ACC 350 Week 4 Quiz – Strayer
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Quiz 3 Chapter 3
Chapter 3
Cost-Volume-Profit Analysis
1)
To
perform cost-volume-profit analysis, a company must be able to separate costs
into fixed and variable components.
2)
Cost-volume-profit
analysis may be used for multi-product analysis when the proportion of different
products remains constant.
3)
It is
assumed in CVP analysis that the unit selling price, unit variable costs, and
unit fixed costs are known and constant.
4)
In CVP
analysis, the number of output units is the only revenue driver.
5)
Many
companies find even the simplest CVP analysis helps with strategic and
long-range planning.
6)
In CVP
analysis, total costs can be separated into a fixed component that does not
vary with output and a component that is variable with output level.
7)
In CVP
analysis, variable costs include direct variable costs, but do not include
indirect variable costs.
8)
In CVP
analysis, an assumption is made that the total revenues are linear with respect
to output units, but that total costs are non-linear with respect to output
units.
9)
A
revenue driver is defined as a variable that causes changes in prices.
10)
If the
selling price per unit is $20 and the contribution margin percentage is 30%,
then the variable cost per unit must be $6.
11)
Total
revenues less total fixed costs equal the contribution margin.
12)
Gross
margin is reported on the contribution income statement.
13)
If the
selling price per unit of a product is $30, variable costs per unit are $20,
and total fixed costs are $10,000 and a company sells 5,000 units, operating
income would be $40,000.
14)
The
selling price per unit is $30, variable cost per unit $20, and fixed cost per
unit is $3. When this company operates above the breakeven point, the sale of
one more unit will increase net income by $7.
15)
A
company with sales of $100,000, variable costs of $70,000, and fixed costs of
$50,000 will reach its breakeven point if sales are increased by $20,000.
16)
Breakeven
point is not a good planning tool since the goal of business is to make a
profit.
17)
Breakeven
point is that quantity of output where total revenues equal total costs.
18)
In the
graph method of CVP analysis, the breakeven point is the (X-axis) quantity of
units sold for which the total revenues line crosses the total costs line.
19)
In the
graph method of CVP analysis, the total revenue line can be calculated by
determining the total revenue at only one real output level because the
starting point of the line is always the intersection of the X and Y axes.
20)
A
profit-volume graph shows the impact on operating income from changes in the
output level.
21)
If the
selling price per unit of a product is $50, variable costs per unit are $40,
and total fixed costs are $50,000, a company must sell 6,000 units to make a
target operating income of $10,000.
22)
An
increase in the tax rate will increase the breakeven point.
23)
When
making net income evaluations, CVP calculations for target income must be
stated in terms of target operating income instead of target net income.
24)
If
operating income is $70,000 and the income tax rate is 30%, then net income
will be $49,000.
25)
If
planned net income is $21,000 and the tax rate is 30%, then planned operating
income would be $27,300.
26)
Sensitivity
analysis is a "what-if" technique that managers use to examine how a
result will change if the originally predicted data are not achieved or if an
underlying assumption changes.
27)
Margin
of safety measures the difference between budgeted revenues and breakeven
revenues.
28)
If a
company's breakeven revenue is $100 and its budgeted revenue is $125, then its
margin of safety percentage is 25%.
29)
Sensitivity
analysis helps to evaluate the risk associated with decisions.
30)
If
contribution margin decreases by $1 per unit, then operating profits will
increase by $1 per unit.
31)
If
variable costs per unit increase, then the breakeven point will decrease.
32)
A
planned increase in advertising would be considered an increase in fixed costs
in CVP analysis.
33)
A
planned decrease in selling price would be expected to cause an increase in the
quantity sold.
34)
Companies
with a greater proportion of fixed costs have a greater risk of loss than
companies with a greater proportion of variable costs.
35)
The
degree of operating leverage at a specific level of sales helps the managers
calculate the effect that potential changes in sales will have on operating
income.
36)
If a
company increases fixed costs, then the breakeven point will be lower.
37)
Companies
that are substituting fixed costs for variable costs receive a greater per unit
return above the breakeven point.
38)
A
company with a high degree of operating leverage is at lesser risk during
downturns in the economy.
39)
Whether
the purchase cost of a machine is treated as fixed or variable depends heavily
on the time horizon being considered.
40)
If a
company has a degree of operating leverage of 2.0, that means a 20% increase in
sales will result in a 40% increase in variable costs.
41)
When a
company has at least some fixed costs, the degree of operating leverage is
different at different levels of sales.
42)
Passenger-miles
are a potential measure of output for the airline industry.
43)
Pounds
of yeast used by a bake shop is a potential measure of output for the bakery
industry.
44)
In
multiproduct situations when sales mix shifts toward the product with the
lowest contribution margin, the breakeven quantity will decrease.
45)
In
multiproduct situations when sales mix shifts toward the product with the
highest contribution margin, operating income will be higher.
46)
To
calculate the breakeven point in a multi-product situation, one must assume
that the sales mix of the various products remains constant.
47)
If a
company's sales mix is 2 units of product A for every 3 units of product B, and
the company sells 1,000 units in total of both products, only 200 units of
product A will be sold.
48)
Barbies
Beer Emporium sells beer and ale in both pint and quart sizes. If Barbies sells
twice as many pints as it sells quarts, and sells 1,200 items total, it will
sell 400 quarts of ale.
49)
There is
no unique breakeven point when there are multiple cost drivers.
50)
When
there are multiple cost drivers the simple CVP formula of Q = (FC + OI)/CMU can
still be used.
51)
Service
sector companies will never report gross margin on an income statement.
52)
For
merchandising firms, contribution margin will always be a lesser amount than
gross margin.
53)
Contribution
margin and gross margin are terms that can be used interchangeably.
54)
Gross
Margin will always be greater than contribution margin.
55)
If
Johnson's Manufacturing presented a Financial Accounting Income Statement
emphasizing gross margin showing operating income of $18,000, a Contribution
Income Statement emphasizing contribution margin would show a different
operating income.
56)
An
expected value is the weighted average of the outcomes, with the probability of
each outcome serving as the weight.
57)
Cost-volume-profit
analysis is used PRIMARILY by management:
A)
as a
planning tool
B)
for
control purposes
C)
to
prepare external financial statements
D)
to
attain accurate financial results
58)
One of
the first steps to take when using CVP analysis to help make decisions is:
A)
finding
out where the total costs line intersects with the total revenues line on a
graph.
B)
identifying
which costs are variable and which costs are fixed.
C)
calculation
of the degree of operating leverage for the company.
D)
estimating
how many products will have to be sold to make a decent profit.
59)
Cost-volume-profit
analysis assumes all of the following EXCEPT:
A)
all
costs are variable or fixed
B)
units
manufactured equal units sold
C)
total
variable costs remain the same over the relevant range
D)
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