Week 8 Answers
1. The break-even point is:
a. 500
b. 400
c. 350
d. 430
Answer: A
2. Which of the following is definitely not an assumption in break-even point analysis?
a. The cost can be divided into fixed and variable.
b. Change in volume of sales does not change in fixed cost.
c. Stock consumption or ‘Cost of Goods Sold’ is equal to opening stock plus purchase during the year minus closing stock.
d. Change in the volume of sales does not affect the price of the product.
Answer: C
3. The margin of safety is:
a) 600
b) 480
c) 650
d) 550
Answer: D
4. What is the margin of safety?
a. 500
b. 300
c. 100
d. 200
Answer: B
5. Estimate the contribution margin (on per unit basis) in ‘Rupees per unit’ using the following data:
- Sales: ₹ 9000
- Number of units produced and sold: 100
- Total variable cost: ₹ 7000
- Annual fixed cost: ₹ 5000
a. ₹ 40
b. ₹ 20
c. ₹ 10
d. ₹ 30
Answer: B
6. For a company, the fixed cost F = 40,000 for a year, the variable cost V = 20 per unit, selling price S = 30 per unit. How many units the company should produce and sell to make a profit of ₹10,000?
a. 5,000
b. 5,500
c. 10,000
d. 6,500
Answer: A
7. By applying a lean start-up process a company has reduced its variable cost by 10% without changing the fixed cost. What will happen to the operating leverage?
a. It will go up
b. It will go down
c. No change since operating leverage is related to fixed cost.
d. The question is inappropriate since both fixed cost and variable cost are unrelated to operating leverage.
Answer: A
8. Which one of the following is not a direct expense?
a. Raw material
b. Selling and marketing
c. Packaging
d. Wages
Answer: B
9. What is the breakeven point in number-of-units?
a. 1,112
b. 2,000
c. 10,000
d. 20,000
Answer: B
10. Which of the following is correct?
a. The profit before tax is the money that belongs to the owners
b. A positive margin of safety does not necessarily mean that the company is operating in profit.
c. A company’s capacity to absorb raw-material price fluctuations can be gauged from the difference in the slopes of the sales line and total cost line.
d. Financial leverage is the degree to which a firm can increase operating income by increasing sales.
Answer: B
