Accounting 2
Test #4, Chapter 21 Test Practice Problems
Problem 1
A business sells a single product and its operating characteristics are as follows:
Price per unit
$220
Variable cost per unit $165
Fixed Costs
$66,000
1) Prepare an equation that will enable the business to estimate its income at a
given unit sales volume.
2) What is the business’s breakeven unit sales volume?
3) How many units does the business have to sell in order to achieve income of
$11,000?
4) If the business achieves the unit sales volume in (3) above, what will its margin
of safety be? Express margin of safety in percentage terms.
Problem 2
A business sells a single product and its operating characteristics are as follows:
Contribution margin ratio .35
Fixed Costs
$280,000
1) Prepare an equation that will enable the business to estimate its income at a
given dollar sales volume.
2) What is the business’s breakeven dollar sales volume?
3) What level of dollar sales does the business have to have in order to achieve
income of $56,000?
4) If the business achieves the dollar sales volume in (3) above, what will its margin
of safety be? Express margin of safety in percentage terms.
Problem 3
Assume the business in Problem 1 has unit sales volume of 1,600 units. Determine
the company’s contribution margin, income and operating leverage at that level of
activity.
If the company’s sales were to increase by 15%, by what percentage would its
income increase? What would its income be if it achieved the 15% sales increase?
1
Problem 4
Cost-Volume-Profit Graph
$
Number of Units Sold
1) Name the two lines, the point and the two areas in the above CVP graph.
2) What effect, if any, would a decrease in variable cost per unit have on the lines in
the graph and the breakeven point?
3) What effect, if any would an increase in fixed costs have on the lines in the graph
and the breakeven point?
4) What effect, if any, would a price decrease have on the lines in the graph and the
breakeven point?
2