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Exam 20: Cost-Volume-Profit Analysis

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Question 1

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Operating leverage predicts the effects fixed costs have on operating income when sales volume changes.

A) True
B) False

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Question 2

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In a cost-volume-profit (CVP)graph,the breakeven point is where the sales revenue line intersects the fixed cost line.

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B) False

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If the volume of activity doubles in the relevant range,total variable costs will also double.

Fixed costs per unit decrease as production levels decrease.

If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

Sensitivity analysis empowers managers with better information for decision making by analyzing how various business strategies will affect profits earned by the company.

A company that sells multiple products will always set sales prices such that all products have the same contribution margin.

The sales level at which operating income is zero is called the breakeven point.

The sales required to achieve a target profit can be determined by using the contribution margin,contribution margin ratio,or break even approaches.

If variable costs increase by 5% without a corresponding increase in selling price,the number of units needed to breakeven will ________.

Waterproof Roofing Company has provided the following information: $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 779,000 \\\hline \text { Variable costs } & 506,000 \\\hline \text { Fixed costs } & 216,000 \\\hline\end{array}$ Which of the following statements is true,if the sales volume increases by 10%?

CVP is also sometimes referred to as cost-volume-loss analysis because changes in sales prices also affect profits (or losses).

Complete the statement,using the following terms: increase,decrease,or have no effect on. Increases in total fixed costs ________ contribution margin per unit and ________ the breakeven point.

Delectable Foods produces a gourmet condiment that sells for $20 per unit.Variable cost is $8 per unit,and fixed costs are $5000 per month.If Delectable expects to sell 1500 units,compute the margin of safety in dollars.(Round any intermediate calculations to the nearest whole unit,and your final answer to the nearest dollar.)

What is the margin of safety? List three ways in which margin of safety can be expressed.

The phone bill for a company consists of both fixed and variable costs.Refer to the four-month data below and apply the high-low method to answer the question. $\begin{array} { | l | r | r | } \hline & \text { Minutes } & \text { Total Bill } \\\hline \text { Tanuary } & 480 & \$ 4000 \\\hline \text { February } & 200 & \$ 2700 \\\hline \text { March } & 170 & \$ 2640 \\\hline \text { April } & 320 & \$ 2855 \\\hline\end{array}$ What is the fixed portion of the total cost? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

A contribution margin income statement classifies costs by function; that is,costs are classified as either product costs or period costs.

Fixed cost per unit is assumed to be constant within a particular relevant range of activity.

Managers can use contribution margin to predict the change in operating income when volume changes.