Q.1 What is the primary purpose of break-even analysis?
To determine the level of sales at which total revenue equals total costs
To calculate the net profit for a business
To evaluate employee performance
To determine fixed costs only
Explanation - Break-even analysis identifies the sales volume at which total revenues exactly cover total costs, resulting in zero profit or loss.
Correct answer is: To determine the level of sales at which total revenue equals total costs
Q.2 In break-even analysis, fixed costs remain:
Constant regardless of production level
Variable with production level
Dependent on sales only
Increasing proportionally with production
Explanation - Fixed costs do not change with production or sales volume, which is a key assumption in break-even analysis.
Correct answer is: Constant regardless of production level
Q.3 Contribution per unit is calculated as:
Selling price per unit minus variable cost per unit
Selling price per unit minus fixed cost per unit
Total revenue minus total fixed costs
Variable cost per unit plus fixed cost per unit
Explanation - Contribution per unit measures how much each unit contributes towards covering fixed costs and generating profit.
Correct answer is: Selling price per unit minus variable cost per unit
Q.4 The break-even point in units is calculated by:
Fixed costs divided by contribution per unit
Total costs divided by selling price
Variable costs divided by fixed costs
Contribution per unit multiplied by fixed costs
Explanation - Break-even point in units = Fixed Costs / Contribution per unit, which gives the number of units needed to cover all costs.
Correct answer is: Fixed costs divided by contribution per unit
Q.5 If contribution margin increases, the break-even point:
Decreases
Increases
Remains the same
Becomes zero
Explanation - A higher contribution margin means each unit contributes more to covering fixed costs, so fewer units are needed to break even.
Correct answer is: Decreases
Q.6 Margin of safety represents:
Excess of actual or budgeted sales over break-even sales
Total fixed costs divided by total sales
Variable costs as a percentage of sales
Contribution per unit times break-even sales
Explanation - Margin of safety shows the buffer between actual sales and the break-even point, indicating risk level of losses.
Correct answer is: Excess of actual or budgeted sales over break-even sales
Q.7 Which of the following factors does NOT affect the break-even point?
Selling price per unit
Variable cost per unit
Fixed costs
Depreciation of equipment irrelevant to production
Explanation - Only relevant costs (fixed, variable, selling price) affect break-even calculations; irrelevant costs do not.
Correct answer is: Depreciation of equipment irrelevant to production
Q.8 If fixed costs increase while contribution per unit remains constant, break-even point will:
Increase
Decrease
Remain the same
Become zero
Explanation - Higher fixed costs require more units to cover the total cost, raising the break-even point.
Correct answer is: Increase
Q.9 Which formula represents the contribution margin ratio?
Contribution per unit / Selling price per unit
Variable cost per unit / Selling price per unit
Fixed costs / Total sales
Selling price per unit - Variable cost per unit
Explanation - Contribution margin ratio expresses the portion of sales revenue available to cover fixed costs and profit.
Correct answer is: Contribution per unit / Selling price per unit
Q.10 In CVP analysis, the term 'profit-volume ratio' is:
Contribution as a percentage of sales
Variable cost as a percentage of sales
Fixed cost as a percentage of sales
Break-even sales as a percentage of total sales
Explanation - Profit-volume (P/V) ratio = Contribution / Sales × 100, showing the sensitivity of profit to changes in sales.
Correct answer is: Contribution as a percentage of sales
Q.11 A company sells 1,000 units at $50 each. Variable cost per unit is $30, and fixed costs are $10,000. What is the break-even point in units?
500 units
1,000 units
1,500 units
2,000 units
Explanation - Contribution per unit = 50 - 30 = 20. Break-even units = 10,000 / 20 = 500 units.
Correct answer is: 500 units
Q.12 Which of the following is a limitation of break-even analysis?
Assumes linear cost and revenue behavior
Helps in decision-making
Determines margin of safety
Calculates contribution per unit
Explanation - Break-even analysis assumes costs and revenue behave linearly, which may not hold true in reality, limiting accuracy.
Correct answer is: Assumes linear cost and revenue behavior
Q.13 In break-even charts, the point where the total cost line intersects the total revenue line represents:
Break-even point
Profit point
Loss point
Fixed cost point
Explanation - The intersection of total cost and total revenue indicates the sales volume where there is no profit or loss.
Correct answer is: Break-even point
Q.14 Which factor increases the margin of safety?
Increase in sales
Increase in fixed costs
Decrease in selling price
Increase in variable cost per unit
Explanation - Higher actual sales compared to break-even sales increases the margin of safety.
Correct answer is: Increase in sales
Q.15 If the selling price per unit decreases while costs remain constant, break-even point will:
Increase
Decrease
Remain unchanged
Cannot be determined
Explanation - Lower selling price reduces contribution per unit, so more units are needed to cover fixed costs.
Correct answer is: Increase
Q.16 In CVP analysis, fixed costs are considered:
Constant within a relevant range
Variable with sales volume
Increasing per unit produced
Decreasing with sales
Explanation - Fixed costs remain constant within a certain production/sales range called the relevant range.
Correct answer is: Constant within a relevant range
Q.17 The relationship between sales volume, cost, and profit is best described by:
Cost-Volume-Profit analysis
Marginal costing
Financial accounting
Budgeting
Explanation - CVP analysis studies how changes in costs and sales volume affect profit, making it a key decision-making tool.
Correct answer is: Cost-Volume-Profit analysis
Q.18 A company has a contribution margin ratio of 40%. If fixed costs are $20,000, what is the break-even sales in dollars?
$50,000
$80,000
$20,000
$40,000
Explanation - Break-even sales = Fixed Costs / Contribution Margin Ratio = 20,000 / 0.4 = 50,000.
Correct answer is: $50,000
Q.19 Which of the following statements is true about CVP analysis?
It assumes costs can be classified as fixed or variable
It ignores fixed costs completely
It assumes profit is constant
It cannot be used for decision-making
Explanation - CVP analysis requires cost classification to determine contribution and calculate break-even points.
Correct answer is: It assumes costs can be classified as fixed or variable
Q.20 Which of the following increases contribution per unit?
Increase in selling price
Increase in variable cost
Increase in fixed cost
Decrease in sales volume
Explanation - Contribution per unit = Selling Price - Variable Cost; increasing selling price increases contribution per unit.
Correct answer is: Increase in selling price
Q.21 If the margin of safety is 20% of sales, it indicates:
Sales can drop by 20% before a loss occurs
Profit will increase by 20%
Fixed costs are 20% of total costs
Variable costs are 20% of sales
Explanation - Margin of safety measures the extent to which sales can fall before reaching break-even.
Correct answer is: Sales can drop by 20% before a loss occurs
Q.22 In CVP analysis, profit is calculated as:
Total contribution minus fixed costs
Total revenue minus variable costs
Fixed costs minus contribution
Selling price minus fixed cost
Explanation - Profit = Total Contribution - Fixed Costs; total contribution is sales minus variable costs.
Correct answer is: Total contribution minus fixed costs
Q.23 A company wants to earn a target profit of $5,000. Fixed costs are $15,000, contribution per unit is $10. How many units should be sold?
2,000 units
1,500 units
5,000 units
1,000 units
Explanation - Units required = (Fixed Costs + Target Profit) / Contribution per unit = (15,000 + 5,000) / 10 = 2,000 units.
Correct answer is: 2,000 units