Break-Even Point and Cost-Volume-Profit Analysis
true
In CVP analysis, sales and production are assumed to be equal.
true
The margin of safety is an effective measure of risk for a company.
true
Total fixed costs remain unchanged with levels of production.
false
Total fixed costs vary inversely with levels of production.
true
Total variable product costs vary directly with levels of production.
true
A company's break-even point is the level where total revenues equal total costs.
false
Absorption costing is more useful than variable costing in determining a company's break-even point.
false
After the break-even point is reached, each dollar of contribution margin is a dollar of after-tax profit.
true
After the break-even point is reached, each dollar of contribution margin is a dollar of before-tax profit.
true
Break-even point may be expressed in terms of units or dollars.
true
Dividing total fixed costs by the contribution margin ratio yields break-even point in sales dollars.
false
Dividing total fixed costs by the contribution margin ratio yields break-even point in units.
false
Fixed costs per unit remain constant with levels of production.
true
Fixed costs per unit vary inversely with levels of production.
true
In a multi-product environment, CVP analysis makes the assumption that a company's sales mix is constant.
true
Incremental analysis focuses on factors that change from one decision to another.
false
On a CVP graph, the total cost line intersects the y-axis at zero.
true
On a CVP graph, the total fixed cost line parallels the x-axis.
true
On a CVP graph, the total revenue line intersects the y-axis at zero.
true
On a CVP graph, the total variable cost line intersects the y-axis at zero.
true
The margin of safety is computed by dividing 1 by the degree of operating leverage.
true
There is an inverse relationship between degree of operating leverage and the margin of safety.
true
Variable costing is more useful than absorption costing in determining a company's break-even point.
true
Variable costs per unit remain unchanged with levels of production.
false
Variable costs per unit vary directly with levels of production.
false
When computing profit on an after-tax basis, it is necessary to divide the pretax profit by the effective tax rate.
true
When computing profit on an after-tax basis, it is necessary to multiply the pretax profit by (1 - effective tax rate).
true
When using CVP analysis to determine sales level for a desired amount of profit, the profit is treated as an additional cost to be covered.
