CVP-Multiple Choice

To obtain a target profit the company must have a. contribution margin higher than fixed costs by the same amount as the target profit b. fixed costs greater than the contribution margin by the same amount as the target profit c.sales greater than fixed costs by the same amount as the target profit d. none of the above is correct

a. contribution margin higher than fixed costs by the same amount as the target profit

As the contribution margin percentage increases, the sales dollars required to break even will a. decrease b. increase c. remain the same d. can't tell unless you know what the contribution margin is currently

a. decrease

Margin of safety indicates to management a. how far sales can decrease and the company will be profitable b. how much sales will decrease as the sales price is increased c. how much fixed costs need to decrease to obtain profitability d. how much variable costs will increase as sales increase

a. how far sales can decrease and the company will be profitable

The break even point change when the company a. increases fixed costs b. increases production c. decreases sales d. increases sales

a. increases fixed costs

Contribution margin is calculated as a. sales - variable costs b. sales - total fixed costs - variable costs c. total variable costs - total fixed costs d. total fixed costs - total variable costs

a. sales - variable costs

Contribution margin is a. the amount from sales that is available to cover fixed costs b. the amount from sales that is available to cover variable costs c. sales less fixed costs d. fixed costs less variable cost

a. the amount from sales that is available to cover fixed costs

When fixed costs increase a. the number of units required to break even will increase b. the number of units required to break even will decrease c. the number of units required to break even will not change d. fixed costs never increase in total fro the company

a. the number of units required to break even will increase

When fixed cost increases a. the number of units that must be sold to achieve a target profit increase b. the amount of sales dollars that must be sold to achieve a target profit decreases c. the contribution margin increases d. the variable costs increase proportionately

a. the number of units that must be sold to achieve a target profit increase

At the break-even point, contribution margin equals a. total fixed costs b. total revenues c. total variable costs d. all costs

a. total fixed costs

Management changed the salesperson' compensation from a fixed salary to only sales commission based on sales dollars. If the company is more profitable, the a. break even point will increase b. break even point will decrease c. operating leverage will decrease d. contribution margin will decrease

b. break even point will decrease

If the selling price per unit increases, units sold to achieve break-even will a. increase b. decrease c. remain the same d. not enough information to be able to tell

b. decrease

When the contribution margin ratio increases, the sales dollars required to achieve break even will a. increase b. decrease c. remain the same d. not enough information to be able to tell

b. decrease

Cost volume profit analysis assumes that fixed costs a. remain constant from one year to the next b. do not change in total as volume changes c. behave in the same way that variable costs behave d. do not change per unit as volume changes

b. do not change in total as volume changes

At break even point, the fixed costs are always a. more than the variable costs b. equal to the contribution margin c. greater than sales d. more than contribution margin

b. equal to the contribution margin

A management team that prefers to have a low operating leverage means that the company most likely a. expects a strong increase in sales volume b. expects a decrease in sales volume c. is very unprofitable d. has very high fixed costs

b. expects a decrease in sales volume

If the sales volume increases and nothing else changes a. contribution margin per unit will increase b. margin of safety will increase in units c. break even will increase in units d. operating income will decrease

b. margin of safety will increase in units

The margin of safety would be negative when a. fixed costs are less than contribution margin b. the company is currently unprofitable c. variable costs are less than fixed costs d. operating leverage is higher than 1.0

b. the company is currently unprofitable

When variable costs decrease and all other factors do not change a. the number of units necessary to be profitable increases b. the number of units necessary to be profitable decreases c. the number of units necessary to be profitable does not change d. none of the above

b. the number of units necessary to be profitable decreases

A company has variable costs of 60% of sales and wants to increase advertising expenses by $50,000. If sales increase by $100,000, how much will operating income change? a. $10,000 increase b. $90,000 decrease c. $10,000 decrease d. $40,000 decrease

c. $10,000 decrease

A company has one product with a break even point of 50,000 units. Fixed costs are $200,000 and the product sells for $10 each. What is the contribution margin ratio? a. 10% b. 20% c. 40% d. 50%

c. 40%

When a company's profits do not change as volume changes, it has a. no fixed costs b. no variable costs c. a sales price equal to variable costs d. fixed costs equal to variable costs

c. a sales price equal to variable costs

Operating leverage is calculated as a. operating income / fixed costs b. operating income / variable costs c. contribution margin / income d. income / contribution margin

c. contribution margin / income

The break even point in sales dollars can be calculated using: a. sales revenue as a percentage of income b. contribution margin as a percentage of income c. contribution margin as a percentage of sales d. fixed costs as a percentage of sales

c. contribution margin as a percentage of sales

To maximize profits the company should pay a high sales commission on a. products with a high variable cost b. products associated with low fixed cost c. products with high contribution margin ratios d. products with the highest prices

