 LO: 7-1 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.1-41 During the past year, Pettay Enterprises had the following fixed costs: Fixed manufacturing costs $ 112,000 Fixed marketing costs $ 43,000 Fixed administrative costs $ 18,000 The company also had the following variable costs: Variable manufacturing costs $ 142,000 Variable marketing costs $ 37,000 Variable administrative costs $ 28,000 During the year, the company produced and sold 60,000 units of the product at a selling price of $7.00 per unit. The company had no inventory at the beginning of the year. Required: Prepare a contribution margin income statement for the year. Answer: Pettay Enterprises Contribution Margin Income Statement Total sales revenue $ 420,000 Less variable costs: Variable manufacturing costs $(142,000) Variable marketing costs $ (37,000) Variable administrative costs $ (28,000) Contribution margin $ 213,000 Less fixed costs: Fixed manufacturing costs $(112,000) Fixed marketing costs $ (43,000) Fixed administrative costs $ (18,000) Operating income $ 40,000 LO: 7-2 Diff: 2 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-1 Only the unit contribution margin approach may be used to calculate the breakeven point. Answer: False LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-2 The breakeven point represents the minimum number of units a company must sell before it earns a profit. Answer: True LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-3 On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the operating income or operating loss. Answer: False LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-4 On a CVP graph, total fixed costs are shown as a vertical line. Answer: False LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-5 The breakeven point on a CVP graph is the point where the fixed expenses line intersects the total expense costs line. Answer: False LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-6 Fixed costs of $10,000 divided by the contribution margin ratio of 40% would yield the dollar amount of breakeven sales as $25,000. Answer: True LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-7 The breakeven point can either be calculated in terms of number of units or in terms of sales revenue. Answer: True LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-8 A company that sells thousands of different products would be more likely to calculate breakeven in terms of sales units, rather than sales revenue Answer: False LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-9 When calculating the breakeven point in terms of units, fixed costs should be divided by the contribution margin ratio. Answer: False LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-10 When calculating the breakeven point in terms of sales revenue, fixed costs should be divided by the contribution margin ratio. Answer: True LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-11 The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is: A. (fixed expenses + operating income) ÷ contribution margin ratio. B. (fixed expenses + operating income) ÷ contribution margin per unit. C. (fixed expenses - operating income) ÷ contribution margin ratio. D. (fixed expenses - operating income) ÷ contribution margin per unit. Answer B LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-12 The formula used to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit is: A. (fixed expenses + operating income) ÷ contribution margin ratio. B. (fixed expenses + operating income) ÷contribution margin per unit. C. (fixed expenses - operating income) ÷ contribution margin ratio. D. (fixed expenses - operating income) ÷ contribution margin per unit. Answer A LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-13 To find the breakeven point using the shortcut formulas, you use zero for the: A. operating income. B. fixed expenses. C. contribution margin ratio. D. contribution margin per unit. Answer A LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-14 The formula used to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit is: A. contribution margin ratio ÷ (fixed expenses + operating income). B. contribution margin per unit ÷ (fixed expenses + operating income). C. (fixed expenses + operating income) ÷ contribution margin ratio. D. (fixed expenses + operating income) ÷ contribution margin per unit. Answer: C LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-15 The formula used to find the number of units that need to be sold in order to breakeven or generate a target profit is: A. contribution margin ratio ÷ (fixed expenses + operating income). B. contribution margin per unit ÷ (fixed expenses + operating income). C. (fixed expenses + operating income) ÷ contribution margin ratio. D. (fixed expenses + operating income) ÷ contribution margin per unit. Answer: D LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-16 Which of the following is TRUE when using the income statement approach to finding breakeven? A. Sales revenue – variable expenses – fixed expenses = operating income B. (Variable expenses x number of units) – fixed expenses = operating income C. Fixed expenses + variable expenses + sales revenue = operating income D. Fixed expenses + variable expenses - sales revenue = operating income Answer: A LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-17 On a CVP graph, the total cost line intersects the total revenue line at which of the following points? A. The level of the fixed costs B. The level of the variable costs C. The breakeven point D. None of the above Answer: C LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-18 Which of the following is NOT an approach used to calculate the breakeven point? A. The income statement approach B. The shortcut approach using the unit contribution margin C. The shortcut approach using the contribution margin ratio D. The balance sheet approach Answer: D LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-19 The breakeven point may be defined as the number of units a company must sell to do which of the following? A. Generate a zero profit B. Generate a net loss C. Earn more net income than the previous accounting period D. Generate a net income Answer: A LO: 7-2 Diff: 1 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-20 Sales below the breakeven point indicate a _____________, whereas sales above the breakeven point indicate a ___________. A. loss; loss B. loss; profit C. profit; profit D. profit; loss Answer: B LO: 7-2 Diff: 1 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-21 On a CVP graph, the horizontal line intersecting the vertical y-axis at the level of total cost represents: A. total costs. B. total fixed costs. C. total variable costs. D. breakeven point. Answer: B LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-22 On a CVP graph, the line that begins at the origin represents: A. total fixed expenses. B. total expenses. C. total sales revenues. D. both the total expenses and the total sales revenues. Answer: C LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-23 On a CVP graph, the intersection of the sales revenue line and the variable expense line is known as: A. the margin of safety point. B. the breakeven point. C. the unit contribution margin. D. none of the above. Answer: D LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-24 Which of the following is an underlying assumption of the cost-volume-profit graph? A. Total fixed expenses will change during the accounting period. B. The sales mix of products is constantly changing. C. Inventory levels are constantly changing. D. Volume is the only cost driver. Answer: D LO: 7-2 Diff: 2 EOC: S7-6 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-25 The area to the right of the break-even point and between the total revenue line and total expense line represents: A. expected losses. B. expected profits. C. variable expenses. D. fixed expenses. Answer: B LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Reflective Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Reporting 7.2-26 The Sweet Factory produces and sells specialty fudge. The selling price per pound is $20, variable costs are $12 per pound, and total fixed costs are $6,000. How many pounds of fudge must The Sweet Factory sell to breakeven? A. 15,000 B. 300 C. 750 D. 188 Answer: C Calculations: Sales $ 20 Variable costs 12 Contribution Margin $ 8 Fixed Expenses $ 6000 divided by Contribution Margin $8 = 750 Breakeven LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-27 The Sweet Factory produces and sells specialty fudge. The selling price per pound is $20, variable costs are $12 per pound, and total fixed costs are $6,000. What are breakeven sales in dollars? A. $ 9,000 B. $ 3,750 C. $ 750 D. $15,000 Answer: D Calculations: Sales $ 20 Variable costs 12 Contribution Margin $ 8 Fixed Expenses $ 6,000 divided by Contribution Margin $8 = 750 Breakeven Breakeven Sales units 750 x $ 20 = $ 15,000 Breakeven sales dollars LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-28 If the sale price per unit is $12, the unit contribution margin is $5, and total fixed expenses are $21,000, what are the breakeven sales in units? A. 105,000 B. 252,000 C. 4,200 D. 1,750 Answer: C Calcualtions: Fixed Expenses $ 21,000 divided by Contribution Margin $5 = 4,200 Breakeven LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-29 If the sale price per unit is $30.00, the variable expense per unit is $21, and total fixed expenses are $300,000, what are the breakeven sales in dollars? A. $ 10,000 B. $1,000,000 C. $ 90,000 D. $ 176,471 Answer: B Calculations: Sales $ 30 Less Variable costs 21 = Contribution Margin 9 divided by $ 30 = 30% Fixed Expense $ 300,000 divided by Contribution Margin Ratio 30% = $ 1,000,000 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-30 Assume the following amounts: Total fixed costs $20,000 Sale price per unit $24 Variable costs per unit $15 If sales revenue per unit decreases to $22 and 10,000 units are sold, what is the operating income? A. $ 50,000 B. $ 90,000 C. $220,000 D. $ 70,000 Answer: A Calculations: Sales $ 22 Less Variable costs 15 = Contribution Margin 7 x 10,000 = $ 70,000 Less Fixed expense 20,000 = Operating Income $ 50,000 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-31 If the sale price per unit is $38, the unit contribution margin is $17, and total fixed expenses are $56,950, what will the breakeven sales in units be? A. 1,499 B. 968,150 C. 2,712 D. 3,350 Answer: D Calculations: Fixed expenses $ 56,950 divided by Contribution Margin $17 = 3,350 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-32 If the sale price per unit is $75, the variable expense per unit is $45, and total fixed expenses are $1,155,000, what will the breakeven sales in units be? A. 15,400 B. 25,667 C. 38,500 D. 9,625 Answer: C Calculations: Sales $ 75 Less Variable costs 45 = Contribution Margin $ 30 Fixed expenses $ 1,155,000 divided by Contribution Margin $ 30 = 38,500 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-33 If total fixed costs are $120,000, the contribution margin per unit is $16.00, and targeted operating income is $30,000, how many units must be sold to breakeven? A. 1,920,000 B. 7,500 C. 9,375 D. 480,000 Answer: B Calculations: Fixed expenses $ 120,000 divided by Contribution Margin $16 = 7,500 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-34 Schimmel Company provides the following information about its single product. Targeted operating income $35,000 Selling price per unit $7.85 Variable cost per unit $6.10 Total fixed cost $96,250 What is the contribution margin per unit? A. $6.10 B. $1.75 C. $0.22 D. $13.95 Answer: B Calculations: Sales $ 7.85 Less Variable costs 6.10 = Contribution Margin $ 1.75 LO: 7-2 Diff: 1 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Schimmel Company provides the following information about its single product. Targeted operating income $35,000 Selling price per unit $7.85 Variable cost per unit $6.10 Total fixed cost $96,250 What is the breakeven point in units? A. 55,000 B. 2,509 C. 6,900 D. 20,000 Answer: A Calculations: Sales $ 7.85 Less Variable costs 6.10 = Contribution Margin $ 1.75 Fixed expenses $ 96,250 divided by Contribution Margin $ 1.75 = 55,000 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Schimmel Company provides the following information about its single product. Targeted operating income $35,000 Selling price per unit $7.85 Variable cost per unit $6.10 Total fixed cost per unit $96,250 How many units must be sold to earn the targeted operating income? A. 9,409 B. 20,000 C. 55,000 D. 75,000 Answer: D Calculations: Sales $ 7.85 Less Variable costs 6.10 = Contribution Margin $ 1.75 Fixed expenses $ 96,250 + Target Income $ 35,000 = $ 131,250 divided by Contribution Margin $ 1.75 = 55,000 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-37 Given breakeven sales in units of 28,000 and a unit contribution margin of $4, how many units must be sold to reach a target operating income of $4,000? A. 29,000 B. 1,000 C. 16,000 D. 27,000 Answer: A Calculations: Target Income $ 4,000 / $4 contribution margin = 1,000 Add Breakeven units + 28,000 Total units 29,000 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-38 Given breakeven sales in units of 56,000 and a unit contribution margin of $6, how many units must be sold to reach a target operating income of $24,000? A. 4,000 B. 60,000 C. 52,000 D. 144,000 Answer: B Calculations: Target Income $ 24,000/$6 contribution margin = 4,000 Add Breakeven units + 56,000 Total units 60,000 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-39 If the sale price per unit is $100, variable expenses per unit are $45, target operating income is $35,000, and total fixed expenses are $20,000, how many units must be sold to reach the target operating income? A. 350 B. 364 C. 1,000 D. 636 Answer: C Calculations: Sales $ 100 Less Variable costs 45 = Contribution Margin $ 55 Fixed expenses $ 20,000 + Target Income $ 35,000 = $ 55,000 