1		Baker Company uses a cost-plus pricing strategy to set the price of its product. Its product cost is $30 per unit. If Baker sets its price at cost plus a markup equal to 40% of cost, what will be its profit on the sale of one unit of product?
			A)	$12
			B)	$18
			C)	$30
			D)	$42
2		The break-even point is where:
			A)	variable costs equal fixed costs.
			B)	revenue equals total costs.
			C)	revenue equals contribution margin.
			D)	contribution margin equals total costs.
3		Jackson Company produces chairs, which sell for $95 per unit. The chairs have variable costs of $55 per unit, and the company has $230,000 of fixed costs. If the company produces and sells 8,000 units, what is its break-even point in units?
			A)	2,421 units
			B)	2,875 units
			C)	4,182 units
			D)	5,750 units
4		Martin Company produces a product that has a selling price of $14. The product has a variable cost of $8 per unit, and the company’s fixed costs are $44,000. How many units must the company sell in order to attain a profit of $25,000?
			A)	$5,500
			B)	$7,333
			C)	$8,625
			D)	$11,500
5		The margin of safety measures:
			A)	the amount available to cover fixed costs and provide for profit.
			B)	the point at which total revenue equals total costs.
			C)	the amount by which actual sales can fall short of budgeted sales before the company will incur a loss.
			D)	the cost of lost opportunities.

Use the following information to answer questions 6 - 12.

Smith Merchandising has the following cost information:

Material cost per unit	$24
Transportation-in (per case of 100 units)	$300
Advertising	$50,000
Rent	$20,000
Salaries	$80,000

6		What is the product’s selling price?
			A)	$ 38.40
			B)	$ 43.20
			C)	$518.40
			D)	Unable to determine based upon the information provided.
7		If the selling price is $48 per unit, how many units does Smith have to sell in order to not suffer a loss?
			A)	3,125
			B)	5,555
			C)	7,142
			D)	7,143
8		At a selling price of $48 how many units does Smith have to sell in order to generate a profit of $60,000?
			A)	3,125
			B)	4,375
			C)	7,777
			D)	10,000
9		Assume that Smith increases the sales price from $48 to $52 and that sales volume does not decline. Which of the following statements is true?
			A)	The contribution margin increases, which causes net income to decrease.
			B)	The contribution margin per unit increases, which causes the break-even point to decrease.
			C)	The resulting increase in sales revenue indicates that more units have been sold.
			D)	Total variable cost increases.
10		In an attempt to increase sales, Smith is changing its product’s packaging and increasing its advertising budget. As a result, its material cost will increase by $1 per unit, and it will incur an additional $5,000 in advertising costs. Smith is currently selling 10,000 units, and all other costs and pricing polices (i.e., 60% mark-up) will remain the same. How many units does Smith have to sell to earn a profit of $60,000?
			A)	10,000
			B)	10,239
			C)	12,798
			D)	13,393
11		Assume that Smith has replaced its cost-plus pricing strategy with a target pricing strategy. In addition, Smith is changing its product’s packaging for an additional $1 per unit material cost. All other costs remain the same. Before the change, Smith is selling 10,000 units at a sales price of $48, thereby generating $60,000 of net income. Smith’s sales manager believes that by lowering the sales price to $44 dollars, it would sell at least 13,000 units. Assuming that the sales manager’s projected sales volume is accurate, should Smith consider lowering the sales price to $44 if it would like to continue earning a profit of at least $60,000? If so, what will be the target product cost?
			A)	No, Smith should not consider lowering the sales price to $44; the target product cost will be too high to generate a $60,000 profit when 13,000 units are sold.
			B)	Yes, Smith should consider lowering the sales price to $44; the target product cost will be $28.
			C)	Yes, Smith should consider lowering the sales price to $44; the target product cost will be $27.50.
			D)	Yes, Smith should consider lowering the sales price to $44; the target product cost will be $27.85.
12		If Smith lowered its price to $44 and budgeted 13,000 units in sales, what would be its margin of safety if its variable cost was 27.50?
			A)	2.1%
			B)	30%
			C)	103 units
			D)	7,545 units
13		Which of the following best describes the impact of an increase in fixed costs?
			A)	The increase in fixed costs causes net income to increase and the break-even point to increase.
			B)	The increase in fixed costs causes net income to increase and the break-even point to decrease.
			C)	The increase in fixed costs causes net income to decrease and the break-even point to decrease.
			D)	The increase in fixed costs causes net income to decrease and the break-even point to increase.
14		Which of the following best describes the impact of selling more units?
			A)	Total variable costs will increase.
			B)	Total fixed costs will increase.
			C)	Contribution margin will increase, causing net income to decrease.
			D)	Contribution margin per unit will increase, causing the break-even point to decrease.
15		Pager Company has the following budgeted income statement: Sales revenue (3,500 units x $20 sales price) $70,000 Total variable costs (3,500 units x $12 per units) 42,000 Contribution margin 28,000 Fixed costs 16,000 Net income $12,000 The company is considering using a new supplier for its materials. It believes that by using the new supplier it will reduce its variable costs by $2 per unit. In addition, the company is contemplating reducing the selling price by $1 and increasing its advertising budget by $5,000. It expects that the reduced sales price and additional advertising will cause sales to increase to 4,000 units. If the company pursues this strategy, its budgeted net income will be:
			A)	$ 7,000.
			B)	$15,000.
			C)	$16,000.
			D)	$20,000.
16		When producing a cost-volume profit (CVP) graph, all of the following revenue and cost lines are drawn except:
			A)	a fixed cost line.
			B)	a variable cost line.
			C)	a total cost line.
			D)	a sales line.
17		The approach that best determines profitability when there are simultaneous changes in sales price, fixed costs, variable costs, and volume is called:
			A)	margin of safety.
			B)	sensitivity analysis.
			C)	cost-volume-profit graphing.
			D)	the contribution approach.

