chapter 3

Which of the following is true of cost-volume-profit analysis?

The theory assumes that units manufactured equal units sold.

Which of the following is an assumption of CVP analysis?

Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.

Which of the following is true of CVP analysis?

Total revenues and total costs are linear in relation to output units.

The breakeven point is the activity level where ________.

revenues equal the sum of variable and fixed costs

Contribution margin equals ________.

revenues minus variable costs

The breakeven point decreases if ________.

the total fixed costs decrease

If unit outputs exceed the breakeven point ________.

there will be a profit

Managers use cost-volume-profit (CVP) analysis to ________.

to study the behavior of and relationship among the elements such as total revenues, total costs, and income

Which of the following is the mathematical expression of contribution margin ratio?

Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)

A revenue driver is defined as ________.

any factor that affects revenues

The contribution margin income statement ________.

can be used to predict future profits at different levels of activity

The selling price per unit less the variable cost per unit is the ________.

contribution margin per unit

As per CVP, operating income calculations use ________.

contribution margins and fixed costs

The breakeven point revenues is calculated by dividing ________.

fixed costs by contribution margin percentage

Breakeven point in units is ________

fixed costs divided by contribution margin per unit

One of the first steps to take when using CVP analysis to help make decisions is ________.

identifying the variable and fixed costs