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.