Cost-Volume-Profit Analysis
True/False
1. In cost-volume-profit analysis, the volume index is always stated in units.
Answer: False
2. 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.
Answer: False
3. Variable costs which increase in total amount in direct proportion to an increase in output
represent a constant amount per unit of output.
Answer: True
4. Any business which operates at less than capacity will have smaller fixed costs than variable
costs.
Answer: False
5. When cost-volume-profit analysis is used, the need for a cost accounting system is eliminated.
Answer: False
6. Variable costs are usually transformed into fixed costs when a business operates at less than
full capacity.
Answer: False
7. With variable costs, the cost per unit varies with changes in volume.
Answer: False
8. The volume of output which causes fixed costs to be equal in amount to total revenue is called
the break-even point.
Answer: False
9. The contribution margin is the difference between total revenue and fixed costs.
Answer: False
10. In a cost-volume-profit graph, the dollar amount by which actual sales exceed break-even
sales volume is called the margin of safety. The margin of safety sales volume times the
contribution margin ratio equals operating income.
Answer: True
11. With fixed costs, the cost per unit varies with changes in volume.
Answer: True
12. The higher the unit contribution margin, the higher the volume of unit sales required to cover
a given amount of fixed costs.
Answer: False
1
,13. Contribution margin is total revenue less variable costs.
Answer: True
14. Margin of safety is the dollar amount by which actual sales volume exceeds the break-even
sales volume.
Answer: True
15. In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number
of units produced.
Answer: True
16. Executive salaries are typically considered variable costs.
Answer: False
17. As volume increases, per unit variable costs stay the same.
Answer: True
18. As volume increases per unit fixed costs stay the same.
Answer: False
19. Economies of scale can be achieved by using facilities more intensively.
Answer: True
20. The range over which output may be expected to vary is called the relevant range.
Answer: True
21. The break-even point is the level of activity at which operating income is equal to cost of
goods sold.
Answer: False
22. The contribution margin is the amount by which revenue exceeds variable costs.
Answer: True
23. Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.
Answer: True
Multiple Choice
24. When volume increases, fixed costs per unit:
A) Increase.
B) Decrease.
C) Stay the same.
D) Increase or decrease, depending upon the situation.
Answer: B
25. In cost-volume-profit analysis, income tax expense:
A) Is included among the monthly operating expenses as a variable cost.
B) Is considered a fixed cost of doing business.
C) Is treated as a semi-variable cost that is partially dependent upon sales volume.
D) Is generally ignored.
Answer: D
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, 26. A semi-variable cost:
A) Increases and decreases directly and proportionately with changes in volume.
B) Changes in response to a change in volume, but not proportionately.
C) Increases if volume increases, but remains constant if volume decreases.
D) Changes inversely in response to a change in volume.
Answer: B
27. Which of the following is an example of a fixed cost for an airline?
A) Depreciation on the corporate headquarters.
B) Fuel costs.
C) Income taxes expense.
D) Passengers' meals.
Answer: A
28. In order to calculate break-even sales units, fixed costs are divided by:
A) Contribution margin per unit.
B) Contribution margin percentage.
C) Target operating income.
D) Sales volume.
Answer: A
30. The break-even point in a cost-volume-profit graph is always found:
A) At 50% of full capacity.
B) At the sales volume resulting in the lowest average unit cost.
C) At the volume at which total revenue equals total variable costs.
D) At the volume at which total revenue equals total fixed costs plus total variable costs.
Answer: D
31. Operating income can be calculated by:
A) Fixed costs divided by contribution margin ratio.
B) Fixed costs multiplied by contribution margin ratio.
C) Margin of safety multiplied by contribution margin ratio.
D) Margin of safety divided by contribution margin ratio.
Answer: C
32. The contribution ratio is computed as:
A) Sales minus variable costs, divided by sales.
B) Fixed costs plus variable costs, divided by sales.
C) Sales minus fixed costs, divided by sales.
D) Sales divided by variable costs.
Answer: A
35. The margin of safety is calculated by:
A) (Fixed costs plus target income) divided by contribution margin.
B) Current income minus break-even income.
C) Current sales minus break-even sales.
D) Current contribution margin minus fixed costs.