divided by Contribution Margin $ 55 = 1,000 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-40 If the contribution margin ratio is 32%, target operating income is $60,000, and the sales revenue needed to achieve the target operating income is $400,000, what are total fixed expenses? A. $ 68,000 B. $128,000 C. $ 19,200 D. $188,000 Answer: A Calculations: Fixed expenses + $60,000/32% = 400,000 Sales Revenue Fixed Expenses = $ 68,000 LO: 7-2 Diff: 2 EOC: E7-17 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-41 If target sales in units is 75,000, total fixed expenses are $12,000, and the unit contribution margin is $0.20, what is the target operating income? A. $27,000 B. $15,000 C. $ 2,400 D. $ 3,000 Answer: D Calculations: Target Sales units 75,000 x unit Contribution Margin x .20 Target Sales 15,000 Less Fixed expense 12,000 Target Operating Income $ 3,000 LO: 7-2 Diff: 2 EOC: E7-17 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-42 MaxTech Company has a predicted operating income of $80,000. Their total variable expenses are $24,000 and their total fixed expenses are $36,000. They have a unit contribution margin of $10. MaxTech’s break-even sales in units is: A. 9,200. B. 14,000. C. 4,400. D. 11,600. Answer: D Calculations: Fixed expenses $ 36,000 + Target Income $ 80,000 = $ 116,000 divided by Contribution Margin $ 10 = 11,600 BE units LO: 7-2 Diff: 2 EOC: E 7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-43 MaxTech Company has a predicted operating income of $80,000. Their variable expenses are $24,000 and their total fixed expenses have doubled from $36,000 to $72,000. Their unit contribution margin is $10. Their break-even sales in units is: A. 15,200. B. 12,800. C. 17,600. D. 800. Answer: A Calculations: Fixed expenses $ 72,000 + Target Income $ 80,000 = $ 152,000 divided by Contribution Margin $ 10 = 15,200 BE units LO: 7-2 Diff: 2 EOC: E 7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-44 Palmer Corporation has fixed expenses of $240,000, and a unit sales price of $75. Their variable cost per unit is $40. If they sell 8,000 posters, their operating income is a: A. gain of $ 40,000. B. loss of $520,000. C. gain of $680,000. D. gain of $ 80,000. Answer: A Calculations: Sales $ 75 Less Variable costs 40 = Contribution Margin $ 35 x 8,000 = $280,000 Less Fixed expenses 240,000 Gain $ 40,000 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-45 Healthy Greetings Corporation produces and sells fruit baskets for special events. The unit selling price is $60, unit variable costs are $45, and total fixed costs are $2,670. How many fruit baskets must Healthy Greetings Corporation sell to breakeven? A. 10,680 B. 45 C. 178 D. 25 Answer: C Calculations: Sales $ 60 Less Variable costs 45 = Contribution Margin $ 15 Fixed expenses $ 2,670 divided by Contribution Margin $ 15 = 178 BE units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-46 Healthy Greetings Corporation produces and sells fruit baskets for special events. The unit selling price is $60, unit variable costs are $45, and total fixed costs are $2,670. What are breakeven sales in dollars? A. $ 8,010 B. $ 1,526 C. $ 178 D. $ 10,680 Answer: D Calculations: Sales $ 60 Less Variable costs 45 = Contribution Margin $ 15 Fixed expenses $ 2,670 divided by Contribution Margin $ 15 = 178 BE units x $60 Sales Price = 10,680 LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-47 Marietta Piping Corporation provides the following information about its single product. Targeted operating income $60,000 Selling price per unit $120.00 Variable cost per unit $45.00 Total fixed cost $90,000 What is the contribution margin per unit? A. $ 75.00 B. $ 0.63 C. $165.00 D. $ 45.00 Answer: A Calculations: Sales $ 120 Less Variable costs 45 = Contribution Margin $ 75 LO: 7-2 Diff: 1 EOC: E7-15 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making Marietta Piping Corporation provides the following information about its single product. Targeted operating income $60,000 Selling price per unit $120.00 Variable cost per unit $45.00 Total fixed cost $90,000 What is the breakeven point in units? A. 545 B. 1,200 C. 800 D. 364 Answer: B LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-49 Marietta Piping Corporation provides the following information about its single product. Targeted operating income $60,000 Selling price per unit $120.00 Variable cost per unit $45.00 Total fixed cost $90,000 How many units must be sold to earn the targeted operating income? A. 800 B. 1,200 C. 2,000 D. 909 Answer: C Calculations: Sales $ 120 Less Variable costs 45 = Contribution Margin $ 75 Fixed expenses $ 90,000 + $60,000 Target Income divided by