You are on page 1of 6

27. If a company raises its target peso profit, its A. break-even point rises. B. fixed costs increase. C.

required total contribution margin increases. D. selling price rises.

Bobadilla

28. Broadway Company sells three products: A, B and C. Product A's unit contribution margin is higher than Product B's which is higher than Products C's. Which one of the following events is most likely to increase the company's overall break-even point? A. The installation of new automated equipment and subsequent lay-off of factory workers. B. A decrease in Product C's selling price. C. An increase in the overall market demand for Product B. D. A change in the relative market demand for the products, with the increase favoring Product A relative to Product B and Product C. Bobadilla 29. Which of the following is not a benefit of using sensitivity analysis? A. More people can see the impact of their ideas on the project. B. The use of a spreadsheet program increases the accuracy of the projections. C. What will happen is not known in advance so a variety of options can be explored prior to making a decision. D. A well-written spreadsheet will allow for a variety of questions to be answered in a minimal amount of time. Bobadilla 30. A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area of Profitability". Which of the following best explains the difference between the two points on the graph? A. The area of loss represents the difference between Sales and Variable Cost. B. The area of loss begins with the concept that fixed costs have to be recovered prior to sales contributing to profit. C. The area of profit represents the difference between Sales and Variable Cost. D. The area of profit begins with the concept that no company would have any level of sales below the breakeven point. Bobadilla 31. Which of the following best describes the impact of selling more units? A. The increase in sales volume increases total variable cost. B. The increase in sales volume means an increase in total fixed cost. C. The increase in sales increases contribution margin, causing net income to decrease. D. The increase in sales increases contribution margin per unit causing the break-even point to decrease. Bobadilla 32. On a cost-volume-profit chart (break-even graph), where are the total fixed costs shown? A. As the point where the sales line intersects the vertical axis (pesos) B. As the point where the sales line crosses the total cost line C. As the point where the sales line crosses the horizontal axis (volume) D. As the point where the total cost line intersects the vertical axis (pesos) Bobadilla 33. When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which of the following is one of those assumptions? A. The contribution margin will change as volume increases B. The variable cost per unit will decrease as volume increases C. The sales price per unit will remain constant as volume increases D. Fixed cost per unit will remain the same as volume increases Bobadilla

total revenues and total costs A. Bobadilla 40. Bobadilla 35. both A and B are correct. The margin of safety is a key concept of CVP analysis. all other things held constant. but at a decreasing rate. increases as volume increases within the relevant range. Sales price per unit. CVP analysis would stimulate sales of the product by increasing the: A. A fixed cost is the same percentage of sales in three different months. The contribution margin rate. Bobadilla Bobadilla . D. Number of units sold. D. sales price C. C. as the volume of activity changes. contribution margin B. decreases if volume increases beyond the relevant range. Per-unit variable cost A. C. remain constant. B. decrease. is riskier than higher margin of safety products D. none of the above. remains constant within the relevant range. C. is less risky than higher margin of safety products Bobadilla 39. A relatively low margin of safety ratio for a product is usually an indication that the product: A.34. variable cost per unit D. As fixed costs for a firm rise. is losing money B. Which of the following is true? A. 44. which one of the following will remain the same? A. C. Total contribution margin Bobadilla 42. The margin of safety is A. In planning product mix for maximum profit. Which of the following would not affect the breakeven point? A. D. when the number of units changes. the breakeven point will A. can be graphed as straight lines. The company is achieving its target level of profit. be unchanged C. The company is operating at its break-even point. the number of units D. Bobadilla 37. The cost is both fixed and variable. Bobadilla 36. Total variable costs D. The company had the same sales in each of those months. increase B. Total fixed costs B. Within the relevant range. D. C. B. emphasis on customer priority Bobadilla 38. per unit. not be affected by fixed costs D. decrease 43. Classifying a cost as fixed or variable depends on how it behaves A. sales commission per unit Bobadilla B. B. unit direct material cost C. decreases as volume increases within the relevant range. Total fixed costs. efficiency due to learning curve effect 41. as the volume of activity changes. Variable cost per unit. has a high contribution margin C. increase. D. Total sales revenues C. In CVP analysis. B. B. in total. An assumption in a CVP analysis is that a change in costs is caused by a change in A.

