THE AL –Hashier Educators (TAE)Notes

Break even MCQ’S & Descriptive

A1) The following information is available for a manufacturing
company which produces multiple products:
(i) The product mix ratio
(ii) Contribution to sales ratio for each product
(iii) General fixed costs
(iv) Method of apportioning general fixed costs
Which of the above are required in order to calculate the break-
even sales revenue for the company?
A. All of the above
B. (i), (ii) and (iii) only
C. (i), (iii) and (iv) only
D. (ii) and (iii) only
B Answer
The method of apportioning general fixed costs is not required to
calculate the break-even sales revenue.

A.2)

A company makes and sells product X and product Y. Twice as many

units of product Y are made and sold as that of product X. Each unit of
product X makes a contribution of $10 and each unit of product Y
makes a contribution of $4. Fixed costs are $90,000.

What is the total number of units which must be made and sold
to make a profit of $45,000?
A. 7,500
B. 22,500
C. 15,000
D. 16,875

A.3) Mabel Co manufactures and sells tables and chairs in a standard

mix of one table to four chairs.
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
The following information is available:
Product Table
Variable cost per unit ($) 120
Contribution sales ratio 0.4
Annual fixed costs are $100,000.

What is the break-even point in sales revenue (to the nearest

hundred dollars)?
A. $210,500
B. $178,600
C. $200,000
D. $204,500

D Answer

- To calculate break-even revenue in a multi-product situation requires

the annual fixed costs to be divided by the weighted average
contribution to sales ratio.

To do this firstly the selling price of both products need to be

determined.

The selling price of a table is calculated as the variable cost divided by

1 – the C/S ratio: $120/(1-0.4) = $200. The selling price of a chair is
$16/(1-0.6) = $40.

Once the selling prices are determined the contribution of each

product can be calculated.

For a table this will be $200 x 0.4 = $80 and for a chair this will be $40
x 0.6 = $24.
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
Now we have the selling price and contribution for both products we
can calculate the weighted average C/S ratio. Sales revenue based on
the sales mix will be (1 x $200) + (4 x $40) = $360 and contribution will
be (1 x $80) + (4 x $24) = $176; this gives a C/S ratio of 0.489.

Therefore the break-even revenue is $100,000/0.489 = $204,499 and

to the nearest hundred dollars is $204,500

A.4)

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)?

A. 15,000
B. 16,250
C. 30,000
D. 31,250

There are three fundamental cost/volume/profit (CVP) relationships.

Which of the following is not one of these?
contribution = total costs – variable costs

contribution = total revenue – variable costs

total costs = variable costs + fixed costs

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
profit = total revenue – total costs

CVP (contribution/volume/profit) analysis does not assume that

there is no uncertainty

the behaviour of costs and revenues is not linear

total costs are divided into fixed and variable costs

output is the only factor affecting costs

At the break-even point which of the following relationships does not

hold true?
sales value = fixed costs/contribution to sales ratio%

contribution = fixed costs

profit = contribution + fixed costs

number of units = fixed costs/contribution per unit

A product has a selling price of £10 and a marginal cost of £5.

Sales for March are £100,000 and fixed costs for March are £20,000.

How many products are sold at the break-even point?

3,000

4,000

10,000
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
2,000

A product has a selling price of £10 and a marginal cost of £5.

Sales for March are £100,000 and fixed costs for March are £20,000.

What is the profit for March?

£50,000

£30,000

£20,000

£40,000

A company’s sales for September are £500,000 and its variable cost of
sales is £200,000. If its break-even sales are £300,000 what is the
profit for September?
£200,000

£180,000

£300,000

£120,000

Which of the following statements is not one of the bases of activity

based costing (ABC)?
products cause costs

activities can be managed

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
activities cause costs

products consume activities

Throughput accounting (TA) is a relatively new development in

management accounting. In TA, throughput is defined as
direct labour plus direct materials costs

sales revenue less direct labour costs

sales revenue plus direct labour costs

sales revenue less direct materials costs

‘A structured approach to determining the cost at which a proposed

product with specific functionality and quality must be produced in
order to generate the desired level of profitability at the product’s
anticipated selling price’ best defines
Life cycle costing

