Question 1

The selling price per unit less the variable cost per unit is the ________.
A) fixed cost per unit
B) gross margin
C) margin of safety
D) contribution margin per unit

Accepted Answer

The difference between selling price per unit and variable cost per unit is called contribution margin per unit. This represents the amount of revenue generated that contributes towards covering fixed costs and generating profit.

Question 2

One of the first steps to take when using CVP analysis to help make decisions is ________.
A) calculating the break-even point
B) identifying the variable and fixed costs
C) calculation of the degree of operating leverage for the company
D) estimating the volume of sales to make a good profit

Accepted Answer

Identifying the variable and fixed costs is a crucial step in CVP analysis as it helps in determining the contribution margin, which in turn helps in calculating the break-even point and in estimating the volume of sales required to make a profit. Calculation of the degree of operating leverage is important, but it is a step that comes after the identification of costs and calculation of the break-even point.

Question 3

Fixed costs equal $15,000,unit contribution margin equals $25,and the number of units sold equal 1,150.Operating income is ________.
A) $28,750
B) $13,750
C) $15,000
D) $14,750

Accepted Answer

B

Question 4

A revenue driver is defined as ________.
A) any factor that affects costs and revenues
B) any factor that affects revenues
C) the only factor that can influence a change in selling price
D) the only factor that can influence a change in demand

Accepted Answer

A revenue driver is a factor that affects the amount of revenue a business generates, such as changes in price or quantity sold, marketing strategies, or customer demand. While costs can also influence revenue, a revenue driver specifically refers to factors that directly impact the amount of money coming in. Therefore, option B correctly defines a revenue driver as a factor that affects revenues. Option A is incorrect because it includes factors that can affect costs but aren't necessarily tied to revenue (such as changes in production efficiency). Option C is incorrect because selling price is just one of many revenue drivers. Option D is incorrect because demand can be influenced by factors other than revenue drivers, such as changes in consumer preferences or market trends.

Question 5

Managers use cost-volume-profit (CVP)analysis to ________.
A) forecast the cost of capital for a given period of time
B) to study the behavior of and relationship among the elements such as total revenues, total costs, and income
C) estimate the risks associated with a given job
D) analyse a firm's profitability and help to decide wealth distribution among its stakeholders

Accepted Answer

Cost-volume-profit (CVP) analysis is a tool used by managers to study the behavior of and relationship among the elements such as total revenues, total costs, and income. It helps the managers to understand the impact of changes in volume, costs, and selling price on the profitability of the firm. It is primarily used for decision-making purposes such as setting sales goals, determining the sales mix, and setting prices. The other options mentioned do not reflect the purpose of CVP analysis.

Question 6

Pacific Company sells only one product for $11 per unit,variable production costs are $3 per unit,and selling and administrative costs are $1.50 per unit.Fixed costs for 10,000 units are $5,000.The operating income is ________.
A) $6.50 per unit
B) $6.00 per unit
C) $5.50 per unit
D) $5.00 per unit

Accepted Answer

The answer of Pacific Company sells only one product for...

Question 7

Answer the following questions using the information below:
Northern Star sells several products. Information of average revenue and costs is as follows:
 $$\begin{array} { l r } 
\text { Selling price per unit } & \$ 20.00 \
\text { Variable costs per unit: } & \
\text { Direct material } & \$ 4.00 \
\text { Direct manufacturing labor } & \$ 1.60 \
\text { Manufacturing overhead } & \$ 0.40 \
\text { Selling costs } & \$ 2.00 \
\text { Annual fixed costs } & \$ 96,000
\end{array}$$
$\text { The company sells } 12,000 \text { units at the end of the year. }$
-The contribution margin per unit is ________.
A) $11.00
B) $12.00
C) $4.00
D) $14.00

Accepted Answer

The answer of Answer the following questions using the information...

Question 8

The contribution income statement highlights ________.
A) gross margin
B) the segregation of costs into period costs and inventoriable costs
C) different product lines
D) variable and fixed costs

Accepted Answer

The contribution income statement is designed to highlight the separation between variable and fixed costs, making it easier to understand the impact of sales volume on profitability.

Question 9

Answer the following questions using the information below:
Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs.
-Contribution margin per unit is ________.
A) $4.00
B) $11.00
C) $10.00
D) $8.00

Accepted Answer

The answer of Answer the following questions using the information...

Question 10

Which of the following is true of CVP analysis?
A) Costs may be separated into separate inventoriable and period components with respect to the level of output.
B) Total revenues and total costs are linear in relation to output units.
C) Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
D) Proportion of different products will vary according to demand and supply when multiple products are sold.

Accepted Answer

One of the fundamental assumptions of CVP analysis is that total revenues and total costs are linear in relation to output units within the relevant range. Choices A, C, and D, while relevant to cost accounting and managerial accounting concepts, are not necessarily true of CVP analysis.

Question 11

Which of the following is an assumption of CVP analysis?
A) Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B) When graphed, total costs curve upward.
C) The unit-selling price is variable as it is subject to demand and supply.
D) Total costs can be divided into inventoriable and period costs with respect to the level of output.

Accepted Answer

CVP analysis assumes that total costs can be divided into a fixed component and a component that varies with changes in output volume. This is important in determining the breakeven point and understanding how changes in output will affect total costs and profits. Option B is incorrect as the total cost curve may have both upward and downward sloping segments depending on the cost behavior. Option C is incorrect as CVP analysis typically assumes a fixed selling price. Option D is incorrect as the distinction between inventoriable and period costs is not relevant to the calculations in CVP analysis.

