Managerial Accounting Quiz: Break Even Point
20 questions · exam conditions
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Break Even PointQuestion 1 of 20

A company's most recent contribution format income statement reported sales of $800,000, a contribution margin of $320,000, and a net operating income of $80,000. If the company's fixed costs increase by 15%, what will be the new break-even point in sales dollars?

$276,000
$600,000
$690,000
$920,000
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Managerial Accounting Quiz

Managerial Accounting Quiz: Break Even Point

Practice Break Even Point in Managerial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Break Even Point, giving you a quick way to practice the rules, question types, and explanations that matter most for Managerial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

A company's most recent contribution format income statement reported sales of $800,000, a contribution margin of $320,000, and a net operating income of $80,000. If the company's fixed costs increase by 15%, what will be the new break-even point in sales dollars?

  1. $276,000
  2. $600,000
  3. $690,000 (correct answer)
  4. $920,000
Explanation: This is a multi-step problem. First, calculate the original fixed costs. Then, calculate the new fixed costs after the increase. Finally, calculate the new break-even point.
  1. Original Fixed Costs: Contribution Margin - Net Operating Income = $320,000 - $80,000 = $240,000.
  2. New Fixed Costs: $240,000 * 1.15 = $276,000.
  3. Contribution Margin Ratio (CMR): Total Contribution Margin / Total Sales = $320,000 / $800,000 = 0.40.
  4. New Break-Even Point in Dollars: New Fixed Costs / CMR = $276,000 / 0.40 = $690,000.

Question 2

Xylo Corporation sells a single product for $50 per unit. The company's contribution margin ratio is 30%. Currently, its fixed costs are $180,000. Management is considering a new production method that will increase fixed costs by $30,000 but decrease variable costs by $5 per unit. What would be the new break-even point in units if the new method is adopted?

  1. 10,500 units (correct answer)
  2. 12,000 units
  3. 14,000 units
  4. 7,000 units
Explanation: This problem requires calculating the new contribution margin per unit and the new fixed costs before determining the new break-even point.
  1. Original Contribution Margin per Unit: Selling Price × CMR = $50 × 0.30 = $15.
  2. Original Variable Cost per Unit: Selling Price - CM per Unit = $50 - $15 = $35.
  3. New Variable Cost per Unit: $35 - $5 = $30.
  4. New Contribution Margin per Unit: Selling Price - New Variable Cost = $50 - $30 = $20.
  5. New Fixed Costs: $180,000 + $30,000 = $210,000.
  6. New Break-Even Point in Units: New Fixed Costs ÷ New CM per Unit = $210,000 ÷ $20 = 10,500 units.

Question 3

Fixed costs for a company are $90,000 for production up to 12,000 units. For production levels above 12,000 units, fixed costs increase to $114,000 due to the need for additional supervision. If the contribution margin is $8 per unit, what is the company's higher break-even point in units?

  1. 11,250 units
  2. 12,000 units
  3. 14,250 units (correct answer)
  4. 25,500 units
Explanation: This problem involves a step-fixed cost, which can result in multiple break-even points. The question asks for the higher of the valid break-even points.
  1. Calculate the BEP for the lower activity range (<= 12,000 units): BEP = $90,000 / $8 per unit = 11,250 units. This is a valid break-even point because it falls within the relevant range of 0 to 12,000 units.
  2. Calculate the BEP for the higher activity range (> 12,000 units): BEP = $114,000 / $8 per unit = 14,250 units. This is also a valid break-even point because it falls within the relevant range of >12,000 units. The company breaks even at 11,250 units, incurs a loss between 12,001 and 14,249 units, and then breaks even again at 14,250 units. The question specifically asks for the higher break-even point.

Question 4

A company's controller has prepared a CVP graph. The total cost line on the graph has the equation Y = $15X + $60,000, where Y is total costs and X is the number of units. The total revenue line passes through the origin and the point (4,000 units, $120,000). What is the break-even point in units?

  1. 2,000 units
  2. 4,000 units (correct answer)
  3. 1,333 units
  4. 6,000 units
Explanation: The student must interpret the information from the line equations and coordinates to find the components needed for the break-even calculation.
  1. Identify Fixed Costs and Variable Cost per Unit: From the total cost equation, Y = $15X + $60,000, the fixed costs (the y-intercept) are $60,000 and the variable cost per unit (the slope) is $15.
  2. Calculate Selling Price per Unit: The total revenue line passes through (4,000 units, $120,000). The selling price is the slope of this line: $120,000 / 4,000 units = $30 per unit.
  3. Calculate Contribution Margin per Unit: Selling Price - Variable Cost = $30 - $15 = $15.
  4. Calculate Break-Even Point in Units: Fixed Costs / CM per Unit = $60,000 / $15 = 4,000 units.

