True or False - Chapter 22
The break-even point is equal to the fixed costs plus net income.
False
The break-even point is where total sales equal total variable costs.
False
The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price.
False
The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.
False
The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.
False
The margin of safety is the difference between contribution margin and fixed costs.
False
The relevant range of activity is the activity level where the firm will earn income.
False
A CVP income statement classifies expenses by function rather than by cost behavior.
False
A target net income is calculated by taking actual sales minus the margin of safety.
False
Both variable and fixed costs are included in calculating the contribution margin.
False
If volume increases, all costs will increase.
False
A mixed cost has both selling and administrative cost elements.
False
When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.
True
Variable costing is not acceptable in reporting to stockholders under generally accepted accounting principles.
True
A CVP income statement classifies total costs by functional areas.
False
A fixed cost remains constant in total and on a per unit basis at various levels of activity.
False
Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.
False
Contribution margin is the amount of revenues remaining after deducting cost of goods sold.
False
Costs will not change in total within the relevant range of activity.
False
For planning purposes, mixed costs are generally grouped with fixed costs.
False
The trend in most companies is to have more variable costs and fewer fixed costs.
False
A CVP income statement shows contribution margin instead of gross profit.
True
A cost-volume-profit graph shows the amount of net income or loss at each level of sales.
True
A variable cost remains constant per unit at various levels of activity.
True
An activity index identifies the activity that has a causal relationship with a particular cost.
True
An assumption of CVP analysis is that all costs can be classified as either variable or fixed.
True
For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.
True
For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements.
True
If more units are sold than are produced in a period, variable costing income will be greater than absorption costing income.
True
If the activity index decreases, total variable costs will decrease proportionately.
True
If the unit contribution margin is $1 and unit sales are 15,000 units above the break-even volume, then net income will be $15,000.
True
In CVP analysis, the term cost includes manufacturing costs, and selling and administrative expenses.
True
The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars.
True
The fixed cost element of a mixed cost is the cost of having a service available.
True
The high-low method is used in classifying a mixed cost into its variable and fixed elements.
True
The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales.
True
Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.
True
