AC202 (CH18)
Which one of the following is not an assumption of cost-volume-profit analysis?
Changes in activity and sales mix are the only factors that affect costs.
The break-even point can be
Computed from a mathematical equation. Computed by using contribution margin. Derived from a cost-volume-profit graph
Why is determination of a relevant range important?
Cost behavior outside the relevant range may be distorted
Contribution margin
Is revenue remaining after deducting variable costs. May be expressed as contribution margin per unit
Which one of the following is correct concerning contribution margin?
It is helpful in determining the effect of changes in sales on net income.
Which one of the following is not an assumption of CVP analysis?
Profit for the period is constant.
On a CVP income statement
Sales - Variable costs = Contribution margin
What is contribution margin?
The amount available to cover fixed costs and contribute to profits.
The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph
True
Variable costs are costs that
Vary in total directly and proportionately with changes in the activity level. Remain the same per unit at every activity level.
Which statement describes a fixed cost?
When activity declines, its cost per unit increases.
Margin of safety is computed as
actual sales - break-even sales
Mixed costs
are costs that vary as activity level changes, but do not stay the same per unit like variable cost
At the break-even point
contribution margin equals total fixed costs
The break-even point in dollars is computed by dividing
fixed costs by contribution margin ratio.
CVP analysis considers the interrelationships among all of the following components except
fixed costs per unit
One of the following is not involved in CVP analysis. That factor is
fixed costs per unit
Required sales in dollars to meet a target net income is computed by dividing
fixed costs plus target net income by contribution margin ratio
The margin of safety ratio is computed by dividing
margin of safety in dollars by actual sales
Costs that change in total but not proportionately with changes in the activity level a
mixed costs
When comparing a traditional income statement to a CVP income statement
net income will always by identical on both
Which of the following is likely to contain a linear relationship between costs and activities?
relevant range
contribution margin=
sales-variable costs
Contribution margin is
the amount available to cover fixed costs and contribute to income for the company
Cost-volume-profit analysis includes all of the following assumptions except
the behavior of costs is curvilinear throughout the relevant range
The relevant range is
the range over which the company expects to operate during a year.
Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.
true
Margin of safety is the difference between actual sales and sales at the break-even point.
true
Target net income is an income objective for individual product lines set by management.
true
An example of a mixed cost is
utility costs
Mixed costs consist of a
variable cost element and a fixed cost element
What type of cost remains the same per unit at every level of activity?
variable costs
The mathematical equation for computing required sales to obtain target net income is: Required sales =
variable costs + fixed costs + target net income