Question 5

A company is considering automating part of its production process. The change would decrease variable costs from $14 per unit to $10 per unit but would increase total fixed costs from $80,000 to $128,000. The selling price of $30 per unit would be unchanged. What is the net effect of this change on the company's break-even point in units?

  1. A decrease of 1,600 units
  2. An increase of 1,600 units
  3. A decrease of 1,400 units
  4. An increase of 1,400 units (correct answer)
Explanation: This question requires calculating the break-even point under both the current and proposed systems and then finding the difference.
  1. Current System Calculation: CM per Unit = $30 - $14 = $16. Break-Even Units = $80,000 ÷ $16 = 5,000 units.
  2. Proposed System Calculation: New CM per Unit = $30 - $10 = $20. New Fixed Costs = $128,000. New Break-Even Units = $128,000 ÷ $20 = 6,400 units.
  3. Net Effect: New BEP - Old BEP = 6,400 - 5,000 = an increase of 1,400 units.

Question 6

A company is planning to introduce a new product that will sell for $120 per unit. The company will incur new fixed costs of $300,000 per year for a production facility. The marketing manager estimates that 5,000 units can be sold per year. To break even, what is the maximum allowable variable cost per unit?

  1. $60 (correct answer)
  2. $120
  3. $80
  4. $40
Explanation: This question reframes the break-even formula to solve for a cost component rather than the break-even volume. The estimated sales volume is the break-even point in this context.
  1. Understand the Goal: To break even at 5,000 units, the total contribution margin generated by those units must exactly cover the fixed costs of $300,000.
  2. Calculate Required Contribution Margin per Unit: Total Fixed Costs / Break-Even Units = $300,000 / 5,000 units = $60 per unit.
  3. Calculate Maximum Variable Cost per Unit: The contribution margin per unit is Selling Price - Variable Cost per Unit. So, $60 = $120 - Variable Cost. Rearranging gives Variable Cost = $120 - $60 = $60.

Question 7

Bravo Company sells two products, Alpha and Beta. The sales mix in units is 2 units of Alpha for every 3 units of Beta. Alpha sells for $100 with variable costs of $70. Beta sells for $120 with variable costs of $80. Total fixed costs for the company are $360,000. What is the break-even point in total sales dollars?

  1. $1,028,571
  2. $1,120,000 (correct answer)
  3. $1,200,000
  4. $1,260,000
Explanation: This problem requires calculating the weighted-average contribution margin for a 'package' of products to find the break-even point for a multi-product firm.
  1. Contribution Margin per Unit: Alpha: $100 - $70 = $30. Beta: $120 - $80 = $40.
  2. Package Contribution Margin: Based on the 2:3 sales mix, one package consists of 2 Alphas and 3 Betas. Package CM = (2 units × $30/unit) + (3 units × $40/unit) = $60 + $120 = $180.
  3. Break-Even in Packages: Total Fixed Costs ÷ Package CM = $360,000 ÷ $180 = 2,000 packages.
  4. Break-Even in Units: Alpha: 2,000 packages × 2 units/pkg = 4,000 units. Beta: 2,000 packages × 3 units/pkg = 6,000 units.
  5. Break-Even in Dollars: (4,000 units × $100/unit) + (6,000 units × $120/unit) = $400,000 + $720,000 = $1,120,000.

Question 8

A company's total fixed costs are $240,000. It has two product lines, Standard and Deluxe. The Standard line has traceable fixed costs of $80,000 and a contribution margin ratio of 50%. The remaining fixed costs are common to both lines or traceable to the Deluxe line. To be considered profitable on its own, what is the minimum sales revenue the Standard line must generate?

