section 13

Question 1

CVP

Answer 1

cost volume profit

Question 2

understanding how a company’s various costs behave with changes in sales volume allows a company’s management to understand

Answer 2

the effect any changes in sales volume will have on profits

Question 3

a company’s relevant range in the context of CVP analysis refers to a company’s

Answer 3

range of reasonably anticipated production/sales volume for a period of time

Question 4

variable costs per unit vary…and are fixed…..

Answer 4

in total and are fixed per unit within the relevant range

Question 5

as the vol of units sold decreases within the relevant range, the fixed cost per unit sold

Answer 5

increases

Question 6

as the vol of units sold increases within the relevant range, the variable cost per unit sold typically

Answer 6

remains the same

Question 7

in doing simple CVP analysis it is necessary that every cost of a company

Answer 7

be designated as either variable or fixed

Question 8

in simple CVP analysis all costs must be designated as either

Answer 8

perfectly fixed or variable

Question 9

what is a contribution margin?

Answer 9

sales revenues
—
variable costs (product or period)

Question 10

what is the variable cost ratio?

Answer 10

% of sales revenues

Question 11

what is contribution margin per unit?

Answer 11

sales price per unit
—
variable cost per unit

Question 12

what is contribution margin ratio?

Answer 12

contribution margin as a percentage of total sales revenue

Question 13

margin of safety

Answer 13

the amount of decreased revenues that could be incurred before a business turns unprofitable

Question 14

variable cost ratio

Answer 14

VC
divided by
SR

Question 15

the scatter-graph method refers to an approach used to

Answer 15

determine fixed and variable components of a mixed cost

Question 16

with changes in manufacturing volume, direct material costs for a manufacturing company would most commonly behave as

Answer 16

variable costs

Question 17

when performing basic CVP analysis, variable costs are assumed to be

Answer 17

constant on a per unit basis within the relevant range

Question 18

fixed costs per unit decrease with

Answer 18

increases in the volume of production

Question 19

mixed costs are costs which have both

Answer 19

a fixed and variable cost component

Question 20

the scattergraph method is an approach which can be used to determine both the

Answer 20

total fixed cost component and the variable cost per unit component of a mixed cost

Question 21

contribution margin equals

Answer 21

net sales revenues
minus
total variable costs (product and period)

Question 22

CVP analysis is a useful tool when seeking to understand the effects of

Answer 22

product pricing, costs of operations and the volume of sales on a business profitability

Question 23

The slope of Sales Revenue =

Answer 23

the sales price per unit

Question 24

variable cost

Answer 24

a cost that varies in total with changes in volume

Question 25

the slope of total variable costs =

Answer 25

the variable cost per unit

Question 26

a perfectly variable cost has a

Answer 26

fixed or constant variable cost per unit

Question 27

examples of variable costs

Answer 27

direct materials
direct labor
sales commissions

Question 28

T/F there are perfectly variable costs in the real world

Answer 28

false

Question 29

what is a relevant range?

Answer 29

the range of vol that is reasonably anticipated for operations

Question 30

what is the intersection of sales revenues and total cost?

Answer 30

the break even point

Question 31

2 different formats of the income statement are:

Answer 31

GAAP income statement
Contribution margin income statement

Question 32

a GAAP income statement is used for

Answer 32

financial accounting

Question 33

Contribution margin income statement is used for

Answer 33

managerial accounting

Question 34

a contribution margin income statement shows

Answer 34

the product and period costs in terms of being fixed or variable

Question 35

sales revenues minus variable costs =

Answer 35

contribution margin

Question 36

contribution margin is the

Answer 36

difference between sales revenues and variable costs

Question 37

contribution margin shows profits before

Answer 37

fixed costs are applied

Question 38

What is operating income?

Answer 38

revenues minus total costs

Question 39

in CVP analysis, estimated future costs

Answer 39

are prospective budgeted costs

Question 40

t/f cvp analysis can be used with historical info

Answer 40

true

Question 41

what is a variable cost ratio?

Answer 41

variable cost as a % of sales revenue

Question 42

what is contribution margin ratio?

Answer 42

contribution margin as a % of sales revenue

Question 43

margin of safety

Answer 43

the amount of decreased revenues that could have been incurred before breakeven or becoming unprofitable