Question 1

The contribution margin method of CVP analysis uses the equation: break-even units = unit contribution margin/fixed costs.

Accepted Answer

The correct equation for break-even units in CVP analysis is fixed costs divided by the unit contribution margin, not the other way around.

Question 2

CVP analysis assumes that the behaviour of total costs is non-linear.

Accepted Answer

CVP (Cost-Volume-Profit) analysis assumes that total costs are linear, meaning they change at a constant rate with changes in production volume.

Question 3

The contribution margin is computed by deducting all costs which vary on the basis of an output-related cost driver from revenues.

Accepted Answer

This statement is true. The contribution margin is calculated as the amount of revenue that remains after all variable costs associated with that revenue have been deducted.

Question 4

CVP analysis requires the time value of money to be factored into formula when comparing revenues and costs.

Accepted Answer

CVP (Cost-Volume-Profit) analysis does not consider the time value of money; it focuses on the relationship between costs, volume, and profit in the short term.

Question 5

In cost-volume-profit analysis (CVP)it is assumed that both the product mix and the volume sold are dynamic variables.

Accepted Answer

In CVP analysis, it is assumed that the product mix and volume sold are constant, not dynamic, to simplify the analysis.

Question 6

Cost-volume-profit analysis is useful for
A)helping managers to answer "what-if" questions.
B)implementing a differentiation strategy.
C)eliminating uncertainty about external factors, such as interest rates.
D)for long-range planning.
E)assigning costs to products.

Accepted Answer

Cost-volume-profit analysis is a tool used by managers to help them make decisions based on the relationships between the cost of production, volume of sales, and profit margin. It allows managers to test different scenarios and predict how changes in these factors will affect their bottom line. Therefore, it is useful for helping managers to answer "what-if" questions.

Question 7

CVP analysis assumes that total costs can be separated into the fixed component and variable component with respect to the level of output.

Accepted Answer

This is the fundamental assumption of CVP analysis. It allows for the calculation of breakeven points, target profits, and other important decisions based on the understanding of how costs behave at different levels of output.

Question 8

To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

Accepted Answer

Cost-volume-profit analysis requires a clear understanding of fixed and variable costs in order to calculate break-even points, target profit levels, and contribution margins.

Question 9

In cost-volume-profit (CVP)analysis relevant costs include variable, fixed, and mixed costs.

Accepted Answer

In CVP analysis, only variable costs are considered relevant because they change with the level of production or sales, while fixed costs remain constant. Mixed costs are typically separated into their variable and fixed components for analysis.

Question 10

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

Accepted Answer

This is the definition of CVP analysis. It helps to understand the relationship between costs, volume, and profit.

Question 11

The contribution margin method can be used to verify a break-even calculation.

Accepted Answer

The contribution margin method involves subtracting variable costs from the sales price to determine the amount of revenue that contributes to covering fixed costs and generating profit, known as the contribution margin. By dividing total fixed costs by the contribution margin, the break-even point in units or sales dollars can be calculated. This result can be compared to a break-even calculation done using other methods to verify its accuracy.

Question 12

Schuppener Company sells its only product for $18 per unit; variable production costs are $6 per unit, and variable selling and administrative costs are $3 per unit; fixed costs for 10,000 units are $10,000.The contribution margin is
A)$12 per unit.
B)$9 per unit.
C)$11 per unit.
D)$8 per unit.
E)$18 per unit.

Accepted Answer

Contribution margin = Sales price per unit – Variable costs per unit
= $18 - ($6 + $3)
= $9 per unit

Total contribution margin for 10,000 units = $9 x 10,000 = $90,000

Since the fixed cost is already incurred, it is not considered in the calculation of contribution margin. Therefore, the contribution margin per unit is $9.

Question 13

Total revenues less total fixed costs equal the contribution margin.

Accepted Answer

The answer of Total revenues less total fixed costs equal...

Question 14

At the break-even point of 200 units, variable costs total $400 and fixed costs total $600.The 201st unit sold will contribute ________ to profits.
A)$1
B)$2
C)$3
D)$5
E)$6

Accepted Answer

The answer of At the break-even point of 200 units,...

Question 15

In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

Accepted Answer

The answer of In CVP analysis, an assumption is made...

Question 16

Which of the following are necessary assumptions when using the contribution margin method of determining the break-even point?
A)Average unit costs must be known.
B)There must be an input-related cost driver.
C)Fixed costs are irrelevant.
D)Total variable cost must be known.
E)Unit selling price and unit variable cost must be known.

Accepted Answer

To use the contribution margin method, both the unit selling price and unit variable cost must be known in order to calculate the contribution margin per unit.

Question 17

A profit-volume graph shows the impact on operating income from changes in the output level.

Accepted Answer

A profit-volume graph is also known as a cost-volume-profit (CVP) graph, and it shows the relationship between the volume of units sold or produced and the resulting profit or operating income. The graph allows managers to identify the breakeven point, which is the point at which total revenues equal total costs, and make decisions about pricing, production levels, and operating expenses.

Question 18

Variable operating costs and fixed operating costs constitute total operating costs.

Accepted Answer

Total operating costs can be divided into two categories: variable operating costs, which vary with production or sales volume, and fixed operating costs, which remain constant regardless of production or sales volume. Together, these make up the total operating costs.

Question 19

The total costs line includes all variable costs and all fixed costs when using the graph method of CVP analysis.

Accepted Answer

The total costs line in the graph method of CVP analysis includes both variable and fixed costs.

Question 20

In the graph method of CVP analysis, the break-even point is the (X-axis)quantity of units sold for which the total revenues line crosses the total costs line.

Accepted Answer

This is correct. The break-even point occurs where total revenues equal total costs, and this point is shown on the graph where the two lines intersect on the X-axis (quantity of units sold).

Quiz 3: Cost-Volume-Profit Analysis