Ch 3 MC

Question 1

What does CVP stand for?

a) Cost-Volume-Profit
b) Contribution-Volume-Price
c) Cost-Value-Profit
d) Contribution-Value-Price

Answer 1

a) Cost-Volume-Profit

Question 2

Which of the following is assumed in CVP analysis?

a) Variable costs are constant per unit
b) Sales volume is unpredictable
c) Ending balances in inventory are non-zero
d) Time value of money is considered

Answer 2

a) Variable costs are constant per unit

Question 3

What is the formula for Contribution Margin per Unit (CMU)?

a) Sales price per unit - Variable cost per unit
b) Sales price per unit - Fixed cost per unit
c) Revenue - Fixed costs
d) Variable costs / Sales volume

Answer 3

a) Sales price per unit - Variable cost per unit

Question 4

What does the Break-even Point (BEP) represent?

a) The point where total revenue equals total cost
b) The point where total profit equals total cost
c) The point where fixed costs equal variable costs
d) The point where sales volume equals production volume

Answer 4

a) The point where total revenue equals total cost

Question 5

Which formula is used to calculate the break-even point in units?

a) FC / Contribution Margin per unit (CMU)
b) FC / CM ratio
c) Sales price per unit - Variable cost per unit
d) Total revenue - Variable costs

Answer 5

a) FC / Contribution Margin per unit (CMU)

Question 6

What does the Margin of Safety represent?

a) The difference between budgeted revenue and break-even revenue
b) The amount of profit after taxes
c) The total fixed cost at the break-even point
d) The contribution margin percentage

Answer 6

a) The difference between budgeted revenue and break-even revenue

Question 7

What does the Degree of Operating Leverage measure?

a) The effect of fixed costs on operating income (OI) as sales change
b) The change in sales volume relative to variable costs
c) The ratio of total revenue to total costs
d) The change in operating income based on the tax rate

Answer 7

a) The effect of fixed costs on operating income (OI) as sales change

Question 8

In a multi-product scenario, how do you calculate the weighted average contribution margin (WA CM)?

a) Multiply each product’s UCM by its quantity, sum them, and divide by total units sold
b) Multiply each product’s sales price by its cost and divide by total sales
c) Calculate the average contribution margin per unit for all products
d) Use the break-even point formula for each product

Answer 8

a) Multiply each product’s UCM by its quantity, sum them, and divide by total units sold

Question 9

How do you calculate the Target Operating Income (TOI)?

a) (FC + TOI) / Contribution Margin per unit
b) (FC + TOI) / CM ratio
c) FC / Contribution Margin per unit
d) (Revenue – Variable Costs – Fixed Costs) = TOI

Answer 9

b) (FC + TOI) / CM ratio

Question 10

What changes when calculating CVP for a non-profit or public sector organization?

a) The revenue is based on budget appropriations, not sales
b) Operating income (OI) is expected to be non-zero
c) The fixed costs are variable based on budget changes
d) The break-even point formula uses a different structure for fixed costs

Answer 10

a) The revenue is based on budget appropriations, not sales

Question 11

What is the formula for total revenue in CVP analysis?

a) Sales Price per unit x Quantity sold
b) Contribution Margin per unit x Quantity sold
c) Fixed Costs + Variable Costs
d) Variable Cost per unit x Quantity sold

Answer 11

a) Sales Price per unit x Quantity sold

Question 12

Which of the following is considered a fixed cost (FC) in CVP analysis?

a) Direct labor costs
b) Raw material costs
c) Rent for the factory
d) Sales commission

Answer 12

c) Rent for the factory

Question 13

What does the Contribution Margin (CM) tell you?

a) The profit after all costs have been deducted
b) The amount of revenue remaining after variable costs are paid
c) The difference between fixed and variable costs
d) The total cost of goods sold

Answer 13

b) The amount of revenue remaining after variable costs are paid

Question 14

Which of the following would not affect the break-even point (BEP)?

a) Sales price per unit
b) Variable cost per unit
c) Fixed cost
d) Income tax rate

Answer 14

d) Income tax rate

Question 15

How do you calculate the after-tax net income (NI) if you know the operating income (OI) and the tax rate?

a) OI x (1 - tax rate)
b) OI / (1 - tax rate)
c) OI + tax rate
d) OI x tax rate

Answer 15

a) OI x (1 - tax rate)

Question 16

In a multi-product CVP analysis, if the sales mix changes, how does it affect the weighted average contribution margin (WA CM)?

a) WA CM will remain the same
b) WA CM increases or decreases depending on the contribution margins of the products in the new mix
c) WA CM will be lower than the average CM of the individual products
d) WA CM is no longer relevant in a multi-product scenario

Answer 16

b) WA CM increases or decreases depending on the contribution margins of the products in the new mix

Question 17

Which of the following statements is true about CVP analysis in the non-profit sector?

a) Non-profit organizations use the same break-even point formula as for-profit businesses.
b) Non-profit organizations do not have fixed costs.
c) Revenue is determined based on sales of products or services, like for-profit businesses.
d) Operating income (OI) is generally zero for non-profit organizations, and their focus is on covering costs, not earning a profit.

Answer 17

d) Operating income (OI) is generally zero for non-profit organizations, and their focus is on covering costs, not earning a profit