c. products with high contribution margin ratios

If fixed costs increase while the sales price and variable costs do not change, the contribution margin will a. increase b. decrease c. remain constant d. change in direct proportion to the increase in fixed costs

c. remain constant

Which cost would not be subtracted from sales to determine contribution margin per unit? a. direct materials, one required for each unit b. sales commission based on sales dollars c. rent on the manufacturing facility d. labor hours worked, two hours required for each unit at $10 per hour

c. rent on the manufacturing facility

Total contribution margin is equal to a. fixed costs plus variable costs b. fixed costs less variable costs c. sales - variable costs d. sales - fixed costs

c. sales - variable costs

Operating leverage is related to a. sales and variable costs only b. sales and fixed costs only c. sales and fixed costs and variable costs d. variable costs and contribution margin dollars

c. sales and fixed costs and variable costs

What must you consider when doing cost volume profit analysis when the company has four different products with four different contribution margin ratios? a. the per unit contribution margin of each product only b. the fixed costs will change as the mix changes within the relevant range c. that the sales mix will impact profitability d. that as sales increase the variable costs will decrease

c. that the sales mix will impact profitability

A company must monitor the sales mix when a. one product accounts for 99% of sales b. the company only has one product c. the company has many products with different contribution margins d. the company has many products with the same contribution margin

c. the company has many products with different contribution margins

Two companies have a break even point of 2,000 units. One company has lower fixed costs and higher variable costs than the other company. How will a 10% increase in units sold affect the two companies? a. the two companies profits will increase by the same percentage b. the company with the higher variable cost will be more profitable c. the company with the higher variable cost will be less profitable d. can't determine without additional information

c. the company with the higher variable cost will be less profitable

The margin of safety is a. the same thing as the contribution margin ratio b. the difference between budgeted contribution margin and actual CM c. the difference between budgeted sales and break even sales d. the difference between actual sales and budgeted sales

c. the difference between budgeted sales and break even sales

Break even is a. the point where the sales is equal to variable costs b. the point where the fixed costs is equal to variable costs c. the point where the contribution margin is equal to fixed costs d. the point where the contribution margin is equal to variable costs

c. the point where the contribution margin is equal to fixed costs

A company could never incur a loss that is greater than a. total sales b. total fixed costs c. total costs d. total contribution margin

c. total costs

The company's sales are $200,000 variable costs are $120,000 and fixed costs are $25,000. If sales increase by 10%, what will operating income be? a. $75,000 b. $60,000 c. $65,000 d. $63,000

d. $63,000

Contribution margin is calculated as a. one less than the variable cost as a percentage of sales b. sales per unit less variable cost per unit c. sales less fixed costs less income d. all of the above

d. all of the above

When calculating break even, which of the following is true? a. sales mix remains the same b. variable costs do not change per unit c. fixed costs change per unit d. all of the above

d. all of the above

When preparing a contribution margin income statement a. net income + fixed costs = contribution margin b. variable costs are grouped together and fixed costs are grouped together c. you can determine how profit will change as volume changes d. all of the above

d. all of the above

A company will be at break even when a. fixed cost equals contribution margin b. revenues equal fixed cost and there are variable costs c. revenues less variable costs equals fixed costs d. either a. or c.

d. either a. or c.

To calculate the break even point in sales dollars you would use the formula a. sales / total costs b. fixed costs / sales price c. fixed costs / contribution per unit d. fixed costs / total contribution margin / sales

d. fixed costs / total contribution margin / sales

Which of the following is not a major assumption that is used in cost volume profit analysis? a. all costs are categorized as fixed or variable b. total contribution margin will change as volume changes c. variable costs are constant per unit d. fixed costs are constant per unit

d. fixed costs are constant per unit

Cost volume profit analysis requires that costs are categorized as a. product or period b. committed or discretionary c. fixed, mixed, or variable d. fixed or variable

d. fixed or variable

Contribution margin per unit is equal to a. sales per unit less variable cost in total b. sales in total less fixed cost per unit c. sales in total less fixed cost in total divided by total units d. sales in total less variable costs in total divided by total units

d. sales in total less variable costs in total divided by total units

The contribution margin ratio is a. the percentage of fixed costs to variable costs b. the percentage of sales to fixed costs c. the percentage that income will increase as sales increase d. the percentage of every sales dollar that is available to cover fixed costs

d. the percentage of every sales dollar that is available to cover fixed costs

Once the volume of sales is higher than the break even point a. the contribution margin ratio increases b. the contribution margin per unit increases c. total fixed cost per unit will not change d. total contribution margin will be higher than fixed costs

d. total contribution margin will be higher than fixed costs