BUA 202

True

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase

True

In a CVP graph (sometimes called a break-even chart), unit volume is represented on the horizontal (X) axis and dollars on the vertical (Y) axis.

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

net operating income

Which of the following statements is correct with regard to a CVP graph?

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line

False

On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line.

False

The break-even point can be determined by simply adding together all of the expenses from the income statement

True

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

False

The degree of operating leverage is computed by dividing sales by the contribution margin.

True

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

True

To estimate what the profit will be at various levels of activity, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.