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Chapter 20 Cost-Volume-Profit Analysis Answer Key
True / False Questions
1.
Costs which increase in total amount in direct proportion to an increase in output are
called variable costs.
2.
When cost-volume-profit analysis is used, the need for a cost accounting system is
eliminated.
3.
With variable costs, the cost per unit varies with changes in volume.
4.
With fixed costs, the cost per unit varies with changes in volume.
5.
Any business which operates at less than capacity will have smaller fixed costs than
variable costs.
6.
Executive salaries are typically considered variable costs.
7.
As volume increases, per unit variable costs will decrease on a per-unit basis and stay the
same in total.
8.
As volume increases, per unit fixed costs stay the same.
9.
As volume increases, total fixed costs remain the same.
10.
One characteristic common to all types of costs is the tendency to rise and fall in direct
proportion to changes in the volume of business output.
11.
Economies of scale can be achieved by using facilities more intensively.
12.
The range over which output may be expected to vary is called the relevant range.
13.
The volume of output which causes fixed costs to be equal in amount to total revenue is
called the break-even point.
14.
The break-even point is the level of activity at which operating income is equal to cost of
goods sold.
15.
The contribution margin is the difference between total revenue and fixed costs.
16.
The higher the unit contribution margin, the higher the volume of unit sales required to
cover a given amount of fixed costs.
17.
Contribution margin is total revenue less variable costs.
18.
The contribution margin is the amount by which revenue exceeds variable costs.
19.
Contribution margin ratio is equal to contribution margin per unit divided by unit sales
price.
20.
The margin of safety sales volume times the contribution margin ratio equals operating
income.
21.
Margin of safety is the dollar amount by which actual sales volume exceeds the break-even
sales volume.
22.
Cost-volume-profit analysis is often complex when applied to a company with different
products.
23.
Sales of products with high contribution margins often are described as quantity sales.
24.
The high-low method is the only method to be used when determining semivariable costs.
25.
In cost-volume-profit analysis, the number of units sold is assumed to be equal to the
number of units produced.
Multiple Choice Questions
26.
Which of the following is an example of a fixed cost for an airline?
27.
A fixed cost may include all of the following
except
:
28.
Variable costs would include:
29.
Within the relevant range, fixed costs:
30.
When volume increases, fixed cost per unit:
31.
A semi-variable cost:
32.
A company's relevant range of production is:
33.
In cost-volume-profit analysis, income tax expense:
34.
The break-even point in a cost-volume-profit graph is always found:
35.
Management expects total sales of $40 million, a margin of safety of $10 million, and a
contribution margin ratio of 45%. Which of the following estimated amounts is
not
consistent with this information?
36.
How will a company's contribution margin be affected by an investment in equipment that
increases fixed costs in order to achieve a reduction in direct labor cost?
37.
A 45% contribution margin ratio means that:
38.
The contribution margin ratio is expressed as:
39.
A company with monthly revenue of $120,000, variable costs of $50,000, and fixed costs of
$40,000 has a contribution margin of:
40.
A company with monthly fixed costs of $170,000 expects to earn monthly operating income
of $25,000 by selling 6,500 units per month. What is the company's expected unit
contribution margin?
41.
If the monthly sales volume required to break even is $190,000 and monthly fixed costs are
$55,900, the contribution margin ratio is closest to:
42.
If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $26,000 what
is the contribution margin ratio per unit?
43.
A company's most profitable products are often those which:
44.
Millar Company produces a single product which it sells for $89 a unit. If the fixed costs of
manufacturing and selling the product are $68,400 a month and the variable costs are $57
a unit, which of the below is correct?
45.
In comparison to selling a product with a low contribution margin ratio, selling a product
with a high contribution margin ratio always:
46.
The contribution margin ratio is computed as:
Mitchell Corporation manufactures a single product. The selling price is $85 per unit, and
variable costs amount to $68 per unit. The fixed costs are $16,500 per month.
47.
Refer to the information above. What is the contribution margin ratio of Mitchell's product?
48.
Refer to the information above. What is the monthly sales volume in dollars necessary to
break-even?
