Content Frame
Note for screen reader users: There is text between the form elements on this page. To be sure that you do not miss any text, use item by item navigation methods, rather than tabbing from form element to form element.
Skip Breadcrumb Navigation
Home  arrow Student Resources  arrow Multiple choice questions  arrow Chapter 20: Break-even analysis and short-term decision making

Chapter 20: Break-even analysis and short-term decision making

 
Try the multiple choice questions below to test your understanding of this chapter. Once you have completed the test, click on 'Submit Answers for Grading' to get your results.

Please note that the text book contains questions A20.1 to A20.16.

This activity contains 27 questions.

Question 1.
A20.17  Which of the following is correct?


Open Hint for Question 1 in a new window.
 
End of Question 1


Question 2.

The following information applies to Questions A20.18 and A20.19.

Danzig plc sells one product for which data is given below:

 
£
Selling price per unit
10
Variable cost per unit
6
Fixed cost per unit
2

The fixed costs are based on a budgeted level of activity of 5,000 units for the period.

A20.18  What is the break-even point in units?

Open Hint for Question 2 in a new window.
 
End of Question 2


Question 3.
A20.19  How many units must be sold if Danzig wishes to earn a profit of £6,000 for the period?


Open Hint for Question 3 in a new window.
 
End of Question 3


Question 4.

The following information applies to Questions A20.20 and A20.21.

Arbroath Glass Products Limited manufactures three ranges of high quality paperweights - Basic, Standard and Deluxe. Its accountant has prepared a draft budget for Year 7:

 
Basic
Standard
Deluxe
Total
 
£'000
£'000
£'000
£'000
 
 
 
 
 
Revenue
46 
37 
43
126
Material
16 
12 
13
41
Labour
20 
15 
5
40
Variable overhead
12 
5
22
Fixed overhead
 9 
 5 
 6
 20
 
50 
44 
29
123
Profit/(Loss)
 (4)
 (7)
14
  3

Fixed overheads are allocated to each product line on the basis of direct labour hours.

The directors are concerned about the viability of the company and are currently considering the cessation of both Basic and Standard ranges, since both are apparently losing money.

A20.20  If the directors close down only the manufacture of Basic paperweights, what is the effect on total profit?

Open Hint for Question 4 in a new window.
 
End of Question 4


Question 5.
A20.21  If the directors close down only the manufacture of Standard paperweights, what is the effect on total profit?

 
End of Question 5


Question 6.
A20.22  Which of the following is the best description of the break-even point?


Open Hint for Question 6 in a new window.
 
End of Question 6


Question 7.
A20.23  When a business is faced with a limiting factor (i.e. one which limits the activity of an entity) and there is a choice to be made between options to follow, which of the following statements describes the optimal course of action?


Open Hint for Question 7 in a new window.
 
End of Question 7


Question 8.

A20.24  LMN Ltd has the following alternative planned activity levels:

 
Level 1
Level 2
Level 3
 
£
£
£
Total cost
200,000
300,000
400,000
Number of units produced
10,000
20,000
30,000

The fixed overhead remains constant over the activity range shown. What is the fixed overhead cost?

 
End of Question 8


Question 9.

The following information applies to Questions A20.25 – A20.26.

The Carbon Ink Company's profit statement for the preceding year is presented below. Except as noted, the cost and sales relationship for the coming year is expected to follow the same pattern as in the preceding year. Sales and production are always equal.

 
£
Sales (2,000,000 bottles at £0.25)
500,000
Variable costs
300,000
 
200,000
Fixed costs
100,000
Profit
100,000
A20.25  What is the break-even point in units?
 
End of Question 9


Question 10.
A20.26  An extension to the factory will add £50,000 to the fixed costs. How many bottles would have to be sold after the extension to break even?

 
End of Question 10


Question 11.
A20.27  If the factory produces 3,200,000 units after the extension, and fixed costs become £150,000, what profit will be earned?

 
End of Question 11


Question 12.

A20.28  A business division manufacturing table lamps plans for sales of 1,000 lamps at a selling price of £12 each. The variable cost is £8 per lamp. Fixed costs for the reporting period are £2,800. Which of the following statements is correct?
 
End of Question 12


Question 13.
A20.29  What is the profit/volume ratio for the information contained in A20.28?

 
End of Question 13


Question 14.