Target costing

Manufacturing resource planning (MRPII)

Benchmarking

‘The techniques used to measure the difference between actual costs

incurred within each of the processes of manufacturing/supply of
goods/services, and the equivalent costs if there were no failures
within each of the processes’ best describes
Kaizen

Life cycle costing

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
Total quality management (TQM)

Cost of quality (COQ)

Answers..
B,B,A,C,C,A,A,C,C,A

1. Break-even analysis is also called?

(a) Business Analysis

(b) Unit sales

(c) Cost-Volume-Profit analysis

(d) None of the above

2. Break even capacity----------------------?

(a) Breakeven sales in dollar/Normal sales in dollar

(b) Normal sales in dollar/ Break even sales in dollar

(c) All of above

(d) None of above

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
3. Estimate sales in amount
is____________________?
(a) FC+ Profit/Contribution margin per unit

(b) FC+ Profit/Contribution margin Ratio

(c) VC+ Profit/Contribution margin

(d) VC+ Profit/Contribution margin Ratio

4. To find the break-even in dollars, you have

to divide the fixed cost by ____________?
(a) Variable cost

(b) Contribution Margin per unit

(c) Contribution Margin

(d) Contribution Margin ratio

5. The break-even point can be defined as?

(a) The level of activity at which there is neither profit nor loss

(b) The level of activity where cash flow is zero

(c) The level of activity where profits equal fixed costs

(d) The level of activity where variable costs are covered by sales revenue
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
6. The break-even point in units is
represented by the equation?
(a) Fixed costs / Variable costs

(b) Fixed costs / selling price per unit

(c) (Sales revenue - Fixed costs) / Contribution per unit

(d) Fixed costs / Contribution per unit

7. If actual units produced are lower than the

budgeted level of production which of the
following types of cost would you expect to be
lower than the budget?
(a) Variable costs per unit

(b) Total variable costs

(c) Total fixed costs

(d) None

8. Costs that do not change when the activity

base fluctuates are known as?
(a) Variable costs

(b) Discretionary costs

(c) Fixed costs

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
(d) Mixed costs

9. A company's telephone bill consisting of a

Rs. 200 monthly base amount, plus long
distance charges, would be classified as a?
(a) Variable cost

(b) Committed fixed cost

(b) Discretionary fixed cost

(d) Mixed cost

10. A company has fixed costs of Rs. 50,000

and variable costs per unit of output of Rs. 8.
If its sole product sells for Rs. 18, what is the
break-even quantity of output?
(a) Rs. 2,500

(b) Rs. 5,000

(c) Rs. 1,500

(d) Rs. 7,500

MCQs 11-20
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
11. Fixed cost per unit increases when?
(a) Production volume decreases

(b) Production volume increases

(c) Variable cost per unit decreases

(d) None of the above

12. Contribution margin is also known

as____________?
(a) Marginal income

(b) Gross profit

(c) Net income

(d) None of the above

13. Contribution margin is the difference

between sales and____________?
(a) Variable cost

(b) Fixed cost

(c) Profit

(d) Revenue

14. An increase in variable costs?

(a) Increases P/V ratio
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
(b) Reduces the contribution margin

(c) Increase new profit

(d) None of above

15. Those cost that have both fixed and

variable element are
called________________?
(a) Variable cost

(b) Total fixed cost

(c) Semi variable cost

(d) Prime cost

16. Following are the uses of CVP analysis

except?
(a) Estimating future profits

(b) Deciding on selling price for a product

(c) Analyzing margin of safety in budget

(d) Analyze cash flows

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
17. Which of the following costs would
decrease if production levels were increase
within the relevant range?
(a) Total fixed costs

(b) Variable costs per unit

(c) Total variable costs

(d) Fixed costs per unit

18. The indicator that results in total

revenues being equal to total cost is called
the?
(a) Break-even point

(b) Marginal cost

(c) Profit mix

(d) Marginal volume

19. An example of a semi variable cost would

be?
(a) The costs of insuring assets

(b) Electricity costs

(c) The salaries of supervisors in a department

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
(d) The costs of material to be used for production