Use the following information to answer questions 18 - 20.

Sales	$400,000
Variable Costs	$150,000
Fixed Costs	$300,000

18		ABC is considering a new advertising campaign which would cost $50,000. What level of sales dollars is required for ABC to breakeven?
			A)	$400,000
			B)	$500,000
			C)	$560,000
			D)	$933,334
19		ABC’s current level of sales revenue is based upon 10,000 units sold. ABC would like to have a minimum net income of $40,000 after launching a new advertising campaign costing $50,000. What level of sales will be required to achieve this minimum level of net income?
			A)	$ 933,334
			B)	$ 973,334
			C)	$1,040,000
			D)	$ 624,000
20		If ABC can decrease the variable costs by 10%, what is the break-even point in sales dollars? (Disregard the cost of a new advertising campaign.)
			A)	$360,000
			B)	$432,000
			C)	$440,000
			D)	$452,830
21		Which of the following is not a limiting factor of cost-volume-profit analysis?
			A)	The process assumes that costs behave in a strictly linear fashion.
			B)	The process assumes that within the relevant range, deviations from the basic assumptions are usually insignificant.
			C)	The process assumes that sales prices do not vary.
			D)	The process assumes that inventory levels remain constant.

Use the following information for questions 22 - 25.

Jones Distributors has the following two products:

	Product A				Product B				Total
	No. of Units	Per Unit Cost	Budgeted Amount		No. of Units	Per Unit Cost	Budgeted Amount		No. of Units	Budgeted Amount
Sales	700	40	28,000		2,100	12	25,200		2,800	53,200
Variable Costs	700	25	17,500		2,100	8	16,800		2,800	34,300
Contribution Margin	700	15	10,500		2,100	4	8,400		2,800	18,900
Fixed Costs			8,000				5,000			13,000
Net Income			2,500				3,400			5,900

22		What is the combined number of units of Product A and Product B that would be required for Jones Distributors to break even?
			A)	534
			B)	1,250
			C)	1,784
			D)	1,926
23		At the break-even point, approximately how many units of Product A will be sold?
			A)	482
			B)	963
			C)	1,445
			D)	1,926
24		There are changes in the market forecast. Jones believes that the same number of units will be sold in total; however, more units of Product B and fewer units of Product A will be sold. What is the expected impact if this occurs?
			A)	Contribution margin will increase.
			B)	Total variable costs will increase.
			C)	Net income will decrease.
			D)	Total fixed costs will decrease.
25		There are changes in the market forecast. Jones believes that the same number of units will be sold in total; however, more units of Product A and fewer units of Product B will be sold. What is the expected impact if this occurs?
			A)	Contribution margin will increase.
			B)	Total variable costs will decrease.
			C)	Net income will decrease.
			D)	Total fixed costs will increase.