  1. $160,000 (correct answer)
  2. $240,000
  3. $480,000
  4. $320,000
Explanation: This question tests the concept of a segment break-even point. The break-even for a specific product line or segment should only consider the fixed costs that are directly traceable to that segment.
  1. Identify Relevant Costs: For the Standard line to break even on its own, its contribution margin must cover its own traceable fixed costs. The common fixed costs are ignored for this type of segment analysis.
  2. Identify Traceable Fixed Costs for Standard: The problem states these are $80,000.
  3. Identify Contribution Margin Ratio for Standard: The problem states this is 50% (or 0.50).
  4. Calculate Segment Break-Even Sales: Traceable Fixed Costs / Segment CMR = $80,000 / 0.50 = $160,000.

Question 9

A company has a margin of safety of $200,000, which represents 25% of its current sales. If the company's fixed costs are $240,000, what is its break-even point in units, assuming a selling price of $40 per unit?

  1. 6,000 units
  2. 15,000 units (correct answer)
  3. 20,000 units
  4. 5,000 units
Explanation: This is a multi-step problem where you must work backwards from the margin of safety to find the break-even point.
  1. Calculate Total Sales: Margin of Safety $ / Margin of Safety % = $200,000 / 0.25 = $800,000.
  2. Calculate Break-Even Sales in Dollars: Total Sales - Margin of Safety $ = $800,000 - $200,000 = $600,000.
  3. Calculate Break-Even Point in Units: Break-Even Sales $ / Selling Price per Unit = $600,000 / $40 = 15,000 units. Alternatively, one could calculate the CM ratio ($240,000 / 600,000=0.40),thentheCMperunit(600,000 = 0.40), then the CM per unit (40 * 0.40 = 16),andthenthebreak−evenunits(16), and then the break-even units (240,000 / $16 = 15,000 units), but the direct method is faster.

Question 10

A company manufactures a single product. An extract from its budget is as follows: Sales (10,000 units) - $500,000; Manufacturing costs - $350,000 (of which 60% is variable); Selling and administrative costs - $100,000 (of which $10,000 is variable). What is the break-even point in sales dollars?

  1. $375,000 (correct answer)
  2. $437,500
  3. $260,000
  4. $500,000
Explanation: This problem requires parsing the mixed costs to find total fixed costs and the contribution margin ratio, then calculate the break-even point.
  1. Calculate Total Variable Costs: Variable Manufacturing = $350,000 × 0.60 = $210,000. Variable S&A = $10,000. Total Variable Costs = $210,000 + $10,000 = $220,000.
  2. Calculate Total Fixed Costs: Fixed Manufacturing = $350,000 × 0.40 = $140,000. Fixed S&A = $100,000 - $10,000 = $90,000. Total Fixed Costs = $140,000 + $90,000 = $230,000.
  3. Calculate Contribution Margin Ratio (CMR): Total Contribution Margin = Sales - Total Variable Costs = $500,000 - $220,000 = $280,000. CMR = $280,000 ÷ $500,000 = 0.56.
  4. Calculate Break-Even Point in Dollars: Total Fixed Costs ÷ CMR = $230,000 ÷ 0.56 = $410,714.
Note: The closest answer choice is $375,000, suggesting there may be an error in the provided answer choices.

Question 11

Delta Corp sells two products: Product X with a contribution margin ratio of 60% and Product Y with a contribution margin ratio of 40%. The sales mix is 3:2 (X:Y) by revenue. Total fixed costs are $240,000. What is the break-even point in total sales dollars?

  1. $461,538
  2. $444,444 (correct answer)
  3. $480,000
  4. $400,000
Explanation: Weighted average contribution margin ratio = (0.60 × 3/5) + (0.40 × 2/5) = 0.36 + 0.16 = 0.54. Break-even sales = $240,000 ÷ 0.54 = $444,444. Choice A uses incorrect weights (3/3 and 2/2). Choice C assumes 50% weighted average CM ratio. Choice D uses 60% CM ratio for all products.

Question 12

Apex Manufacturing operates with a contribution margin ratio of 35% and monthly fixed costs of $210,000. The company is currently generating a monthly profit of $70,000. If fixed costs increase by 20% and the company wants to maintain the same profit dollars, by what percentage must sales increase?

  1. 20.0%
  2. 12.0%
  3. 15.0% (correct answer)
  4. 17.5%
Explanation: Current sales = ($210,000 + $70,000) ÷ 0.35 = $800,000. New fixed costs = $210,000 × 1.20 = 252,000.Requiredsales=(252,000. Required sales = (252,000 + $70,000) ÷ 0.35 = 920,000.Salesincrease=(920,000. Sales increase = (920,000 - $800,000) ÷ $800,000 = 15.0%. Choice A assumes direct correlation with fixed cost increase. Choice B and D use incorrect calculation methods.

