CPA Business Environment and Concepts (BEC) : CPA Business Environment and Concepts (BEC)
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #11 : Operations Management: Budgeting
Several surveys point out that most managers use full product costs, including unit fixed costs and unit variable costs in developing cost-based pricing. Which of the following is least associated with cost-based pricing?
Price justification
Price stability
Target pricing
Fixed cost recovery
Target pricing
Target pricing is least associated with cost-based pricing. Target pricing takes the perspective of sales rather than looking internally to costs in order to determine a sales price.
Example Question #142 : Cpa Business Environment And Concepts (Bec)
One approach to measuring divisional performance is return on assets. Return on assets is expressed as income:
Divided by average current assets
Divided by average fixed assets
Divided by average total assets
Divided by the current year's capital expenditures plus cost of capital
Divided by average total assets
On a divisional level, return on assets is operating income divided by average total assets.
Example Question #143 : Cpa Business Environment And Concepts (Bec)
Which of the following ratios would be used to evaluate a company's profitability?
Current ratio
Inventory turnover ratio
Gross margin ratio
Debt to total assets ratio
Gross margin ratio
The gross margin ratio describes the ratio of gross margin to sales and serves to evaluate a company's profitability.
Example Question #2 : Cost Volume Profit Analysis
Which of the following is not an assumption of CVP analysis?
Costs show greater variability over time
All costs behave in a linear fashion in relation to production volume
Cost behaviors are expected to change over time
Volume is the only relevant factor affecting the cost
Cost behaviors are expected to change over time
The correct assumption instead of this would be "Cost behaviors are expected to stay constant over the relevant range of production volume".
Example Question #1 : Breakeven Formula
Breakeven analysis assumes that over the relevant range:
Total costs are unchanged
Unit revenues are nonlinear
Unit variable costs are unchanged
Total fixed costs are nonlinear
Unit variable costs are unchanged
Breakeven analysis assumes that all variable costs and revenues are constant on a per-unit basis and are linear over a relevant range. Fixed costs in total are constant.
Example Question #2 : Breakeven Formula
ABC company's breakeven point was $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was ABC's contribution margin?
$1,300,000
$910,000
$364,000
$546,000
$364,000
The margin of safety is the excess of sales over break-even sales. Assuming variable costs are 60% of selling price, contribution margin may be computed at 40% of selling price as 40% * $780,000 + 40% * $130,000.
Example Question #3 : Breakeven Formula
A company has total sales of $80,000, total variable costs of $20,000, and total fixed costs of $30,000. What is the breakeven level in sales dollars?
$30,000
$50,000
$40,000
$80,000
$40,000
The contribution margin is sales minus variable costs (80,000-20,000) = 60,000. Then, 60,000/80,000=75%. Then, breakeven is total fixed costs of $30,000/75%=$40,000.
Example Question #4 : Breakeven Formula
A product has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is the product's fixed cost?
$96,000
$16,000
$24,000
$80,000
$24,000
($200,000 - $80,000) * 20%
Example Question #5 : Breakeven Formula
What is the formula for breakeven point in units?
CM per Unit/Total FC
Total FC/CM per Unit
Total Costs/CM per Unit
Total VC/CM per Unit
Total FC/CM per Unit
This is the formula for breakeven point in units.
Example Question #1 : Breakeven Formula
How does the margin of safety relate to breakeven in units or sales? It is:
The excess of breakeven sales over sales
The excess of sales over breakeven sales
Unrelated
A measure of profitability
The excess of sales over breakeven sales
The margin of safety is generally expressed as either dollars or a percentage and is the excess of sales over breakeven sales.
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