## Objective Type Questions

a) A company sells a product which has a unit sales price of \$5, unit variable cost of \$3 and total fixed costs of \$120,000. The number of units the company must sell to break even is

1. 60,000 units.
2. 24,000 units.
3. 240,000 units.
4. 40,000 units.

b) A company has total fixed costs of \$120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

1. \$480,000.
2. \$600,000.
3. \$150,000.
4. \$144,000.

c) At the break-even point of 2,500 units, variable costs are \$55,000, and fixed costs are \$32,000. How much is the selling price per unit?

1. \$34.80
2. \$9.20
3. \$12.80
4. \$22.00

## Write up on Cost, Volume and Profit Analysis Write up on Cost, Volume and Profit Analysis in \$3 Only (Instant Download)

Write a 350 to 700-word paper, using APA guidelines, that addresses the following:
o Explain the components of cost-volume-profit analysis.
o What does each of the components mean?
o Based on the formulas you have reviewed, what happens to contribution margin per unit when unit selling prices increase? Illustrate your explanation with an example from a fictitious company of how an increase in unit selling prices might affect contribution margin.
o When fixed costs decrease, what does this do for sales? Illustrate your explanation with an example from a fictitious company.
o Define contribution ratios.
o What happens to contribution ratios as one of the components changes?

Sample Answer

The Components of CVP analysis are:

I) Fixed cost: Fixed costs remain the same even if the volume (i.e., quantity of product manufactured and sold) changes. A cost like factory rent would be an example of a fixed cost. The nature of fixed cost presented in the following figure (a).

II) Variable cost: Variable costs are those costs which have a perfect positive correlation with volume of production/ sales. It means these costs vary in proportion to changes in activity. An example of a variable cost is raw material. If volume of production increases by say 10%, then we can expect raw material costs also to increase by 10%.

III) Contribution:

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## Contribution Margin

Contribution Margin in \$15 Only

1. Contribution margin for Gliders under each of the following assumptions: actual sales volume at budgeted selling prices, budgeted resource usage, and budgeted costs.

2. Contribution margin for Chairs with Footstools under each of the following assumptions: actual sales volume at budgeted selling prices, budgeted resource usage, and budgeted costs.

Team Assignment 2: Project-Analysis, Sales Promotions

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