Question 13

Sterling Corp produces widgets with variable manufacturing costs of $12 per unit and variable selling costs of $3 per unit. Fixed manufacturing overhead is $90,000 and fixed selling and administrative expenses are $60,000. The selling price is $30 per unit. If the company wants to achieve an after-tax profit of $45,000 and the tax rate is 25%, how many units must be sold?

  1. 14,000 units (correct answer)
  2. 13,000 units
  3. 12,000 units
  4. 15,000 units
Explanation: Pre-tax profit needed = $45,000 ÷ (1 - 0.25) = $60,000. Total variable costs = $12 + $3 = $15 per unit. Contribution margin = $30 - $15 = $15 per unit. Total fixed costs = $90,000 + $60,000 = 150,000.Unitsneeded=(150,000. Units needed = (150,000 + $60,000) ÷ $15 = 14,000 units. Choice B forgets tax adjustment. Choice C uses after-tax profit directly. Choice D includes incorrect cost calculations.

Question 14

Coastal Enterprises sells a product for $80 per unit with variable costs of $50 per unit. Current monthly sales are 4,000 units with fixed costs of $90,000. The company is considering automating production, which would increase fixed costs to $150,000 but reduce variable costs to $35 per unit. At what monthly sales volume (in units) would the company be indifferent between the two alternatives?

  1. 5,000 units
  2. 3,750 units
  3. 4,286 units
  4. 4,000 units (correct answer)
Explanation: When you encounter a question about choosing between two production alternatives, you're dealing with indifference point analysis. The indifference point is where both options generate identical total costs or profits. To find where Coastal Enterprises would be indifferent, set up profit equations for both scenarios and solve where they're equal. Current scenario: Profit = (80−50)×Q−$90,000=$30Q−(80 - 50) × Q - $90,000 = $30Q - 90,000Automatedscenario:Profit=Automated scenario: Profit =(80 - 35) × Q - $150,000 = $45Q - 150,000150,000 Setting them equal: 30Q−90,000=45Q−150,00030Q - 90,000 = 45Q - 150,000 Solving: 150,000−90,000=45Q−30Q150,000 - 90,000 = 45Q - 30Q 60,000=15Q60,000 = 15Q Q=4,000Q = 4,000 units At 4,000 units, both scenarios generate $30,000 profit, making the company indifferent. Choice A (5,000 units) represents a common error of using the breakeven point for one scenario rather than the indifference point. Choice B (3,750 units) likely results from incorrectly setting up the cost difference calculation. Choice C (4,286 units) might come from using total costs instead of contribution margins or making arithmetic errors in the equation setup. Study tip: For indifference point problems, always set up profit (or cost) equations for both alternatives and solve where they're equal. Don't confuse this with breakeven analysis, which finds where profit equals zero. The indifference point finds where two alternatives yield identical results.

Question 15

Riverside Company's break-even point is currently 8,000 units. The company sells its product for $25 per unit with variable costs of $15 per unit. If fixed costs increase by $30,000 and variable costs per unit increase to $18 per unit (with no change in selling price), what will be the new break-even point in sales dollars?

  1. $428,571
  2. $350,000
  3. $457,143 (correct answer)
  4. $400,000
Explanation: Current fixed costs = 8,000 × ($25 - $15) = $80,000. New fixed costs = $80,000 + $30,000 = $110,000. New contribution margin per unit = $25 - $18 = $7. New break-even units = $110,000 ÷ $7 = 15,714 units. Break-even sales dollars = 15,714 × $25 = $457,143. Choice A forgets the fixed cost increase. Choice B uses original contribution margin. Choice D uses incorrect calculations.

Question 16

Northstar Company has the following monthly data: break-even point of 5,000 units, current sales of 6,000 units, and current monthly profit of $20,000. The company is considering spending an additional $8,000 per month on advertising, which would increase sales by 15%. What would be the new break-even point in units?

  1. 5,400 units (correct answer)
  2. 6,500 units
  3. 5,750 units
  4. 6,200 units
Explanation: Current contribution margin per unit = $20,000 ÷ (6,000 - 5,000) = $20. Current fixed costs = 5,000 × $20 = $100,000. New fixed costs = $100,000 + $8,000 = $108,000. New break-even point = $108,000 ÷ $20 = 5,400 units. Choice B incorrectly factors in the 15% sales increase. Choice C uses wrong contribution margin calculation. Choice D combines multiple errors.

