Module 15

Question 1

T/F: Cost volume profit analysis is most useful for determining costs

Answer 1

False

Question 2

T/F: Fixed costs, variable costs and revenues are all included in profitablity analysis

Answer 2

True

Question 3

T/F: One of the basic assumptions underlying the cost volume analysis model is that the revenue curve is curvilinear.

Answer 3

True

Question 4

T/F: Cost volume analysis is not typically used to determine the break-even point

Answer 4

False

Question 5

T/F: Contribution margin is the difference between total revenue and total variable costs

Answer 5

True

Question 6

T/F: Functional income statements classify expenses based on business function and are typically found in corporate annual reports

Answer 6

True

Question 7

T/F: a cost volume profit graph includes lines for total revenues, total fixed cost, total variable cost and total profit

Answer 7

False

Question 8

T/F: If prices are assumed to increase by 10%, the slope of the cost curve will increase by 10%, but there will be no changes in the cost curves

Answer 8

True

Question 9

T/F: The break even point for a company with multiple products cannot be determined using a unit contribution margin calculation.

Answer 9

False

Question 10

A basic assumption of the cost-volume profit model:
A. All costs can be accurately classified as either fixed or variable
B. Cost drivers can be organized into unit-level, batch level, product-level and facility-level factors
C. Higher volumes of product require lower prices
D. The mix of products changes over time

Answer 10

all costs can be accuratley classified as either fixed or variable

Question 11

All of the following are assumptions used in cost volume profti analysis, except:
Which of the following assumptions are used in cost-volume-profit analysis:
A. All costs are classified as fixed or variable
B. The total cost function is linear
C. The total revenue function is linear
D. All of the above

Answer 11

all of the above

Question 12

Contribution margin is the difference between total revenue and total variable costs. T or F

Answer 12

True

Question 13

Functional income statements that classify expenses based on business function (production, sales, administration), and are typically found in corporate annual reports.
T or F

Answer 13

True

Question 14

The contribution margin is:
A. The difference between sales price and total variable cost
B. The difference between total sales and total cost of goods sold
C. The difference between total revenue and total variable cost
D. Total sales minus total cost of goods sold

Answer 14

The difference between total revenue and total variable cost

Question 15

A unit contribution margin measures:
A. The difference between price and variable cost per unit
B. The difference between sales and cost of goods sold on a unit basis
C. The difference between unit sales and total costs per unit
D. The percentage difference between sales and cost of goods sold

Answer 15

The difference between price and variable cost per unit

Question 16

The portion of each dollar that can be used to cover fixed costs and provide a profit is known as:
A. Contribution margin ratio
B. Gross margin percent
C. Margin of safety
D. Operating leverage

Answer 16

Contribution margin ratio

Question 17

In a contribution income statement:
A. All fixed costs are grouped together and subtracted from gross profit.
B. Net income plus all fixed expenses equal the contribution margin.
C. The contribution margin is computed as the difference between sales revenue and fixed costs.
D. The gross margin is computed as the difference between sales revenue and the cost of goods sold.

Answer 17

Net income plus all fixed expenses equal the contribution margin.

Question 18

Rozella’s income statement is as follows:
What is the unit contribution margin?
$12.00
$  7.20
$  4.80
$  2.40

Answer 18

$ 7.20

Question 19

The point where the total costs and the total revenues lines intersect provides information about the:
A. Budgeted income
B. Center point in the relevant range
C. Number of units that must be sold to break even
D. Profit maximizing sales volume

Answer 19

Number of units that must be sold to break even

Question 20

The break-even point is:
A. The volume of activity where all of the variable costs, but none of the fixed costs are recovered
B. Where total fixed costs equal total variable costs
C. Where total revenues equal total costs
D. All of the above

Answer 20

Where total revenues equal total costs

Question 21

The total contribution margin at the break-even point:
A. Equals total fixed costs
B. Is zero
C. Is greater than total variable costs
D. Plus total fixed costs equal total revenues

Answer 21

Equals total fixed costs

Question 22

Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $6.00 per unit, and the sales price is $10.00 per unit.
 A.  5,000
 B. 8,333
 C. 15,000
 D. 12,000

Answer 22

15,000

Question 23

Sales mix refers to:
A. The portion of unit variable costs that are consumed by each product
B. The absolute portion of total variable costs consumed by each product
C. The relative portion of unit or dollar sales that are derived from each product
D. None of the above

Answer 23

The relative portion of unit or dollar sales that are derived from each product

Question 24

Which of the following statements regarding sales mix is true?
A. A shift in the sales mix can have a significant impact on the bottom line.
B. One of the limiting assumptions of the basic cost-volume-profit model is that the analysis is for a single product or the sales mix is constant.
C. Sales mix analysis is important in multiple-product or service organizations.
D. All of the above are true

Answer 24

All of the above are true

Question 25

Operating leverage is best described as:
A. A measure of the extent to which an organization’s costs are fixed
B. A measure of the extent to which an organization’s contribution margin is sensitive to levels of debt
C. A measure of the extent to which an organization’s operations are financed by debt
D. A measure of the extent to which an organization’s profits contribute to reductions in debt

Answer 25

A measure of the extent to which an organization’s costs are fixed

Question 26

Operating leverage is computed as:
A. Contribution margin divided by income before taxes
B. Fixed costs divided by income before taxes
C. Income before taxes divided by total debt
D. Operating income divided by total debt

Answer 26

Contribution margin divided by income before taxes

Question 27

All else being equal, this is true about a firm with high operating leverage relative to a firm with low operating leverage:
A. A higher percentage of the high operating leverage firm’s costs are fixed
B. The debt payments limit the high operating leverage firm’s opportunities to turn a big profit
C. The high operating leverage firm has more debt
D. The high operating leverage firm is exposed to less risk

Answer 27

A higher percentage of the high operating leverage firm’s costs are fixed

Question 28

Widrick Corporation had the above income
 statement for 2011:
Widrick’s 2011 operating leverage is:
A. 0.333
B. 2.0
C. 3.0
D. 2.333

Answer 28

B. 2.0