chapter 5- conceptual

according to the cop analysis model and assuming all else remains the same, profits would be increased by:

a decrease in the unit variable cost

With regards to interpreation, what are the important areas that appear on a CVP graph?

break-even point, loss area, and profit area

What is represented on the X axis of a cost-volume-profit (CVP) graph?

unit volume

The break-even in units sold will decrease if there is an increase in:

selling price

cop analysis allows companies to easily identify the change in profit due to changes in:

selling price costs volume

Which of the following is NOT a correct definition of the break-even point?

the point where total profit equals total fixed expenses.

(True / False) When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

true

(True / False)If fixed expenses increase by $10,000 per year, then the sales needed to break even will generally increase by more than $10,000.

true

All other things the same, an increase in total fixed expenses will increase the break-even point.

true

For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales.

true

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses.

true

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

What is usually plotted as a horizontal line on the CVP graph?

fixed expenses

contribution margin becomes profit after:

fixed expenses are covered

T/F. the smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses

False

The profit graph is based on the following linear equation:

Profit=Unit CM x Q - fixed expenses

There is no relationship between Profit and Contribution margin.

false

(True / False) A shift in the sales mix from low-margin items to high-margin items will decrease total profits even though total sales increase.

false

(True / False) For a given level of sales, a low contribution margin ratio will produce more net operating income than a high contribution margin ratio.

false

If sales volume decreases and all other factors remain unchanged, the contribution margin ratio will decrease.

false

Break-even point is the level of sales at which ______.

total revenue equals total costs

(True / False) The break-even point in units can be obtained by dividing total fixed expenses by the unit contribution margin.

true

(True / False) The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.

true