ACCT Chapter 4 Concepts

Which of the following will increase a company's breakeven point? a. increasing variable cost per unit b. increasing contribution margin per unit c. reducing its total fixed costs d. increasing the selling price per unit

a. increasing variable cost per unit

The margin of safety is the difference between: a budgeted expenses and breakeven expenses b budgeted revenues and breakeven revenues c actual operating income and budgeted operating income d actual contribution margin and budgeted contribution margin

b budgeted revenues and breakeven revenues

On a cost-volume-profit graph, the break-even point is where a. the revenue line intersects the profit line. b. the revenue line intersects the total cost line. c. the fixed cost line intersects the variable cost line. d. the contribution margin line intersects the fixed cost line. e. All of these are correct.

b. the revenue line intersects the total cost line.

Breakeven point is: a total costs divided by variable costs per unit b contribution margin per unit divided by revenue per unit c fixed costs divided by contribution margin per unit d the sum of fixed and variable costs divided by contribution margin per unit

c fixed costs divided by contribution margin per unit

To determine contribution margin use: a.only variable manufacturing costs b.only fixed manufacturing costs c. both variable and fixed manufacturing costs d. both variable manufacturing costs and variable nonmanufacturing costs

d. both variable manufacturing costs and variable nonmanufacturing costs

If one increases variable costs per unit, the break-even point will decrease.

false

If the break-even point increases, the margin of safety increases.

false

Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.

true

The cost-volume profit graph depicts the relationships among cost, volume, and profits, by plotting the total revenue line and the total cost line on the graph.

true

The difference between total revenues and total variable costs is called contribution margin.

true

A company with a low degree of operating leverage is at greater risk during downturns in the economy.

false

If variable expenses decrease and the price increases, the break-even point decreases.

true

The margin of safety measures the units sold or the revenue earned above the break-even volume.

true

The profit-volume graph shows the relationship between operating income and the number of units sold.

true

Which of the following can be considered a measure of risk in cost-volume-profit analysis? a. margin of safety b. break-even point c. contribution margin d. sales mix

a. margin of safety

If the contribution margin per unit decreases, the break-even point in units a. will increase. b. will decrease. c. will remain the same. d. cannot be determined from the information given.

a. will increase.

The breakeven point in CVP analysis is defined as: a when fixed costs equal total revenues b fixed costs divided by the contribution margin per unit c revenues less variable costs equal operating income d when the contribution margin percentage equals total revenues divided by variable costs

b fixed costs divided by the contribution margin per unit

If variable costs per unit decrease, sales volume at the break-even point will a. double. b. decrease. c. stay constant. d. increase.

b. decrease

If fixed costs increase, the break-even point in units will a. remain the same; however, contribution per unit will decrease. b. increase. c. remain the same. d. decrease.

b. increase

The cost-volume-profit graph a. plots three separate lines. b. plots the total revenue line and the total cost line. c. measures the vertical axis in units sold and the horizontal axis in dollars. d. All of these are correct.

b. plots the total revenue line and the total cost line.

A "what-if" technique that examines the impact of changes in underlying assumptions on a result is a. margin of safety. b. sensitivity analysis. c. indifference point. d. sales mix. e. cost structure.

b. sensitivity analysis.

If actual sales equal break-even sales a. the margin of safety is negative or positive. b. the margin of safety equals zero. c. it is impossible to say anything about the margin of safety. d. the margin of safety is negative. e. the margin of safety is positive.

b. the margin of safety equals zero.

Operating leverage is a. the difference between sales and variable expense. b. the use of fixed costs to extract higher percentage changes in profits as sales activity changes. c. the portion of each sales dollar available to cover fixed costs and provide for profit. d. visually portrays the relationship between profits and units sold. e. none of these

b. the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

The breakeven point decreases if: a.the variable cost per unit increases b.total fixed costs decrease c.the contribution margin per unit decreases d. selling price per unit decreases

b.total fixed costs decrease

If the selling price per unit increases, the break-even point in units will a. remain the same. b. increase. c. decrease. d. remain the same; however, contribution per unit will decrease.

c. decrease

If variable costs per unit decrease, sales volume at the break-even point will a. double. b. increase. c. decrease. d. stay constant.

c. decrease

The margin of safety in dollars is a. costs at break-even minus expected profit. b. expected sales minus expected profit. c. expected sales minus sales at break-even. d. expected costs minus costs at break-even. e. expected profit minus actual profit.

c. expected sales minus sales at break-even.

If fixed costs increase, the break-even point in units will a. remain the same; however, contribution per unit will decrease. b.decrease. c.increase. d.remain the same.

c. increase

Sales can decline by how much before losses are incurred? a. contribution margin ratio b. variable cost ratio c. margin of safety d. common fixed costs e. sales ratio

c. margin of safety

The contribution margin is a. the difference between operating income and margin of safety. b. equal to sales. c. the difference between sales and variable costs. d. the difference between target income and operating income. e. when total sales equals total costs.

c. the difference between sales and variable costs.

Contribution margin equals: a.revenues minus period costs b.revenues minus product costs c.revenues minus variable costs d.revenues minus fixed costs

c.revenues minus variable costs

At the break-even point, a. total margin of safety equals variable cost. b. total fixed cost equals variable cost. c. total sales equals total fixed cost. d. total contribution margin equals total fixed cost. e. total revenue equals variable cost.

d. total contribution margin equals total fixed cost.

The breakeven point is the activity level where: a.revenues equal fixed costs b.revenues equal variable costs c.contribution margin equals variable costs d.revenues equal the sum of variable and fixed costs

d.revenues equal the sum of variable and fixed costs

Which is the equation for operating income? a.(Price × Units sold) + (Unit variable cost × Units sold) − Fixed cost b.(Price × Units sold) + (Unit variable cost × Units sold) + Fixed cost c.(Price − Units sold) + (Unit variable cost − Units sold) + Fixed cost d.(Price + Units sold) − (Unit variable cost + Units sold) − Fixed cost e(Price × Units sold) − (Unit variable cost × Units sold) − Fixed cost

e(Price × Units sold) − (Unit variable cost × Units sold) − Fixed cost

Degree of operating leverage is calculated as a. Total sales / Common fixed costs b. Operating income / Contribution margin c. Variable costs / Sales d. Fixed costs / Variable costs e. Contribution margin / Operating income

e. Contribution margin / Operating income

A profit-volume graph visually portrays the relationship between a. total sales and fixed cost. b. profits and degree of operating leverage. c. total sales and variable costs. d. total sales and margin of safety. e. profits and units sold.

e. profits and units sold.

The break-even point is when a. total sales equals operating income. b. total sales equal variable costs. c. the company is operating at a loss. d. the company is earning a small profit. e. total revenue equals total cost.

e. total revenue equals total cost.

If a company increases fixed costs, then the breakeven point will be lower.

false

If fixed costs increase, the break-even point decreases.

false

Most firms would like to earn operating income equal to the break-even point.

false

Managers can use CVP analysis to handle risk and uncertainty.

true

The break-even point is where total sales revenue equals total cost.

true

The contribution margin income statement provides a good check to determine if the sale of a certain number of units really results in operating income of the given amount.

true

The contribution margin ratio can be calculated by subtracting the variable cost ratio from one.

true

The impact on a firm's income resulting from a change in the number of units sold can be assessed by multiplying the unit contribution margin by the change in units sold assuming that fixed costs remain the same.

true

The profit-volume graph shows the relationship between profits and units sold.

true