ACTY 2110 Ch. 6

price

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

target profit

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called _____ _____ analysis.

c

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______. a.) leverage leap b.) margin of safety c.) degree of operating leverage d.) sales commissions percentage

variable, fixed

The term cost structure refers to how a company uses _____ costs versus _____ costs in its operations.

false

True or false: CVP analysis is only used for break-even and target profit analysis.

false

True or false: Cost structure refers to how a company uses product and period costs in an organization.

false

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

True or false: The terms operating leverage and financial leverage refer to the same concept.

decrease

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will ______.

fixed

When constructing a CVP graph, the place where the total cost line intercepts the y-axis represents total _____ costs.

dollars

When constructing a CVP graph, the vertical axis represents ______.

b

When preparing a CVP graph, the slope of the total cost line represents ______. a.) total fixed costs b.) variable cost per unit c.) sales volume d.) sales dollars per unit

b, c, d

Which of the following are assumptions of cost volume profit analysis? a.) Total cost and total revenue are affected by both volume and price changes. b.) All costs can be classified as either fixed or variable. c.) Production volume is equal to sales volume. d.) In multi-product companies, the sales mix is constant.

c

Which of the following is NOT a method used for basic CVP analysis? a.) Contribution margin ratio b.) Profit equation c.) Break-even analysis d.) Unit contribution margin

a

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs? a.) CVP analysis b.) Cost structure c.) Degree of operating leverage d.) Target profit analysis

a, c, d

CVP ______. a.) allows managers to see how changing one variable can impact another b.) only works in single product companies c.) can be used to make many different decisions d.) can be used for "what-if" analysis

a, b, c, e, f

CVP analysis can be useful in deciding ______. a.) what price to charge for goods or services b.) which products to offer c.) which services to offer d.) how to change the sick leave policy for employees e.) what marketing strategy to use f.) what cost structure to implement

d

CVP analysis can help answer the question of _____. a.) which benefits employees prefer b.) who to hire for the controller position c.) how a factory should be designed d.) how net income can be increased

c

Contribution margin ______. a.) is first used to cover variable expenses b.) equals sales minus fixed expenses c.) covers fixed cost and profit

financial leverage

Decisions about the use of debt versus equity affects a company's:

operating leverage

Decisions about whether to use fixed or variable costs to run a business impact a company's:

a

Degree of operating leverage equals ______. a.) Contribution margin/Net operating income b.) Contribution margin/Total sales c.) Total sales/Net operating income d.) Gross margin/Net operating income

contribution margin ratio

How much contribution margin is generated per dollar of sales revenue is the:

b

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______. a.) remain unchanged b.) both increase c.) both decrease

higher

If operating leverage is high, a small percentage increase in sales produces a _____ (higher/lower) percentage increase in net operating income than if operating leverage is low.

a, b

In the profit equation, total ______ is a function of the number of units sold (Q). a.) sales revenue b.) variable costs c.) fixed costs

indifference point

Managers should be willing to choose either alternative at the _____ _____ because the profit is the same.

indifference point

Setting two profit equations so that they yield the same profit allows managers to calculate the:

contribution margin

The amount each unit sold contributes towards fixed costs and profit is the unit _____ _____.

a

The amount that each unit sold contributes to fixed costs and profit is ______. a.) unit contribution margin b.) variable cost per unit c.) unit sales price

unit contribution margin

The amount that each unit sold contributes to fixed costs and profit is:

equal to

The break-even point is reached when total revenue is ______ total costs.

zero

The break-even point is the level of sales at which the profit equals _____.

contribution margin ratio

The contribution margin stated as a percentage of sales dollars is the:

b

The difference between break-even analysis and target profit analysis is the ______. a.) total amount of fixed costs b.) amount that profit is set to c.) formula that is used d.) selling per unit price

c

The distance between the total revenue line and the total cost line a on a cost-volume-profit graph represents the ______. a.) total contribution margin b.) total amount of revenue c.) total amount of either profit or loss d.) break-even point

margin of safety

The excess of the budgeted (or actual) sales dollars over break-even sales is called the:

b

The margin of safety percentage is ______. a.) total budgeted (or actual) sales in dollars divided by margin of safety in dollars b.) margin of safety in dollars divided by total budgeted (or actual) sales in dollars c.) total budgeted (or actual) sales in dollars divided by break-even sales in dollars d.) margin of safety in dollars divided by break-even sales in dollars

a, d

The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______. a.) profit equals zero b.) profit is greater than zero c.) profit is less than zero d.) the break-even point