10 Questions
If the selling price per unit is $60 and the variable cost per unit is $45, what is the contribution margin per unit?
$15
If the fixed expenses are $240,000 and the contribution margin ratio is 0.25, what is the break-even point in sales dollars?
$960,000
If the variable cost ratio is 0.75 and the selling price is $60 per unit, what is the contribution margin ratio?
0.25
If the break-even point in units is 16,000 and the contribution margin per unit is $15, what are the fixed expenses?
$240,000
If the total revenue at the break-even point is $960,000 and the variable cost ratio is 0.75, what are the total variable costs at the break-even point?
$720,000
If the contribution margin ratio is 0.25 and the fixed expenses are $240,000, what is the break-even point in units if the selling price per unit is $60?
16,000 units
If the variable cost per unit is $45 and the selling price per unit is $60, what is the variable cost ratio?
0.75
If the break-even point in sales dollars is $960,000 and the contribution margin ratio is 0.25, what are the fixed expenses?
$240,000
If the variable cost ratio is 0.75 and the contribution margin ratio is 0.25, what is the profit at a sales volume of $1,200,000?
$60,000
If the break-even point in units is 16,000 and the selling price per unit is $60, what is the total revenue at the break-even point?
$960,000
Study Notes
Break-Even Point (BEP)
- The BEP is the point at which total sales revenue equals total expenses (fixed and variable).
- At BEP, net income equals zero, because total revenue equals total expenses.
- The equation for BEP is: NI = SPQ - VCQ - FC = 0, where NI = net income, SP = selling price, Q = quantity, VC = variable cost, and FC = fixed cost.
Contribution Margin (CM)
- The CM is the difference between sales revenue and variable cost.
- The CM ratio is the proportion of each sales dollar that contributes to covering fixed costs and generating profit.
- The CM ratio is calculated by: CM = (SP - VC) / SP.
- The CM ratio is used to calculate the BEP.
Break-Even Point (BEP) Calculation
- Method 1: Equation Method
- NI = SPQ - VCQ - FC = 0
- Q = FC / (SP - VC)
- Method 2: Contribution Margin Method
- BEP (in units) = Fixed expenses / CM per unit
- BEP (in sales) = Fixed expenses / CM ratio
- Method 3: Graphical Method
- Plot the fixed cost line and the total cost line on a graph.
- The BEP is the point where the total cost line intersects the fixed cost line.
Important Notes
- The contribution margin and gross margin are often confused, but they are different concepts.
- Gross margin is the excess of sales over the cost of goods sold.
- Contribution margin is the difference between sales revenue and variable cost.
- The BEP can be calculated using different methods, including the equation method, contribution margin method, and graphical method.
Test your knowledge on break-even point and contribution margin technique in accounting. Questions cover concepts like total revenue equaling total expenses at the break-even point, and using the contribution margin technique to determine profitability. Practice and improve your understanding with this quiz.
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