Break-Even Point and Cost-Volume-Profit Analysis

c. FC/CM ratio

A firm's break-even point in dollars can be found in one calculation using which of the following formulas? a. FC/CM per unit b. VC/CM c. FC/CM ratio d. VC/CM ratio

b. a decrease in sales volume is expected.

A managerial preference for a very low degree of operating leverage might indicate that a. an increase in sales volume is expected. b. a decrease in sales volume is expected. c. the firm is very unprofitable. d. the firm has very high fixed costs.

incremental analysis

A process that focuses only on factors that change from one course of action to another is referred to as ___________________________________.

b. the total contribution margin exceeds the total fixed costs.

After the level of volume exceeds the break-even point a. the contribution margin ratio increases. b. the total contribution margin exceeds the total fixed costs. c. total fixed costs per unit will remain constant. d. the total contribution margin will turn from negative to positive.

a. degree of operating leverage declines.

As projected net income increases the a. degree of operating leverage declines. b. margin of safety stays constant. c. break-even point goes down. d. contribution margin ratio goes up.

b. equal to the contribution margin.

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

a. total variable costs are linear

Break-even analysis assumes over the relevant range that a. total variable costs are linear. b. fixed costs per unit are constant. c. total variable costs are nonlinear. d. total revenue is nonlinear.

b. variable costing.

CVP analysis is based on concepts from a. standard costing. b. variable costing. c. job order costing. d. process costing.

c. costs decrease.

CVP analysis relies on the assumptions that costs are either strictly fixed or strictly variable. Consistent with these assumptions, as volume decreases total a. fixed costs decrease. b. variable costs remain constant. c. costs decrease. d. costs remain constant.

a. either fixed or variable.

CVP analysis requires costs to be categorized as a. either fixed or variable. b. direct or indirect. c. product or period. d. standard or actual.

d. variable costs

Consider the equation X = Sales - [(CM/Sales) (Sales)]. What is X? a. net income b. fixed costs c. contribution margin d. variable costs

contribution margin ratio

Contribution margin divided by revenue is referred to as the ________________________________________.

d. For multi-product situations, the sales mix can vary at all volume levels.

Cost-volume-profit analysis is a technique available to management to understand better the interrelationships of several factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying CVP analysis? a. All costs incurred by a firm can be separated into their fixed and variable components. b. The product selling price per unit is constant at all volume levels. c. Operating efficiency and employee productivity are constant at all volume levels. d. For multi-product situations, the sales mix can vary at all volume levels.

d. a relevant range of volume.

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only a. fixed and mixed costs. b. relevant fixed costs. c. relevant variable costs. d. a relevant range of volume.

d. FC/(SP - VC)

Given the following notation, what is the break-even sales level in units? SP = selling price per unit, FC = total fixed cost, VC = variable cost per unit a. SP/(FC/VC) b. FC/(VC/SP) c. VC/(SP - FC) d. FC/(SP - VC)

b. contribution margin line would shift downward parallel to the present line.

If a company's fixed costs were to increase, the effect on a profit-volume graph would be that the a. contribution margin line would shift upward parallel to the present line. b. contribution margin line would shift downward parallel to the present line. c. slope of the contribution margin line would be more pronounced (steeper). d. slope of the contribution margin line would be less pronounced (flatter).

d. slope of the contribution margin line would be less pronounced (flatter).

If a company's variable costs per unit were to increase but its unit selling price stays constant, the effect on a profit-volume graph would be that the a. contribution margin line would shift upward parallel to the present line. b. contribution margin line would shift downward parallel to the present line. c. slope of the contribution margin line would be pronounced (steeper). d. slope of the contribution margin line would be less pronounced (flatter).

d. sales price must equal its variable costs.

If a firm's net income does not change as its volume changes, the firm('s) a. must be in the service industry. b. must have no fixed costs. c. sales price must equal $0. d. sales price must equal its variable costs.

a. contribution margin per unit.

In CVP analysis, linear functions are assumed for a. contribution margin per unit. b. fixed cost per unit. c. total costs per unit. d. all of the above.

b. total variable costs.

