# Homework 4

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Chapter 4 - Cost-Volume-Profit Analysis: A Managerial Tool
Page 1
1. The ratio of fixed expenses to the contribution margin ratio is the
a.
indifference point.
b.
break-even point in units.
c.
fixed cost ratio.
d.
break-even point in sales.
e.
sensitivity analysis.
2.. If the contribution margin per unit decreases, the break-even point in units
a.
will increase.
b.
will decrease.
c.
will remain the same.
d.
cannot be determined from the information given.
3. The income statement for Thomas Manufacturing Company for the current year is as follows:
Sales (10,000 units)
Variable expenses
Contribution margin
Fixed expenses
Operating income
What is the contribution margin per unit?
a.
\$7.20
b.
\$1.20
c.
\$4.80
d.
\$120,000
4. Dirth Company sells only one product at a regular price of \$7.50 per unit. Variable expenses are 60% of sales and fixed
expenses are \$30,000. Management has decided to decrease the selling price to \$6.00 in hopes of increasing its volume of
sales. What is the contribution margin ratio when the selling price is reduced to \$6 per unit?
a.
25%
b.
40%
c.
75%
d.
60%
5. If the contribution margin ratio increases, the break-even point in sales dollars will
a.
increase.
b.
decrease.
c.
remain the same.
d.
double.
6. Dirth Company sells only one product at a regular price of \$7.50 per unit. Variable expenses are 60% of sales and fixed
expenses are \$30,000. Management has decided to decrease the selling price to \$6.00 in hopes of increasing its volume of
sales. What is the sales dollars level required to break even at the old price of \$7.50?

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Chapter 4 - Cost-Volume-Profit Analysis: A Managerial Tool
Page 2
a.
\$75,000
b.
\$12,000
c.
\$18,000
d.
\$50,000
7. If fixed costs increase, the break-even point in units will
a.
increase.
b.
decrease.
c.
remain the same.
d.
remain the same; however, contribution per unit will decrease.
Figure 4-2.
Pauley Company provides home health care. Pauley charges \$35/hour for professional care. Variable costs are \$21/hour
and fixed costs are \$78,000. Next year, Pauley expects to charge out 12,000 hours of home health care.
8. Refer to Figure 4-2. What is the break-even point in hours? (Round to the nearest whole hour.)
a.
2,229
b.
1,393
c.
3,714
d.
5,571
e.
12,000
9. Refer to Figure 4-2. What is the break-even point in sales dollars?
a.
\$130,000
b.
\$195,000
c.
\$252,000
d.
\$420,000
e.
\$342,000
10. Refer to Figure 4-2. What is the contribution margin ratio?
a.
67%
b.
60%
c.
40%
d.
33%
e.
50%
11. Refer to Figure 4-2. What is the contribution margin per hour?
a.
\$21
b.
\$35
c.
\$14
d.
\$56

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Chapter 4 - Cost-Volume-Profit Analysis: A Managerial Tool 1. The ratio of fixed expenses to the contribution margin ratio is the a. indifference point. b. break-even point in units. c. fixed cost ratio. d. break-even point in sales. e. sensitivity analysis. 2.. If the contribution margin per unit decreases, the break-even point in units a. will increase. b. will decrease. c. will remain the same. d. cannot be determined from the information given. 3. The income statement for Thomas Manufacturing Company for the current year is as follows: Sales (10,000 units) Variable expenses Contribution margin Fixed expenses Operating income What is the contribution margin per unit? a. \$7.20 b. \$1.20 c. \$4.80 d. \$120,000 \$120,000 72,000 \$ 48,000 36,000 \$ 12,000 4. Dirth Company sells only one product at a regular price of \$7.50 per unit. Variable expenses are 60% of sales and fixed expenses are \$30,000. Management has decided to decrease the selling price to \$6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to \$6 per unit? a. 25% b. 40% c. 75% d. 60% 5. If the contribution margin ratio increases, the break-even point in s ...
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