Multiple choice questions on CVP Analysis.
1. Sharp Company, retailer, plans to sell 15,000 units of Product X during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month?
a. 14,500
b. 15,500
c. 15,000
d. 17,000
2. Which of the following statement is correct concerning return on investment calculations?
a. Margin equals stockholders' equity divided by sales.
b. Return on investment equals margin divided by turnover.
c. Turnover equals return on investment divided by margin.
d. Sales equals turnover divided by margin.
3. Using the formula in the text, if the lowest acceptable transfer price for the viewpoint of the selling division is $80 and the lost contribution margin per unit on outside sales is $30, then the variable cost per unit must be:
a. $50
b. $30
c. $110
d. $80
4. In a make-or-buy decision, relevant costs include:
a. Unavoidable fixed costs.
b. Avoidable fixed costs.
c. Fixed factory overhead costs applied to products.
d. Fixed selling and administrative expenses.
5. Wenig Inc. has some material that originally cost $73,500. The material has a scrap value of $45,600 as is, but if reworked at a cost of $6,600, it could be sold for $58,100. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?
a. -$22,000
b. -$67,600
c. $51,500
d. $5,900
6. Kahn Company produces and sells 8,000 units of Product X each year. Each unit of Product X sells for $10 and has a contribution margin of $6. It is estimated that if Product X is discontinued, $50,000 of the $60,000 in fixed costs charged to Product X could be eliminated. These data indicate that if Product X is discontinued, overall company net income should:
a. Increase by $2,000 per year.
b. Decrease by $2,000 per year.
c. Increase by $38,000.
d. Decrease by $38,000 per year.