Answer: C
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True/False
1. In cost-volume-profit analysis, the volume index is always stated in units.
Answer: False
2. 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.
Answer: False
3. Variable costs which increase in total amount in direct proportion to an increase in output
represent a constant amount per unit of output.
Answer: True
4. Any business which operates at less than capacity will have smaller fixed costs than variable
costs.
Answer: False
5. When cost-volume-profit analysis is used, the need for a cost accounting system is eliminated.
Answer: False
6. Variable costs are usually transformed into fixed costs when a business operates at less than
full capacity.
Answer: False
7. With variable costs, the cost per unit varies with changes in volume.
Answer: False
8. The volume of output which causes fixed costs to be equal in amount to total revenue is called
the break-even point.
Answer: False
9. The contribution margin is the difference between total revenue and fixed costs.
Answer: False
10. In a cost-volume-profit graph, the dollar amount by which actual sales exceed break-even
sales volume is called the margin of safety. The margin of safety sales volume times the
contribution margin ratio equals operating income.
Answer: True
11. With fixed costs, the cost per unit varies with changes in volume.
Answer: True
12. The higher the unit contribution margin, the higher the volume of unit sales required to cover
a given amount of fixed costs.
Answer: False
1
,13. Contribution margin is total revenue less variable costs.
Answer: True
14. Margin of safety is the dollar amount by which actual sales volume exceeds the break-even
sales volume.
Answer: True
15. In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number
of units produced.
Answer: True
16. Executive salaries are typically considered variable costs.
Answer: False
17. As volume increases, per unit variable costs stay the same.
Answer: True
18. As volume increases per unit fixed costs stay the same.
Answer: False
19. Economies of scale can be achieved by using facilities more intensively.
Answer: True
20. The range over which output may be expected to vary is called the relevant range.
Answer: True
21. The break-even point is the level of activity at which operating income is equal to cost of
goods sold.
Answer: False
22. The contribution margin is the amount by which revenue exceeds variable costs.
Answer: True
23. Contribution margin ratio is equal to contribution margin per unit divided by unit sales price.
Answer: True
Multiple Choice
24. When volume increases, fixed costs per unit:
A) Increase.
B) Decrease.
C) Stay the same.
D) Increase or decrease, depending upon the situation.
Answer: B
25. In cost-volume-profit analysis, income tax expense:
A) Is included among the monthly operating expenses as a variable cost.
B) Is considered a fixed cost of doing business.
C) Is treated as a semi-variable cost that is partially dependent upon sales volume.
D) Is generally ignored.
Answer: D
2
, 26. A semi-variable cost:
A) Increases and decreases directly and proportionately with changes in volume.
B) Changes in response to a change in volume, but not proportionately.
C) Increases if volume increases, but remains constant if volume decreases.
D) Changes inversely in response to a change in volume.
Answer: B
27. Which of the following is an example of a fixed cost for an airline?
A) Depreciation on the corporate headquarters.
B) Fuel costs.
C) Income taxes expense.
D) Passengers' meals.
Answer: A
28. In order to calculate break-even sales units, fixed costs are divided by:
A) Contribution margin per unit.
B) Contribution margin percentage.
C) Target operating income.
D) Sales volume.
Answer: A
30. The break-even point in a cost-volume-profit graph is always found:
A) At 50% of full capacity.
B) At the sales volume resulting in the lowest average unit cost.
C) At the volume at which total revenue equals total variable costs.
D) At the volume at which total revenue equals total fixed costs plus total variable costs.
Answer: D
31. Operating income can be calculated by:
A) Fixed costs divided by contribution margin ratio.
B) Fixed costs multiplied by contribution margin ratio.
C) Margin of safety multiplied by contribution margin ratio.
D) Margin of safety divided by contribution margin ratio.
Answer: C
32. The contribution ratio is computed as:
A) Sales minus variable costs, divided by sales.
B) Fixed costs plus variable costs, divided by sales.
C) Sales minus fixed costs, divided by sales.
D) Sales divided by variable costs.
Answer: A
35. The margin of safety is calculated by:
A) (Fixed costs plus target income) divided by contribution margin.
B) Current income minus break-even income.
C) Current sales minus break-even sales.
D) Current contribution margin minus fixed costs.
Answer: C
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