Managerial Chp 5 T/F
All other things the same, an increase in variable expense per unit will reduce the break-even point.
False
If sales volume decreases, and all other factors remain unchanged, the contribution margin ratio will decrease.
False
On a cost-volume-profit graph, the revenue line will be shown below the total expense line for any activity level above the break-even point.
False
One assumption in CVP analysis is that the number of units produced and sold does not change.
False
One way to compute the total contribution margin is to deduct total fixed expenses from net operating income.
False
The impact on net operating income of a given dollar change in sales can be computed by multiplying the contribution margin by the dollar change in sales.
False
The margin of safety in dollars equals the excess of actual sales over budgeted sales.
False
The overall contribution margin ratio for a company producing three products may be obtained by adding the contribution margin ratios for the three products and dividing the total by three.
False
All other things the same, a reduction in the variable expense per unit will decrease the break-even point.
True
All other things the same, an increase in total fixed expenses will increase the break-even point.
True
All other things the same, if the fixed expenses increase in a company then one would expect the margin of safety to increase.
True
All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high fixed costs and low variable costs than in a company with high variable costs and low fixed costs.
True
As total sales increase beyond the break-even point, the degree of operating leverage will decrease.
True
At the break-even point, the total contribution margin and fixed expenses are equal.
True
For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales.
True
If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be higher in the company with a higher proportion of fixed expenses in its cost structure.
True
In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be higher in the company with a higher proportion of fixed expenses in its cost structure.
True
Incremental analysis is generally the most complicated and least direct approach to decision making.
True
Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $10 if one more unit is sold.
True
The degree of operating leverage in a company is largest at the break-even point and decreases as sales rise.
True
The unit sales volume necessary to reach a target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin per unit.
True
