Question 1

Variable costs are usually transformed into fixed costs when a business operates at less than full capacity.

Accepted Answer

Variable costs vary with changes in production levels, while fixed costs remain constant regardless of production levels. Therefore, variable costs cannot become fixed costs.

Question 2

With variable costs, the cost per unit varies with changes in volume.

Accepted Answer

False

Question 3

As volume increases, per unit variable costs stay the same.

Accepted Answer

Variable costs per unit remain constant regardless of the volume of production, as they are directly proportional to the level of output.

Question 4

Contribution margin is total revenue less variable costs.

Accepted Answer

Contribution margin is calculated by subtracting total variable costs from total revenue.

Question 5

The higher the unit contribution margin, the higher the volume of unit sales required to cover a given amount of fixed costs.

Accepted Answer

The higher the unit contribution margin, the lower the volume of unit sales required to cover a given amount of fixed costs. This is because a higher contribution margin means that each unit sold contributes more towards covering fixed costs, reducing the number of units required to cover the same amount of fixed costs.

Question 6

The contribution margin is the difference between total revenue and fixed costs.

Accepted Answer

The contribution margin is the difference between total revenue and variable costs, not fixed costs.

Question 7

When cost-volume-profit analysis is used, the need for a cost accounting system is eliminated.

Accepted Answer

Cost-volume-profit analysis requires accurate cost information, which can only be obtained through a cost accounting system. Therefore, the need for a cost accounting system is not eliminated but rather essential for conducting cost-volume-profit analysis.

Question 8

Margin of safety is the dollar amount by which actual sales volume exceeds the break-even sales volume.

Accepted Answer

Margin of safety measures the amount by which sales can drop before reaching the break-even point. It is calculated by subtracting the break-even point from the actual sales volume. Therefore, the statement "Margin of safety is the dollar amount by which actual sales volume exceeds the break-even sales volume" is true.

Question 9

The range over which output may be expected to vary is called the relevant range.

Accepted Answer

The relevant range is the range over which output may be expected to vary.

Question 10

Executive salaries are typically considered variable costs.

Accepted Answer

Executive salaries are typically considered fixed costs because they do not vary with the level of production or sales.

Question 11

In cost-volume-profit analysis, the number of units sold is assumed to be equal to the number of units produced.

Accepted Answer

In cost-volume-profit analysis, it is assumed that the number of units sold is equal to the number of units produced, unless otherwise stated or assumed.

Question 12

As volume increases, per unit fixed costs stay the same.

Accepted Answer

The answer of As volume increases, per unit fixed costs...

Question 13

With fixed costs, the cost per unit varies with changes in volume.

Accepted Answer

The answer of With fixed costs, the cost per unit...

Question 14

In cost-volume-profit analysis, the volume index is always stated in units.

Accepted Answer

The answer of In cost-volume-profit analysis, the volume index is...

Question 15

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.

Accepted Answer

While some costs may increase or decrease based on changes in business output (such as direct labor costs or materials costs), not all costs follow this pattern. Fixed costs, such as rent or salaries, tend to remain the same regardless of changes in business output.

Question 16

The volume of output which causes fixed costs to be equal in amount to total revenue is called the break-even point.

Accepted Answer

The answer of The volume of output which causes fixed...

Question 17

Costs which increase in total amount in direct proportion to an increase in output are called variable costs.

Accepted Answer

This statement correctly defines variable costs, which are costs that vary with the level of production or output. As output increases, variable costs will also increase proportionally. Examples of variable costs include raw materials, labor costs, and utilities needed to produce the goods or services.

Question 18

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.

Accepted Answer

This statement is true. The margin of safety is the amount of sales that exceed the break-even point, and multiplying this by the contribution margin ratio gives the amount of operating income.

Question 19

Any business which operates at less than capacity will have smaller fixed costs than variable costs.

Accepted Answer

The answer of Any business which operates at less than...

Question 20

Economies of scale can be achieved by using facilities more intensively.

Accepted Answer

Economies of scale refer to the cost advantages that a company can achieve by increasing its production in the long run. Using facilities more intensively is one way to achieve economies of scale as it allows the company to spread its fixed costs (such as rent, utilities, and maintenance) over a larger volume of output. This, in turn, results in lower average costs per unit of production, making the company more competitive in the market.

Quiz 20: Cost-Volume-Profit Analysis