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1
Cost-volume-profit (CVP) analysis summarizes the effects of change in an organization's volume of activity on its costs, revenue, and profit.
A)True
B)False
2
Cost-volume-profit (CVP) analysis is confined to profit-seeking enterprises.
A)True
B)False
3
The break-even point is the volume of activity where an organization's revenues and expenses are equal.
A)True
B)False
4
Total contribution margin can be calculated by subtracting total fixed costs from total revenues.
A)True
B)False
5
If the sales price per unit is $40 and the unit variable cost is $26, then the unit contribution margin is $14.
A)True
B)False
6
The sales price of a single unit minus the unit's variable expenses is called the unit contribution margin.
A)True
B)False
7
A general formula for computing the break-even sales volume in units is: Fixed expenses/Unit contribution margin = Break-even point (in units).
A)True
B)False
8
The contribution-margin ratio of a firm is determined by dividing the per unit contribution margin by the per unit sales price.
A)True
B)False
9
A general formula for computing the break-even point in sales dollars is: Fixed expenses/Contribution margin ratio.
A)True
B)False
10
The contribution-margin approach and the equation approach to break-even analysis do not achieve the same conclusion, but the differences are minimal and therefore irrelevant to the choice of which approach to use.
A)True
B)False
11
The equation approach to determining the break-even point results in the amount of sales dollars necessary to break even rather than the number of units (sales volume) necessary to break even.
A)True
B)False
12
If the sales price per unit is $16, the variable expenses per unit are $12, and the fixed expenses are $52,000, then using the equation approach to solve for the break-even point in units will yield an answer of 14,000 units.
A)True
B)False
13
One of the major assumptions in drawing a cost-volume-profit (CVP) graph is that total revenues and total expenses can be depicted as straight lines.
A)True
B)False
14
The profit area shown on a cost-volume-profit graph is comprised of sales revenues minus variable costs, only.
A)True
B)False
15
The profit area shown on a cost-volume-profit graph is comprised of the contribution margin per unit multiplied by the number of units sold after the break-even point.
A)True
B)False
16
Rather than using a cost-volume-profit graph to define the loss and profit area, a profit-volume graph can be used to highlight the amount of profit or loss.
A)True
B)False
17
A limitation of using the contribution margin approach to cost-volume-profit analysis is that it cannot be used to determine sales volume at any level other than break-even.
A)True
B)False
18
Given a target net profit of $45,000, fixed expenses of $120,000, and a unit contribution margin of $5, sales units required to earn the target net profit are 33,000.
A)True
B)False
19
If the sales price per unit is $24, the variable cost per unit is $14, fixed expenses are $62,000, and the target net profit is $18,000 then 6,200 sales units required to earn the target net profit.
A)True
B)False
20
The safety margin of an enterprise is the difference between the budgeted sales revenue and the break-even sales revenue.
A)True
B)False
21
If a company's budgeted sales revenue is $2,400,000 and its safety margin is $720,000, then the company's break-even sales revenue is $1,680,000.
A)True
B)False
22
When a company's break-even sales revenues are $400,000 and its contribution-margin percentage is 40%, a fixed expenses increase of $24,000 will increase break-even sales to $440,000.
A)True
B)False
23
If a nonprofit organization has fixed expenses of $120,000, a unit contribution margin of $6, and a current break-even point in units of 20,000, then a 24,000 reduction in fixed costs will reduce the break-even point to 15,000 units.
A)True
B)False
24
If an organization's break-even sales revenues are $400,000, and its contribution –margin percentage is 40%, then a variable cost increase of $60,000 will increase the break-even sales to $460,000.
A)True
B)False
25
Currently, fixed expenses are $62,000, a variable cost per unit is $14, and a sales price per unit is $24, creating a demand for 20,000 units. A $2 increase in the sales price per unit which decreases demand by 10% will decrease profits by $4,000.
A)True
B)False
26
If the total contribution margin at break-even sales is $45,000, then the fixed costs must also be $45,000.
A)True
B)False
27
A quarry sells 12 tons of pea gravel, 15 tons of decorative gravel, and 3 tons of wall stone for every 30 tons of material it extracts and sells. The proportion of gravel types for every 30 tons extracted and sold is the firm's sales structure.
A)True
B)False
28
If a company sells 50 units of A at an $8 contribution margin and 200 units of B at a $6 contribution margin, the weighted-average contribution margin is $7.00.
A)True
B)False
29
If a company sells 50 units of A at a $5.00 contribution margin and 200 units of B at a $6.25 contribution margin, and the fixed expenses are $24,000, then the break-even point is 4,000 units.
A)True
B)False
30
If a company sells 50 units of A at a $5.00 contribution margin and 200 units of B at a $6.25 contribution margin, the fixed expenses are $24,000, and its break-even point is 4,000 units, then it must sell 3,200 units of B to break even.
A)True
B)False
31
One of the major assumptions underlying cost-profit-volume (CVP) analysis is that the behavior of total revenues and total expenses are linear (straight-line).
A)True
B)False
32
A technique for determining what would happen in a decision analysis if a key prediction or assumption proves to be wrong is called CVP analysis.
A)True
B)False
33
One of the assumptions underlying cost-profit-volume (CVP) analysis is that for a manufacturing firm, the inventory levels at the beginning and end of the period are the same.
A)True
B)False
34
An income statement in which fixed and variable expenses are separated is called a contribution income statement.
A)True
B)False
35
A major difference between income statements prepared under the traditional format and those prepared under the contribution format is that expenses under the traditional format are shown by function, while the expenses shown under the contribution format are shown by function and cost behavior.
A)True
B)False
36
The contribution income statement that is prepared for internal users is better than the traditional income statement as a management tool to predict the results of increases or decreases in sales volume, variable costs, and fixed costs.
A)True
B)False
37
If the fixed cost total of $450,000 is 60% of sales and the variable cost total of $240,000 is 40% of sales, then the relationship fixed costs to variable costs  can be referred to as the cost structure of the firm.
A)True
B)False
38
The greater the proportion of fixed costs in a firm's cost structure, the greater will be the impact on profit from a given percentage change in sales revenue.
A)True
B)False
39
The extent to which an organization uses fixed costs in its cost structure is called operating leverage.
A)True
B)False
40
Operating leverage is determined by dividing total contribution margin by net income.
A)True
B)False
41
If a company has a 40% increase in sales and an operating leverage factor of 3, the percentage change in net income will be 120%.
A)True
B)False
42
A firm's operating leverage has no affect on the break-even point or the safety margin.
A)True
B)False
43
In an economic recession, the highly automated company with high fixed costs will be better able to adapt to lower consumer demand than will a firm with a more labor-intensive production process.
A)True
B)False
44
The CVP approach to cost analysis is consistent with activity-based costing.
A)True
B)False
45
One of the major differences between the traditional CVP analysis and the activity-based costing CVP analysis is the number of cost drivers used.
A)True
B)False
46
Of the two approaches to CVP analysis, the traditional approach is far superior to the ABC approach.
A)True
B)False





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