A20.30  The following information relates to two divisions in a period of one month. Division N produces computer components; Division P manufactures television components.

 
Division N
Division P
Output (units)
9,000
9,000
Selling price per unit
£10
£12
Variable cost per unit
£7
£8
Fixed overhead for period
£12,000
£12,000

Which of the following statements is correct?

 
End of Question 14


Question 15.

A20.31  The following information relates to two companies in a period of one month. Both produce car components. They both have a profit target of £6,000 for the month.

 
Company S
Company T
Output (units)
10,000
12,000
Selling price per unit
£8
£7
Variable cost per unit
£6
£4
Fixed overhead for period
£14,000
£15,000

Which of the following statements is correct?

 
End of Question 15


Question 16.

A20.32  An electrical repair service company has produced the following budget for the year ahead:

 
Office repairs
House repairs
Total
 
£ 
£ 
£ 
Received from customers
45,000 
24,000 
69,000 
Variable costs
(24,000)
(18,000)
(42,000)
Fixed costs (apportioned)
(7,000)
(8,000)
(15,000)
Profit / (loss)
14,000 
(2,000)
12,000 

The fixed costs, which relate to rent and insurance, will be incurred irrespective of the type of activity carried out.

Which of the following decisions is supported by the information in the table?

 
End of Question 16


Question 17.
A20.33  Which of the following is the best description of the profit volume ratio?

 
End of Question 17


Question 18.

A20.34  When a business is faced with a choice to be made between making a component internally and purchasing the component from an external supplier, which of the following statements describes the procedure to be applied by the management accountant?
 
End of Question 18


Question 19.

A20.35  DEF Ltd has the following alternative planned activity levels:

 
Level 1
Level 2
Level 3
 
£
£
£
Total cost
35,000
55,000
75,000
Number of units produced
5,000
10,000
15,000

The fixed overhead remains constant over the activity range shown. What is the variable cost per unit?

 
End of Question 19


Question 20.

The following information applies to Questions A20.36 –A20.38.

The Floppy Disk Company's profit statement for the preceding year is presented below. Except as noted, the cost and sales relationship for the coming year is expected to follow the same pattern as in the preceding year. Sales and production are always equal.

 
£m
Sales (2,000,000 boxes at £5)
10
Variable costs
 2
 
8
Fixed costs
 5
Profit
 3
A20.36  What is the break-even point in units?
 
End of Question 20


Question 21.
A20.37  An extension to the factory will add £2m to the fixed costs. How many boxes of discs would have to be sold after the extension to break even?

 
End of Question 21


Question 22.
A20.38  If the factory produces 3,200,000 boxes of discs after the extension, and fixed costs become £7m in total, what profit will be earned?

 
End of Question 22


Question 23.

The following information applies to Questions A20.39 and A20.40.

Scales and Weights Ltd manufactures three ranges of scales for use in weighing- Paper, Food and Parcels. Its accountant has prepared a draft budget for Year 8:

 
Paper
Food
Parcels
Total
 
£'000
£'000
£'000
£'000
 
 
 
 
 
Revenue
46 
52
58 
156
Material
13 
13
20 
46
Labour
20 
7
26 
53
Variable overhead
16 
7
30
Fixed overhead
  7 
 8
12 
 27
Total costs
 56 
35
65 
156
Profit/(Loss)
(10)
17
(7)
   0

Fixed overheads are incurred for the company as a whole, regardless of product line. They are apportioned to each product line on the basis of direct labour hours.

The directors are concerned because the company will make no profit overall. They are not able to increase the sales of any of the products because of high competition. They are considering various options.

A20.39  If the directors close down only the manufacture of Paper scales, what is the effect on total profit?
 
End of Question 23


Question 24.
A20.40  If the directors close down only the manufacture of Parcels scales, what is the effect on total profit?

 
End of Question 24


Question 25.
A20.41  Which of the following businesses is most likely to be in a position to use full cost pricing?

 
End of Question 25


Question 26.
A20.42  Which of the following best explains the effect of product differentiation on price?

 
End of Question 26


Question 27.
A20.43  Which of the following best describes the price of a new product developed by a company ahead of the competition?

 
End of Question 27





Pearson Education Copyright © 1995-2010 Pearson Education. All rights reserved.
Legal and Privacy Notice

Return to the Top of this Page