Question 12

As per CVP,operating income calculations use ________.
A) net income and dividends
B) income tax expense and net income
C) contribution margins and fixed costs
D) nonoperating revenues and nonoperating expenses

Accepted Answer

CVP (cost-volume-profit) analysis focuses on the relationship between sales volume, costs, and profits. Operating income is calculated by subtracting all variable costs (which consist of cost of goods sold and variable operating expenses) from the total sales revenue. This leaves the contribution margin, or the amount of sales revenue that is available to cover fixed costs (such as rent, insurance, salaries, etc.) and achieve a profit. Therefore, contribution margins and fixed costs are the key elements used in operating income calculations for CVP analysis. Net income, dividends, income tax expense, nonoperating revenues, and nonoperating expenses are not relevant to CVP analysis.

Question 13

Answer the following questions using the information below:
Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs.
-If sales increase by $60,000,operating income will increase by ________.
A) $10,000
B) $40,000
C) $45,000
D) $60,000

Accepted Answer

The answer of Answer the following questions using the information...

Question 14

Contribution margin equals ________.
A) revenues minus period costs
B) revenues minus product costs
C) revenues minus variable costs
D) revenues minus fixed costs

Accepted Answer

Contribution margin is defined as the difference between revenues and variable costs. This means that it only takes into account the costs that vary with the level of production (such as direct materials, direct labor, and variable overhead). Therefore, options A, B, and D are incorrect as they do not accurately describe the calculation of contribution margin.

Question 15

Answer the following questions using the information below:
Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs.
-Calculate the variable cost per unit.
A) $11.00
B) $7.00
C) $8.00
D) $7.50

Accepted Answer

The answer of Answer the following questions using the information...

Question 16

Answer the following questions using the information below:
Tally Corp. sells softwares during the recruiting seasons. During the current year, 11,000 softwares were sold resulting in $440,000 of sales revenue, $110,000 of variable costs, and $48,000 of fixed costs.
-Contribution margin per software is ________.
A) $10.00
B) $30.00
C) $40.00
D) $36.00

Accepted Answer

Contribution margin per software = Sales revenue per software - Variable costs per software
Sales revenue per software = Total sales revenue / Total number of softwares sold 
                         = $440,000 / 11,000 
                         = $40
Variable costs per software = Total variable costs / Total number of softwares sold 
                            = $110,000 / 11,000 
                            = $10
Contribution margin per software = $40 - $10 
                                  = $30 
Therefore, the contribution margin per software is $30.

The best choice is B as it is the only option that correctly calculates the contribution margin using the given information.

Question 17

The contribution margin income statement ________.
A) reports gross margin
B) is allowed for external reporting to shareholders
C) categorizes costs as either direct or indirect
D) can be used to predict future profits at different levels of activity

Accepted Answer

The contribution margin income statement can be used to predict future profits at different levels of activity by analyzing how changes in sales volume affect the contribution margin and net income. It categorizes costs as either fixed or variable and provides a clear picture of the profitability of different products, services or business segments. The statement does not report gross margin, which is a measure of profitability that includes both variable and fixed costs. The contribution margin income statement is not a required form of external reporting to shareholders, but it can be useful for internal decision-making and analysis.

Question 18

In the graph method of CVP analysis,the total revenues line always begins from the x-axis and the total costs line begins from the fixed cost line.

Accepted Answer

This is a correct statement. The graph method of CVP analysis typically involves plotting the total revenue line starting from the origin (x-axis) and the total cost line starting from the fixed cost line (y-axis), allowing for easy visualization and analysis of the relationship between revenues, costs, and profits at different levels of output.

Question 19

Which of the following is true about the assumptions underlying basic CVP analysis?
A) Selling price varies with demand and supply of the product.
B) Only selling price and variable cost per unit are known and constant.
C) Only selling price, variable cost per unit, and total fixed costs are known and constant.
D) Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

Accepted Answer

Basic CVP analysis assumes that only selling price, variable cost per unit, and total fixed costs are known and constant. This makes it easier to calculate the break-even point and analyze the impact of changes in sales volume on profitability. However, in reality, selling price may vary with demand and supply of the product, and fixed costs may also vary with changes in business operations.

Question 20

Which of the following is true of cost-volume-profit analysis?
A) The theory assumes that all costs are variable.
B) The theory assumes that units manufactured equal units sold.
C) The theory states that total variable costs remain the same over a relevant range.
D) The theory states that total costs remain the same over the relevant range.

Accepted Answer

Cost-volume-profit (CVP) analysis assumes that the number of units produced is equal to the number of units sold, eliminating the complexities introduced by changes in inventory levels. This simplifies the analysis by focusing on production costs and sales revenue for the units sold.

Quiz 3: Cost-Volume-Profit Analysis

The selling price per unit less the variable cost per unit is the ________.

One of the first steps to take when using CVP analysis to help make decisions is ________.

Fixed costs equal $15,000,unit contribution margin equals $25,and the number of units sold equal 1,150.Operating income is ________.

A revenue driver is defined as ________.

Managers use cost-volume-profit (CVP) analysis to ________.

Pacific Company sells only one product for $11 per unit,variable production costs are $3 per unit,and selling and administrative costs are $1.50 per unit.Fixed costs for 10,000 units are $5,000.The operating income is ________.

The contribution income statement highlights ________.

Answer the following questions using the information below: Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. -Contribution margin per unit is ________.

Which of the following is true of CVP analysis?

Which of the following is an assumption of CVP analysis?

As per CVP,operating income calculations use ________.

Contribution margin equals ________.

Answer the following questions using the information below: Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. -Calculate the variable cost per unit.

The contribution margin income statement ________.

In the graph method of CVP analysis,the total revenues line always begins from the x-axis and the total costs line begins from the fixed cost line.

Which of the following is true about the assumptions underlying basic CVP analysis?

Which of the following is true of cost-volume-profit analysis?