Managerial Accounting
Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Chapter – 5
Cost-Volume-Profit Relationships
,Chapter 05: cost-volume-profit relationships
Chapter 05 Cost-Volume-Profit Relationships
True / False Questions
1. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and
the fixed expense per unit is $5 at the current level of sales. The company's net operating
income will increase by $5 if one more unit is sold.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Medium
2. Incremental analysis is an analytical approach that focuses only on those revenues and costs
that will change as a result of a decision.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Easy
3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Medium
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,Chapter 05: cost-volume-profit relationships
4. On a CVP graph for a profitable company, the total revenue line will be steeper than the
total expense line.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph
Level: Medium
5. On a CVP graph for a profitable company, the total expense line will be steeper than the
line representing fixed costs.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph
Level: Easy
6. For a given level of sales, a low contribution margin ratio will produce less net operating
income than a high contribution margin ratio.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Medium
2/196
, Chapter 05: cost-volume-profit relationships
7. The impact on net operating income of a given dollar change in sales can be computed by
applying the contribution margin ratio to the dollar change in sales.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Medium
8. The variable expense per unit is $12 and the selling price per unit is $40. Then the
contribution margin ratio is 70%.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Easy
9. Mark Company currently sells a video recorder with a selling price of $300 per unit. The
variable expense per unit is $175 and fixed expenses are $100,000. If the company reduces
variable expenses by $20 per unit and increases the fixed expenses by $10,000, the break-
even point will increase.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-04 Show the effects on net operating income of changes in variable costs; fixed costs; selling price; and volume
Learning Objective: 05-06 Determine the break-even point
Level: Medium
3/196
Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Chapter – 5
Cost-Volume-Profit Relationships
,Chapter 05: cost-volume-profit relationships
Chapter 05 Cost-Volume-Profit Relationships
True / False Questions
1. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and
the fixed expense per unit is $5 at the current level of sales. The company's net operating
income will increase by $5 if one more unit is sold.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Medium
2. Incremental analysis is an analytical approach that focuses only on those revenues and costs
that will change as a result of a decision.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Easy
3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income
Level: Medium
1/196
,Chapter 05: cost-volume-profit relationships
4. On a CVP graph for a profitable company, the total revenue line will be steeper than the
total expense line.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph
Level: Medium
5. On a CVP graph for a profitable company, the total expense line will be steeper than the
line representing fixed costs.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph
Level: Easy
6. For a given level of sales, a low contribution margin ratio will produce less net operating
income than a high contribution margin ratio.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Medium
2/196
, Chapter 05: cost-volume-profit relationships
7. The impact on net operating income of a given dollar change in sales can be computed by
applying the contribution margin ratio to the dollar change in sales.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Medium
8. The variable expense per unit is $12 and the selling price per unit is $40. Then the
contribution margin ratio is 70%.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 05-03 Use the contribution margin ratio (cm ratio) to compute changes in contribution margin and net operating
income resulting from changes in sales volume
Level: Easy
9. Mark Company currently sells a video recorder with a selling price of $300 per unit. The
variable expense per unit is $175 and fixed expenses are $100,000. If the company reduces
variable expenses by $20 per unit and increases the fixed expenses by $10,000, the break-
even point will increase.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 05-04 Show the effects on net operating income of changes in variable costs; fixed costs; selling price; and volume
Learning Objective: 05-06 Determine the break-even point
Level: Medium
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