In a CVP graph, the area between the total cost line and the total fixed cost line yields the a. fixed costs per unit. b. total variable costs. c. profit. d. contribution margin.

d. profit.

In a CVP graph, the area between the total cost line and the total revenue line represents total a. contribution margin. b. variable costs. c. fixed costs. d. profit.

b. rate at which the contribution margin changes as volume changes.

In a CVP graph, the slope of the total revenue line indicates the a. rate at which profit changes as volume changes. b. rate at which the contribution margin changes as volume changes. c. ratio of increase of total fixed costs. d. total costs per unit.

c. generate the most profit for each unit sold.

In a multiple-product firm, the product that has the highest contribution margin per unit will a. generate more profit for each $1 of sales than the other products. b. have the highest contribution margin ratio. c. generate the most profit for each unit sold. d. have the lowest variable costs per unit.

c. operating leverage must increase.

Management is considering replacing an existing sales commission compensation plan with a fixed salary plan. If the change is adopted, the company's a. break-even point must increase. b. margin of safety must decrease. c. operating leverage must increase. d. profit must increase.

d. revenue line crosses the total cost line.

On a break-even chart, the break-even point is located at the point where the total a. revenue line crosses the total fixed cost line. b. revenue line crosses the total contribution margin line. c. fixed cost line intersects the total variable cost line. d. revenue line crosses the total cost line.

degree of operating leverage

The __________________________________________________ is computed by dividing the contribution margin by profit before tax.

b. variable costs as a percentage of net sales decrease.

The contribution margin ratio always increases when the a. variable costs as a percentage of net sales increase. b. variable costs as a percentage of net sales decrease. c. break-even point increases. d. break-even point decreases.

margin of safety

The excess of budgeted or actual sales over sales at break-even point is referred to as ______________________________.

1 ÷ Degree of Operating Leverage

The formula for margin of safety is _____________________________________________.

break-even point

The level of activity where a company's total revenues equal total costs is referred to as the ______________________________.

d. difference between budgeted sales and break-even sales.

The margin of safety is a key concept of CVP analysis. The margin of safety is the a. contribution margin rate. b. difference between budgeted contribution margin and actual contribution margin. c. difference between budgeted contribution margin and break-even contribution margin. d. difference between budgeted sales and break-even sales.

a. was presently operating at a volume that is below the break-even point.

The margin of safety would be negative if a company('s) a. was presently operating at a volume that is below the break-even point. b. present fixed costs were less than its contribution margin. c. variable costs exceeded its fixed costs. d. degree of operating leverage is greater than 100.

a. variable.

The method of cost accounting that lends itself to break-even analysis is a. variable. b. standard. c. absolute. d. absorption.

c. relationship among revenues, variable costs, and fixed costs at various levels of activity.

The most useful information derived from a cost-volume-profit chart is the a. amount of sales revenue needed to cover enterprise variable costs. b amount of sales revenue needed to cover enterprise fixed costs. c. relationship among revenues, variable costs, and fixed costs at various levels of activity. d. volume or output level at which the enterprise breaks even.

cost structure

The relationship between a company's variable costs and fixed costs is referred to as its ______________________________.

a. FC/CM per unit

To compute the break-even point in units, which of the following formulas is used? a. FC/CM per unit b. FC/CM ratio c. CM/CM ratio d. (FC+VC)/CM ratio

d. all of the above

Which of the following factors is involved in studying cost-volume-profit relationships? a. product mix b. variable costs c. fixed costs d. all of the above

b. yes no yes

Which of the following will decrease the break-even point? Decrease in fixed cost / Increase in direct labor cost / Increase in selling price a. yes yes yes b. yes no yes c. yes no no d. no yes no

d. remain constant across changes in volume.

With respect to fixed costs, CVP analysis assumes total fixed costs a. per unit remain constant as volume changes. b. remain constant from one period to the next. c. vary directly with volume. d. remain constant across changes in volume.

a. Incremental analysis

____ focuses only on factors that change from one course of action to another. a. Incremental analysis b. Margin of safety c. Operating leverage d. A break-even chart