BREAKEVEN ANALYSIS MCQS

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

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

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

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

Kaizen

Life cycle costing

Total quality management (TQM)

Cost of quality (COQ)

Answers..
8. Costs that do not change when the activity
base fluctuates are known as?
(a) Variable costs

(b) Discretionary costs

(c) Fixed costs

(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
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

(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

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

(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

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
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
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%

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.

d) Raw materials unit costs may diminish with increased output.

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