Chapter 7-Multiple Choice

Contribution margin ratio is computed by

dividing contribution margin by sales revenue.

The area to the right of the breakeven point and between the total revenue line and the total expense line represents

expected profits

A company's margin of safety is computed as

expected sales - sales at breakeven

The unit contribution margin is computed by

Subtracting the variable cost per unit form the sales price per unit

Which of the following is not an approach used to calculate the breakeven point?

The balance sheet approach

Fixed costs divided by weighted-average contribution margin per unit equals

breakeven sales in units

A company's margin of safety can be stated

A) in units. B) in dollars. C) as a percentage of sales. D) any of the above. Answer: D

________ should be subtracted from the sales price per unit to compute the unit contribution margin.

All variable costs

Assuming no other changes in the cost-volume-profit relationship, which of the following will decrease the breakeven point in units?

An increase in the selling price per unit

If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged, which of the following statements is true?

Breakeven point in units could increase, decrease, or remain the same.

The breakeven point may be defined as the number of units a company must sell to do which of the following?

Generate a zero profit

CVP analysis assumes all of the following except

Inventory levels will increase

To find the number of units that need to be sold to breakeven, the formula used could be

fixed expenses ÷ contribution margin per unit

To find the sales revenue needed to breakeven, the formula used could be

fixed expenses ÷ contribution margin ratio

The higher the operating leverage factor, the

greater the impact of volume on operating income.

When using the income statement approach to finding breakeven, which of the following is true?

sales revenue - variable expenses - fixed expenses = operating income

To find the breakeven point using the shortcut formulas, you use

zero for the operating income

If total fixed costs decrease while the selling price per unit and variable costs per unit remain constant, which of the following statements is true?

Breakeven point in units decreases

The contribution margin ratio explains the percentage of each sales dollar that

Contributes towards fixed costs and generating a profit

The intersection of the sales revenue line and the variable expense line on a CVP graph is known as

None of the above

The difference between sales dollars and total costs after breakeven point on a CVP graph is the representation of

Operating Income

Total contribution margin less total fixed expenses equals

Operating Income

If the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true?

The contribution margin increases and the breakeven point decreases.

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

Unit contribution margin

All else being equal, a company with a low operating leverage will have

relatively high variable costs.

The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents

total fixed costs

The line that begins at the origin on a CVP graph represents

total sales revenues

If the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true?

Breakeven point in units increases

Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________.

Profit, loss

By multiplying ________ and then subtracting fixed costs, managers can quickly forecast the operating income.

Projected sales revenue by the contribution margin ratio

To find the number of units that need to be sold in order to breakeven or generate a target profit, the formula used is

(fixed expenses + operating income) ÷ contribution margin per unit

To find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit, the formula used is

(fixed expenses + operating income) ÷ contribution margin ratio

The lowest possible operating leverage factor for a company is:

+1

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line representing which of the following?

Operating loss

What is contribution margin equal to on a contribution margin income statement?

Sales revenues minus variable expenses

Which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant?

The contribution margin decreases and the breakeven point increases.

If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true?

The contribution margin increases and the breakeven point decreases.

If the fixed costs increase while the sales price per unit and variable costs per unit remain constant, which of the following statements is true?

The contribution margin stays the same and the breakeven point increases

To find a firm's operating leverage factor at a given level of sales, you

divide the contribution margin by operating income.

On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

The breakeven point

By multiplying the operating leverage factor by the anticipated percentage change in volume, one can find

the anticipated change in operating income.

What will be the effect on the contribution margin ratio if the selling price per unit decreases and variable cost per unit remains the same?

It will decrease

Which of the following is an underlying assumption of the cost-volume-profit graph?

Volume is the only cost driver

If a company sells 13 of Product A for every 3 of Product B that it sells, the sales mix can be stated as

both "13:3" and " 13/16 A and 3/16 B" are correct.

If a company sells 15 of Product A for every 2 of Product B that it sells, the sales mix can be stated as

both "15:2" and " 15/17 A and 2/17 B" are correct.

Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ________ Company B when considering only margin of safety:

less risky than

Total predicted sales (in units) minus total breakeven sales in units divided by total predicted sales (in units) yields

margin of safety percentage

Contribution margin less fixed costs yields

operating income

Managers can quickly forecast the total contribution margin by dividing the

projected sales revenue by the contribution margin ratio.

All else being equal, a company with a high operating leverage will have

relatively high contribution margin ratio.

All of the following would be considered a company with high operating leverage, except

retailer