Chapter 07 Cost-Volume-Profit Analysis

1. The break-even point is that level of activity where total revenue equals total cost.
True False

2. The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.
True False

3. The difference between budgeted sales revenue and break-even sales revenue is the operating leverage.
True False

4. Cost-volume-profit analysis is based on certain general assumptions. One of these assumptions is that product prices will remain constant as volume varies within the relevant range.
True False

5. The extent to which an organization uses fixed costs in its cost structure is measured by financial leverage.
True False

Multiple Choice Questions

6. CVP analysis can be used to study the effect of:
A. changes in selling prices on a company's profitability.
B. changes in variable costs on a company's profitability.
C. changes in fixed costs on a company's profitability.
D. changes in product sales mix on a company's profitability.
E. All of these.

7. The break-even point is that level of activity where:
A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.

8. The break-even point is that level of activity where:
A. variable cost equals fixed cost.
B. contribution margin equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. sales revenue equals fixed cost.

9. The unit contribution margin is calculated as the difference between:
A. selling price and fixed cost per unit.
B. selling price and variable cost per unit.
C. selling price and product cost per unit.
D. fixed cost per unit and variable cost per unit.
E. fixed cost per unit and product cost per unit.

10. Which of the following would produce the largest increase in the contribution margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.