Contribution Margin $ 75 = 2000 units LO: 7-2 Diff: 2 EOC: E7-19 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-50 The Olson Company has a predicted operating income of $100,000. Their total variable expenses are $36,000 and their total fixed expenses are $24,000. They have a unit contribution margin of $10. Olson’s break-even in sales units is: A. 12,400. B. 7,600. C. 8,800. D. 16,000. Answer: A Calculations: Fixed expenses $ 24,000 + $100,000 Operating Income/$10 Contribution Margin = 12,400 LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-51 The Olson Company has a predicted operating income of $100,000. Their variable expenses are $36,000 and their total fixed expenses have almost doubled from $24,000 to $40,000. Their unit contribution margin is $10. Their break-even in sales units is: A. 10,400. B. 6,000. C. 17,600. D. 14,000. Answer: D Calculations: Fixed expenses $ 40,000 + $100,000 Operating Income/$10 Contribution Margin = 14,000 LO: 7-2 Diff: 2 EOC: S7-3 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-52 Thomas Corporation has a targeted operating income of $500,000 for the upcoming year. The selling price of their single product is $35.50 each, while the variable cost per unit is $10.50. Fixed costs total $270,000. Calculate the following: a. Contribution margin per unit b. Breakeven point in units c. Units to be sold to earn the targeted operating income Answer: a. Selling price per unit $ 35.50 Variable cost per unit $ (10.50) Contribution margin per unit $ 25.00 b. Total fixed cost $ 270,000 Divide by Divide by Contribution margin per unit $ 25.00 Breakeven in units 10,800 c. Selling price per unit $ 35.50 Variable cost per unit $ (10.50) Contribution margin per unit $ 25.00 Total fixed cost $ 270,000 Targeted operating income $ 500,000 $ 770,000 Divide by Divide by Contribution margin per unit $ 25.00 Unit sales at target income $ 30,800 LO: 7-2 Diff: 2 EOC: E7-17 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.2-53 Checkerbox Company has a predicted operating income of $84,000 (as a targeted fixed cost). Their total variable expenses are $24,000 and their total fixed expenses are $30,000. They have a unit contribution margin of $10. a. Calculate the break-even in sales units. b. Calculate the break-even in sales units if the company’s fixed expenses double from $30,000 to $60,000. Answer: a. Total fixed costs $ 30,000 Predicted operating income $ 84,000 $ 114,000 Divide by Divide by Unit contribution margin $ 10.00 Unit sales needed to reach target income 11,400 b. New fixed costs $ 60,000 Predicted operating income $ 84,000 $ 144,000 Divide by Divide by Unit contribution margin $ 10.00 Unit sales needed to reach target income at new level of fixed costs 14,400 LO: 7-2 Diff: 2 EOC: E7-17 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-1 If all other factors are constant, any increase in fixed costs will increase the breakeven point. Answer: True LO: 7-3 Diff: 1 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-2 Holding all other factors constant, if fixed expenses increase by 25%, the breakeven point will always double. Answer: False LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-3 Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes. Answer: True LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-4 If total fixed expenses are $50,000, the target operating income is $10,000 and the contribution margin is $15 per unit, the sales needed to achieve the target operating income will be 4,000 units. Answer: True LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-5 The addition of a specified target operating income to contribution margin analysis has the same effect on required sales in units as increasing fixed expenses. Answer: True LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-6 Say variable costs are $10 per unit and the sales price is $16 per unit. If volume would triple as a result of decreasing the sales price to $9 per unit, the business should strongly consider decreasing the sales price to $9 per unit. Answer: False LO: 7-3 Diff: 2 EOC: S7-8 AACSB: Analytical Thinking AICPA Business Perspective Competencies: Critical Thinking AICPA Functional Competencies: Decision Making 7.3-7 Which of the following statements is TRUE if the sales price per unit increases while the variable cost per unit and total fixed costs remain constant? A. The contribution margin increases and the breakeven point decreases. B. The contribution margin decreases and the breakeven point decreases. C. The contribution margin increases and the breakeven point increases . D. The contribution margin decreases and the breakeven point increases. Answer: A