Question 1

Gross profit margin is the sales price minus the variable cost per unit.

Accepted Answer

Gross profit margin is calculated as (Sales Revenue - Cost of Goods Sold) / Sales Revenue. It measures the percentage of sales revenue remaining after deducting the cost of goods sold, which includes both variable and fixed costs directly tied to the production of goods.

Question 2

Only one cost driver may affect a cost at any given time.

Accepted Answer

It is possible for multiple cost drivers to affect a cost simultaneously. A cost driver is any factor that affects the cost of a particular activity or service. For example, the cost of producing a product may be affected by multiple cost drivers, such as labor costs, raw material costs, and overhead costs.

Question 3

A fixed cost changes in direct proportion to changes in a cost driver.

Accepted Answer

This statement describes a variable cost, not a fixed cost. Fixed costs remain constant regardless of changes in a cost driver.

Question 4

The break-even point is the level of sales at which revenue equals fixed costs.

Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs, both fixed and variable, not just fixed costs.

Question 5

Costs may behave in a linear and nonlinear way.

Accepted Answer

Costs can behave in a linear or nonlinear way, depending on various factors such as production volume, fixed and variable costs, and economies of scale. Linear costs increase or decrease proportionally with a change in production volume, while nonlinear costs may exhibit a more complex relationship with changes in production volume.

Question 6

With very short time spans, costs become more fixed and less variable.

Accepted Answer

In very short time spans, companies have less flexibility to adjust their costs, making most costs behave as fixed rather than variable, as there is insufficient time to adjust operations or output levels significantly.

Question 7

The margin of safety is the difference between planned unit sales and break-even sales.

Accepted Answer

The margin of safety is indeed the difference between planned unit sales and break-even sales. It represents the amount of sales a company can afford to lose before operating at a loss.

Question 8

After a certain point, a unit sold does not generate marginal income.

Accepted Answer

Marginal income refers to the additional income generated from the sale of one more unit, and theoretically, each unit sold continues to generate marginal income unless the cost of producing that additional unit exceeds its sale price.

Question 9

Total contribution margin / total sales = 100% - variable cost percentage.

Accepted Answer

The total contribution margin is the difference between total sales and total variable costs. When you divide the total contribution margin by total sales, you get the contribution margin ratio, which indeed equals 100% minus the variable cost percentage. This is because the contribution margin ratio represents the portion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs and generating profit.

Question 10

Cost behavior pertains to how costs affect the activities of an organization.

Accepted Answer

Cost behavior pertains to how costs change in relation to the level of activity within an organization, not how costs affect the activities.

Question 11

The relevant range is the limit of cost-driver activity within which a specific relationship between costs and the cost driver is valid.

Accepted Answer

The statement accurately defines the relevant range.

Question 12

When analyzing costs, two rules of thumb are useful: 1) think of fixed costs on a per-unit basis; and 2) think of variable costs as a total.

Accepted Answer

Fixed costs should be thought of in total because they do not change with the level of output, while variable costs should be considered on a per-unit basis since they change with the level of production or sales volume.

Question 13

A good example of a cost driver for production labor wages is the number of machine hours.

Accepted Answer

The number of machine hours is a cost driver for machine depreciation and maintenance, but not for production labor wages. Other examples of cost drivers for production labor wages could include the number of workers or the complexity of the production process.

Question 14

A major simplifying assumption of cost-volume-profit analysis is that costs can be classified as either variable or fixed with respect to a single measure of the volume of output activity.

Accepted Answer

Cost-volume-profit analysis assumes that costs can be classified as either variable or fixed based on changes in a single measure of output activity, such as units produced or sales revenue. This simplifying assumption allows for the development of a straightforward analysis of how changes in volume affect costs, revenues, and profits.

Question 15

At the break-even point, net income may be positive.

Accepted Answer

At the break-even point, net income is zero, not positive.

Question 16

The income statement can be expressed as:
Sales - Variable Expenses - Fixed Expenses = Net Income

Accepted Answer

This is the standard formula for calculating the income statement, where sales is the total revenue earned, variable expenses are costs that fluctuate with sales volume, fixed expenses are costs that remain constant regardless of sales volume, and net income is the profit or loss remaining after all expenses are deducted from sales.

Question 17

The break-even point is when enough units are sold that total contribution margin equals total variable costs.

Accepted Answer

The break-even point is when enough units are sold that total contribution margin equals total fixed costs, not variable costs.

Question 18

Only managers of profit-seeking organizations find that the cost-volume-profit analysis is useful.

Accepted Answer

The cost-volume-profit analysis can be useful for managers of non-profit organizations as well, such as in determining the breakeven point or analyzing the impact of different funding sources on costs and revenues.

Question 19

A good example of a cost driver for production supervisor salaries is the number of people supervised.

Accepted Answer

The more people a production supervisor is responsible for supervising, the higher their salary tends to be due to increased responsibilities and workload. Therefore, the number of people supervised is a good example of a cost driver for production supervisor salaries.

Question 20

A key factor in controlling costs is associating costs with activities.

Accepted Answer

By associating costs with specific activities or processes, it becomes easier to pinpoint areas where costs can be reduced or eliminated. This allows for more effective cost control and efficient use of resources.

Quiz 2: Introduction to Cost Behavior and Cost-Volume Relationships