Question 17

Phoenix Industries has monthly fixed costs of $150,000 and variable costs of $30 per unit. The current selling price is $50 per unit, resulting in monthly sales of 10,000 units. Management is considering reducing the selling price to $48 per unit, which would increase sales volume by 25%. What is the new break-even point in units after the price reduction?

  1. 7,500 units
  2. 8,333 units (correct answer)
  3. 9,375 units
  4. 6,250 units
Explanation: New contribution margin per unit = $48 - $30 = $18. New break-even point = $150,000 ÷ $18 = 8,333 units. Choice A uses the original contribution margin of $20. Choice C incorrectly includes the 25% volume increase in the calculation. Choice D uses wrong variable cost assumption.

Question 18

Pacific Corp sells Product A for $60 per unit (variable cost $36) and Product B for $40 per unit (variable cost $28). Monthly fixed costs are $134,400. In January, the company sold 2,000 units of A and 3,000 units of B. If the sales mix remains constant, what is the break-even point in total units?

  1. 7,200 units
  2. 6,000 units
  3. 7,500 units
  4. 8,000 units (correct answer)
Explanation: When you encounter a multi-product break-even analysis, you need to find the weighted average contribution margin based on the sales mix, then use it to calculate total break-even units. First, calculate each product's contribution margin: Product A contributes $60 - $36 = $24 per unit, and Product B contributes $40 - $28 = $12 per unit. The sales mix is 2,000:3,000, or 2:3, meaning for every 5 units sold, 2 are Product A and 3 are Product B. Next, find the weighted average contribution margin per unit: $\frac{(2 × \24) + (3 × $12)}{2 + 3} = \frac{$48 + $36}{5} = \frac{$84}{5} = $16.80 Finally, calculate break-even units: \frac{$134,400}{$16.80} = 8,000 \text{ total units} Answer A (7,200 units) likely results from incorrectly weighting the contribution margins or making calculation errors. Answer B (6,000 units) might come from using only one product's contribution margin instead of the weighted average. Answer C (7,500 units) could result from mathematical errors in the weighted average calculation or incorrectly handling the sales mix ratios. The correct answer is D (8,000 units) because it properly accounts for both products' contribution margins weighted by their sales mix proportions. Study tip: Always remember that multi-product break-even requires a weighted average contribution margin. Calculate each product's contribution margin first, then weight by sales mix, and finally divide fixed costs by this weighted average.

Question 19

A company's degree of operating leverage is 5.0, and its current sales are $600,000. The contribution margin is 40% of sales. What are the company's break-even sales in dollars?

  1. $120,000
  2. $480,000 (correct answer)
  3. $192,000
  4. $408,000
Explanation: This problem requires using the degree of operating leverage (DOL) formula to find net income, then working backwards to find fixed costs and the break-even point.
  1. Calculate Total Contribution Margin (CM): Current Sales * CMR = $600,000 * 0.40 = $240,000.
  2. Calculate Net Operating Income (NOI): The formula for DOL is CM / NOI. So, 5.0 = $240,000 / NOI. Rearranging gives NOI = $240,000 / 5.0 = $48,000.
  3. Calculate Total Fixed Costs (FC): FC = CM - NOI = $240,000 - $48,000 = $192,000.
  4. Calculate Break-Even Sales: FC / CMR = $192,000 / 0.40 = $480,000.

Question 20

A retail company's break-even point in sales dollars is $700,000. The company's total sales were $1,000,000 and its variable expenses were $600,000. What were the company's total fixed expenses?

  1. $400,000
  2. $300,000
  3. $280,000 (correct answer)
  4. $120,000
Explanation: This problem requires the student to first calculate the contribution margin ratio from the operating data and then use it with the break-even sales data to find the fixed costs.
  1. Calculate Contribution Margin Ratio (CMR): First, find the total contribution margin: Sales - Variable Expenses = $1,000,000 - $600,000 = $400,000. Then, calculate the ratio: CMR = Total CM / Total Sales = $400,000 / $1,000,000 = 0.40.
  2. Calculate Total Fixed Expenses: The formula for break-even sales is Fixed Expenses / CMR. Rearranging gives Fixed Expenses = Break-Even Sales * CMR. So, Fixed Expenses = $700,000 * 0.40 = $280,000.