Break-even Point

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If you have difficulty answering the following questions, learn more about this topic by reading our Break-even Point Explanation.

1.	Fixed Expenses do not change in total when there is a modest change in sales.	True	False
2.	An example of a fixed expense would be a 5% sales commission.	True	False
3.	Property taxes and rent are often fixed expenses.	True	False
4.	Variable expenses change in total as volume changes.	True	False
5.	An example of a variable expense is an office manager's monthly salary.	True	False
6.	A retailer's cost of goods sold is an example of a variable expense.	True	False
7.	Contribution margin is defined as sales (or revenues) minus variable expenses.	True	False
8.	Breakeven point is the point where revenues equal the total of all expenses including the cost of goods sold.	True	False
9.	The break-even point in dollars of revenues is equal to the total of the fixed expenses divided by the contribution margin per unit.	True	False
10.	If a company requires a profit of $30,000 (instead of breaking even), the $30,000 should be combined with the fixed expenses in order to compute the point at which the company will earn $30,000.	True	False
11.	If a company has mixed expenses, the fixed component can be combined with the company's fixed expenses and the variable component can be combined with the company's variable expenses.	True	False
12.	Decreasing a company's fixed expenses should reduce the break-even point.	True	False
13.	The contribution margin per unit is the selling price per unit minus the fixed expenses per unit.	True	False
14.	Breakeven analysis is useful for companies that sell products, but it is not useful for companies that provide services.	True	False

Use this information to answer questions 15 through 17: Selling Price per unit $ 17 Fixed Expenses Selling & Administrative $ 130,000 Interest Expense $ 10,000 Variable Expenses Cost of Goods Sold $ 4 Selling & Administrative $ 3

15.	What is the company's contribution margin?
$10              $13              $14

16.	What is the break-even point in units?
10,000              14,000              20,000

17.	If the company wants to earn a profit of $42,000 instead of breaking even, what is the number of units the company must sell?
14,000              18,200              26,000

Use this information to answer questions 18 through 20: Fixed Expenses Rent $ 24,000 Salaries $ 40,000 Depreciation $ 13,000 Variable Expenses Cost of Goods Sold 58% of sales Supplies 7% of sales Sales Commissions 5% of sales

18.	What is the company's contribution margin ratio?
30%              70%              Cannot be determined

19.	What is the break-even point in dollars?
$77,000              $110,000              $256,667

20.	If the company wants to earn a profit of $35,000 instead of breaking even, what is the amount of sales or revenue dollars the company must achieve?
$112,000              $145,000              $373,333