CPP Financial Analysis & Planning 2

Question 1

A company's contribution margin ratio is 40% and fixed costs are $200,000. What is the break-even revenue?

Accepted Answer

$500,000

Answer

Break-even revenue = Fixed Costs / Contribution Margin Ratio = $200,000 / 0.40 = $500,000.

Question 2

Which metric best measures how efficiently a company converts revenue into profit after all expenses?

Accepted Answer

Net profit margin

Answer

Net profit margin reflects the percentage of revenue remaining after all expenses, taxes, and interest are deducted.

Question 3

A firm sells 10,000 units at $50 each with variable costs of $30 per unit. What is the total contribution margin?

Accepted Answer

$200,000

Answer

Contribution margin per unit = $50 - $30 = $20; total = 20 × 10,000 = $200,000.

Question 4

When a company uses absorption costing instead of variable costing, which cost is included in product cost?

Accepted Answer

Fixed manufacturing overhead

Answer

Absorption costing assigns fixed manufacturing overhead to each unit produced, unlike variable costing which expenses it in the period.

Question 5

What does a Price-to-Earnings (P/E) ratio primarily indicate to a pricing analyst?

Accepted Answer

Market expectations of future earnings growth

Answer

A high P/E ratio signals that investors expect strong future earnings growth relative to current earnings.

(CPP) Certified Pricing Professional Practice Test