20. Which of the following statements hold

true for safety stock?
(a) The higher the profit margin per unit, the lower the safety stock necessary

(b) The lower the opportunity cost of the funds invested in inventory, the smaller the safety

stock needed

(c) The greater the risk of running out of stock, the larger the safety stock needed

(d) The greater the uncertainty associated with forecasted demand, the lower the level of safety

stock needed

ANSWERS:
C,A,B,D,A,D,B,C,A,B,A,A,A,B,C,D,D,A,B,C

Question 1

Which of the following costs would be a fixed cost for Carl; a confectionery manufacturer?
a) Sugar

b) Electricity costs to run the manufacturing machines

c) Hourly paid wages

 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
d) Supervisor's salary

Question 2

Which of the following is a definition for variable costs

a) Costs that remain the same whatever the level of output

b) Costs that contain a fixed and variable element

c) Costs that vary directly with the number of units produced

d) Costs that will remain fixed as output increases until the activity reaches
a level where the costs have to increase sharply

Question 3

Luke is arranging for a party to be held in the students' union. The use of the hall will be free
but security costs of £300 will have to be met. The cost of the main band will be £2,500 and
the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every
ticket holder will be given a bottle of water, worth £1 per bottle. What are the total fixed
costs for this event?
a) £3,250

b) £2,500

c) £1

d) £15
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
Question 4

Luke is arranging for a party to be held in the students' union. The use of the hall will be free
but security costs of £300 will have to be met. The cost of the main band will be £2,500 and
the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every
ticket holder will be given a bottle of water, worth £1 per bottle. What is the break-even
number of tickets for this event?
a) 179 tickets

b) 167 tickets

c) 217 tickets

d) 233 tickets

Question 5

Luke is arranging for a party to be held in the students' union. The use of the hall will be free
but security costs of £300 will have to be met. The cost of the main band will be £2,500 and
the supporting band will cost £450. Tickets will be priced at £15 each. On arrival, every
ticket holder will be given a bottle of water, worth £1 per bottle. If Luke sells 400 tickets as
he anticipates, what profit will he make?
a) £3,085

b) £2,505

c) £5,600

d) £2,338
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
Question 6

Which of the following is a definition of break-even point?

a) The difference between the selling price of a product and the variable

costs incurred in producing that product

b) The fixed plus variable costs of the business

c) The situation where neither a profit nor a loss is made

d) The situation where a profit is made

Question 7

If the contribution per unit is £25 and the break-even point is 80,000 units. Which of the
following statements could NOT be true?
a) The selling price per unit is £55 and the variable cost per unit is £30

b) The fixed costs are £2,000,000

c) To make a profit of £300,000, 92,000 units would have to be sold

d) To make a profit of £500,000, 95,000 units would have to be sold

Question 8

Which of the following is the least secure margin of safety for a business to have?

a) A margin of safety of 3,000 units and a percentage margin of safety of

20%
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
b) A margin of safety of 300 units and a percentage margin of safety of
30%

c) A margin of safety of 300 units and a percentage margin of safety of

35%

d) A margin of safety of 3,000 units and a percentage margin of safety of

25%

Question 9

Jenny expects to produce and sell 7,000 units at £15 each. Each unit will cost her £9 to
produce and fixed costs will be £60,000 per annum. What is the break-even point in units?
a) 6,667 units

b) 4,000 units

c) 10,000 units

d) 1,000 units

Question 10

Which of the following is not an underlying assumption of break-even analysis?

a) Costs can easily be divided into fixed and variable.

b) Fixed costs remain static over a relevant range.

c) The unit selling price will remain constant throughout the relevant range.
 THE AL –Hashier Educators (TAE)Notes
Break even MCQ’S & Descriptive
d) Raw materials unit costs may diminish with increased output.

ANSWERS: D,C,A,D,D,C,D,A,C,D