NOTE: For multiple-choice and true/false questions, simply place your cursor over what you

think is the correct answer. (There is no need to click the answer.) For fill-in-the-blank
questions place your cursor over the _________.

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

We also have Crosswords and Q&A for this topic.

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
Break-even point is the point where revenues equal the total of all expenses
8. True False
including the cost of goods sold.
The break-even point in dollars of revenues is equal to the total of the fixed
9. True False
expenses divided by the contribution margin per unit.
If a company requires a profit of $30,000 (instead of breaking even), the
10. $30,000 should be combined with the fixed expenses in order to compute the True False
point at which the company will earn $30,000.
If a company has mixed expenses, the fixed component can be combined with
11. the company's fixed expenses and the variable component can be combined True False
with the company's variable expenses.
12. Decreasing a company's fixed expenses should reduce the break-even point. True False
The contribution margin per unit is the selling price per unit minus the fixed
13. True False
expenses per unit.
Break-even analysis is useful for companies that sell products, but it is not
14. True False
useful for companies that provide services.

Use this information to answer questions 15 through 17:

Selling Price per unit $ 17

Fixed Expenses
Selling &
$ 130,000
Administrative
Interest Expense $ 10,000
Variable Expenses
 Cost of Goods Sold $4
Selling &
$3
Administrative

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

If the company wants to earn a profit of $42,000 instead of breaking even, what is the
17.
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

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

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C. BREAKEVEN ANALYSIS

For any business, there is a certain level of sales at which there is neither a profit nor a loss. Total
income and total costs are equal. This point is known as thebreakeven point. It is easy to calculate,
and can also be found by drawing a graph called abreakeven chart.

Calculation of Breakeven Point

Example:

The organising committee of a Christmas party have set the selling price at £21 per ticket.

They have agreed with a firm of caterers that a buffet would be supplied at a cost of £13.50.