CIMA BA2 · Chapter 10
Cost-volume-profit analysis MCQs with Answers
12 multiple-choice questions on Cost-volume-profit analysis for CIMA BA2 Fundamentals of Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A product has a selling price of $24 per unit and variable costs of $15 per unit. What is its contribution to sales (C/S) ratio?
- A) 62.5%
- B) 60.0%
- C) 37.5%
- D) 9.0%
Show answer & explanation
Answer: C) 37.5%
Contribution per unit = $24 - $15 = $9. C/S ratio = $9 / $24 = 0.375, or 37.5%. 62.5% is the variable cost to sales ratio.
Question 2
A product has a selling price of $24 per unit and variable costs of $15 per unit. Fixed costs are $270,000 per period. What is the breakeven point in units?
- A) 11,250 units
- B) 18,000 units
- C) 720,000 units
- D) 30,000 units
Show answer & explanation
Answer: D) 30,000 units
Contribution per unit = $24 - $15 = $9. Breakeven point = fixed costs / contribution per unit = $270,000 / $9 = 30,000 units.
Question 3
A product sells for $24 per unit and has a contribution to sales (C/S) ratio of 37.5%. Fixed costs are $270,000 per period. What is the breakeven point in sales REVENUE?
- A) $720,000
- B) $101,250
- C) $450,000
- D) $432,000
Show answer & explanation
Answer: A) $720,000
Breakeven revenue = fixed costs / C/S ratio = $270,000 / 0.375 = $720,000. Check: 30,000 units x $24 = $720,000.
Question 4
Budgeted sales are 38,000 units and the breakeven point is 30,000 units. What is the margin of safety as a percentage of budgeted sales, to one decimal place?
- A) 26.7%
- B) 21.1%
- C) 78.9%
- D) 11.8%
Show answer & explanation
Answer: B) 21.1%
Margin of safety = budgeted sales - breakeven sales = 38,000 - 30,000 = 8,000 units. As a percentage of budgeted sales = 8,000 / 38,000 = 21.1%. It shows how far sales could fall below budget before a loss arises.
Question 5
With fixed costs of $270,000 and contribution of $9 per unit, how many units must be sold to earn a profit of $90,000?
- A) 10,000 units
- B) 40,000 units
- C) 20,000 units
- D) 15,000 units
Show answer & explanation
Answer: B) 40,000 units
Required contribution = fixed costs + target profit = $270,000 + $90,000 = $360,000. Units = $360,000 / $9 = 40,000 units.
Question 6
A company sells two products, P and Q, in the constant ratio 3 units of P to 2 units of Q. Contribution is $6 per unit of P and $10 per unit of Q. Fixed costs are $190,000. How many units of Q must be sold to break even?
- A) 15,000 units
- B) 19,000 units
- C) 10,000 units
- D) 9,500 units
Show answer & explanation
Answer: C) 10,000 units
Contribution per 'mix' of 3 P and 2 Q = (3 x $6) + (2 x $10) = $38. Breakeven number of mixes = $190,000 / $38 = 5,000. Units of Q = 5,000 x 2 = 10,000 (with 15,000 units of P).
Question 7
A company's results for two periods, with no change in selling price, unit variable cost or fixed costs, were: Period 1: sales $400,000, profit $30,000 Period 2: sales $520,000, profit $72,000 What is the breakeven sales revenue, to the nearest $?
- A) $110,000
- B) $1,466,667
- C) $169,231
- D) $314,286
Show answer & explanation
Answer: D) $314,286
C/S ratio = change in profit / change in sales = ($72,000 - $30,000) / ($520,000 - $400,000) = $42,000 / $120,000 = 35%. Fixed costs = contribution - profit = ($400,000 x 35%) - $30,000 = $140,000 - $30,000 = $110,000. Breakeven revenue = $110,000 / 0.35 = $314,286 to the nearest $.
Question 8
On a PROFIT-VOLUME (P/V) chart, what does the point where the profit line meets the vertical axis (at zero sales) represent?
- A) The loss equal to total fixed costs
- B) The breakeven point
- C) The maximum profit achievable
- D) Total contribution at budgeted sales
Show answer & explanation
Answer: A) The loss equal to total fixed costs
At zero sales there is no contribution, so the business makes a loss equal to its fixed costs. The profit line starts at this point and rises at a slope equal to the contribution per unit (or C/S ratio). The breakeven point is where the line crosses the horizontal axis.
Question 9
Which of the following is NOT an assumption of basic cost-volume-profit analysis?
- A) Fixed costs remain constant over the relevant range
- B) Variable cost per unit is constant
- C) For multiple products, the sales mix is constant
- D) Selling price per unit falls as more units are sold
Show answer & explanation
Answer: D) Selling price per unit falls as more units are sold
Basic CVP analysis assumes linear revenue and cost functions within the relevant range: a constant selling price, constant variable cost per unit, constant total fixed costs and a constant sales mix. A falling price as volume rises would make the revenue line curved, which contradicts the basic model.
Question 10
If a company increases its selling price per unit while variable cost per unit and fixed costs remain unchanged, what happens to its breakeven point in units?
- A) It rises
- B) It falls
- C) It is unchanged
- D) It becomes impossible to calculate
Show answer & explanation
Answer: B) It falls
A higher selling price increases contribution per unit. Since breakeven units = fixed costs / contribution per unit, fewer units are needed to cover the same fixed costs.
Question 11
A product currently sells 30,000 units a period at $20 each. Variable cost is $12 per unit and fixed costs are $150,000. The sales manager proposes cutting the price to $18, which is expected to increase sales volume by 25%. What would be the effect on profit?
- A) Profit would rise by $60,000
- B) Profit would fall by $15,000
- C) Profit would rise by $15,000
- D) Profit would be unchanged
Show answer & explanation
Answer: B) Profit would fall by $15,000
Current profit = 30,000 x ($20 - $12) - $150,000 = $90,000. New volume = 30,000 x 1.25 = 37,500 units; new contribution per unit = $18 - $12 = $6. New profit = 37,500 x $6 - $150,000 = $225,000 - $150,000 = $75,000. Profit falls by $15,000.
Question 12
A product sells for $50 per unit and has variable costs of $30 per unit. Fixed costs are $120,000. How many units must be sold to earn a profit equal to 10% of sales revenue?
- A) 6,000 units
- B) 6,600 units
- C) 6,667 units
- D) 8,000 units
Show answer & explanation
Answer: D) 8,000 units
Target profit per unit = 10% x $50 = $5. Each unit provides $20 contribution, of which $5 is needed as profit, leaving $15 to cover fixed costs. Units = $120,000 / $15 = 8,000. Check: revenue $400,000, contribution $160,000, profit $40,000 = 10% of revenue.