Acc 314 Ch 3
Which of the following is true of cost-volume-profit analysis?
The theory assumes that units manufactured equal units sold.
Which of the following is an assumption of CVP analysis?
Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
Which of the following is true of CVP analysis?
Total revenues and total costs are linear in relation to output units.
If the sales mix shifts to four units of Product A and one unit of Product B, then the breakeven point will ________.
increase
If a company would like to increase its degree of operating leverage it should ________.
increase its fixed costs relative to its variable costs
If the sales mix shifts to one unit of Product X and two units of Product Y, then the weighted-average contribution margin will ________.
increase per unit
Which of the following will increase a company's breakeven point?
increasing variable cost per unit
In a company with low operating leverage, ________.
less risk is assumed than in a highly leveraged firm
To apply CVP analysis in not-for profit organization ________.
managers need to focus on measuring their output, which is different from the tangible units sold by manufacturing and merchandising companies
Which of the following is an output measure for a hospital?
number of days spent by a patient in a hospital
To apply CVP analysis in the hotel industry, which of the following is the most important measure of output?
number of room-nights occupied
In the merchandising sector ________.
only variable costs are subtracted to determine gross margin
At breakeven point, ________.
operating income is equal to zero
In multiproduct situations, when sales mix shifts toward the product with the lowest contribution margin then ________.
operating income will decrease
Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then ________.
operating profits increases by $6 per unit
If a company has a degree of operating leverage of 3.0 and sales increase by 25%, then ________.
profit will increase by 75%
All else being equal, a reduction in selling price will ________.
reduce operating income
All else being equal, an increase in advertising expenditures will ________.
reduce operating income
The breakeven point is the activity level where ________.
revenues equal the sum of variable and fixed costs
Contribution margin equals ________.
revenues minus variable costs
Gross margin is ________.
sales revenue less cost of goods sold
The breakeven point decreases if ________.
the total fixed costs decrease
If unit outputs exceed the breakeven point ________.
there will be a profit
Managers use cost-volume-profit (CVP) analysis to ________.
) to study the behavior of and relationship among the elements such as total revenues, total costs, and income
________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.
A sensitivity analysis
Which of the following is the mathematical expression of contribution margin ratio?
Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
Which of the following statements about net income (NI) is true?
NI = operating income less income taxes.
Which of the following is true of net income?
Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.
Which of the following is true about the assumptions underlying basic CVP analysis?
Only selling price, variable cost per unit, and total fixed costs are known and constant.
A revenue driver is defined as ________.
any factor that affects revenues
Fixed Costs ________.
are considered variable costs over the long run
The margin of safety is the difference between ________.
budgeted revenues and breakeven revenues
The contribution margin income statement ________.
can be used to predict future profits at different levels of activity
The selling price per unit less the variable cost per unit is the ________.
contribution margin per unit
As per CVP, operating income calculations use ________.
contribution margins and fixed costs
Which of the following forms a part of decision making in CVP analysis?
decision to advertise
If the sales mix shifts to one unit of Product X and two units of Product Y, then the breakeven point will ________.
decrease
If the sales mix shifts to four units of Product A and one unit of Product B, then the weighted-average contribution margin will ________.
decrease per unit
The planned operating income is calculated by ________.
dividing net income by 1 − tax rate
The breakeven point revenues is calculated by dividing ________.
fixed costs by contribution margin percentage
Breakeven point in units is ________.
fixed costs divided by contribution margin per unit
In the manufacturing sector, ________.
fixed overhead costs are subtracted to determine gross margin
Multiple cost drivers ________.
have no unique breakeven point
One of the first steps to take when using CVP analysis to help make decisions is ________.
identifying the variable and fixed costs
Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________.
variable costs per unit decrease
When a greater proportion of costs are fixed costs, then ________.
when demand is low the risk of loss is high
In CVP analysis, focusing on target net income rather than operating income ________.
will not change the breakeven point