C. Sensitivity analysis. The increase in fixed cost causes net income to decrease and the break-even point to increase. D. A company’s breakeven point in peso sales may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are equal within the relevant range). Which of the following best describes the impact of an increase in fixed cost? A. B. C. fixed cost decreases Bobadilla Bobadilla 49. variable cost increases and sales increase C. The increase in fixed cost causes net income to decrease and the break-even point to decrease. variable cost increases and sales remain unchanged B. Increase the fixed costs and decrease the contribution margin. The increase in fixed cost will result in an increase in selling more units. fixed cost increases D. D.B. D. contribution margin. The break-even point in total sales decreases when: A. D. C. Decrease by more than the percentage increase in the selling price. Which of the following will decrease the breakeven point? Decrease in Selling Price Increase in Direct Labor A. Decrease the fixed costs and increase the contribution margin. what will happen to contribution margin (CM) and breakeven point (BEP)? Bobadilla A. B. B. unit selling price. Bobadilla 50. Bobadilla 51. Decrease by less than the percentage increase in selling price. YES YES B. C. Bobadilla B. 48. If the fixed costs attendant to a product increase while variable costs and sales price remains constant. Bobadilla 45. YES NO Bobadilla Increase in Fixed Cost YES YES . The difference between budgeted contribution margin and breakeven contribution margin D. Post-audit analysis. The most likely strategy to reduce the breakeven point would be to A. C. Increase both the fixed costs and the contribution margin. Bobadilla 47. The increase in fixed cost will cause an increase in variable cost. Increase by less than the percentage increase in selling price. CM Increase Decrease Unchanged Unchanged BEP Decrease Increase Increase Unchanged 52. total variable costs. the break-even point. CVP analysis. B. 46. B. D. An increase in the unit variable cost will generally cause an increase in all of the following except A. The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in peso sales to A. Remain unchanged. Decrease both the fixed costs and the contribution margin. The difference between budgeted contribution margin and actual contribution margin. The difference between budgeted sales and breakeven sales. Contribution-margin variation analysis. A technique for determining what would happen in a decision analysis if a key prediction or assumption proves to be wrong is called: A. C. D. C.

Bobadilla B. D. C. decreases the contribution margin percentage. selling price is less than the average total cost per unit. In an economic recession. B.C. C. B. remains constant. NO NO NO NO YES NO 53. its fixed costs Bobadilla Bobadilla . break-even point in pesos increases. If variable cost as a percentage of sales increases.Bobadilla 54. D. C. C. D. D. selling price is lower than the variable cost per unit. A 10% increase in fixed cost per unit. contribution margin percentage increases. selling price increases. 59. Which of the following is an incorrect statement? A. A 10% increase in fixed costs. per-unit contribution margin will be lower than expected. decreases. A. The greater the proportion of fixed costs in a firm's cost structure. profit will be higher than expected. D. C. fixed cost per unit is greater than variable cost per unit. D. the highly automated company with high fixed costs will be less able to adapt to lower consumer demand than will a firm with a more labor-intensive production process. As volume increases. lowers the break-even point. B. 55. while the expenses shown under the contribution format are shown by function and cost behavior. fixed costs decrease. and fixed costs. A. Introducing income taxes into cost-volume-profit analysis A. D. average cost per unit A. fixed costs are greater than sales. C. Bobadilla Bobadilla Bobadilla 57. the smaller will be the impact on profit from a given percentage change in sales revenue. If all goes according to plan except that unit variable cost falls. C. the A. B. total contribution margin will be lower than expected. If a company is operating at a loss. 56. 60. A 10% increase in variable cost per unit. D. B. the contribution margin percentage will be lower than expected. The contribution income statement that is prepared for internal users is better than the traditional income statement as a management tool to predict the results of increases or decreases in sales volume. 58. If a company is earning a profit. A 10% decrease in selling price. B. A major difference between income statements prepared under the traditional format and those prepared under the contribution format is that expenses under the traditional format are shown by function. Which of the following decreases per-unit contribution margin the most for a company that is currently earning a profit? A. raises the break-even point. increases. variable costs. increases unit sales needed to earn a particular target profit. increases in proportion to the change in volume.

E P D A O Volume B C Bobadilla The difference between line AB and line AC (area BAC) is the A. increases sales required to earn a particular after-tax profit. D. Bobadilla . C. B. In a cost-volume-profit graph A. lowers the break-even point. Bobadilla B. are equal to total contribution margin. Bobadilla 66. total fixed cost. D. remains constant. D. an increase in the unit selling price would shift the breakeven point in units to the left. B. 62. Line AC graphs total fixed costs. raises the break-even point. contribution margin per unit. If the sales mix shifts toward higher contribution margin products. that are expected to hold over the relevant range. B. are greater than total variable costs. an increase in unit variable costs would decrease the slope of the total cost line. decreases. are less than total contribution margin. the break-even point A. Bobadilla 63. Bobadilla 61. increases. D. B. The following diagram is a cost-volume-profit graph for a manufacturing company. Bobadilla 64. profits are maximized at the sales volume where total revenues equal total costs. C. Point D represents the point at which the contribution margin per unit increases. Select the answer that best describes the labeled item on the diagram. B. D.A. it is impossible to tell without more information. can be greater than or less than total contribution margin. decreases sales required to earn a particular after-tax profit. likely to prevail for the industry. C. 65. A. D. contribution ratio. B. An increase in the income tax rate A. C. D. that the company's managers would like to have happen. Line AC graphs total costs. C. C. the total revenue line crosses the horizontal axis at the breakeven point. A cost-volume-profit graph reflects relationships A. Area CDE represents the area of net loss. beyond the breakeven sales volume. C. of results over the past few years. total variable cost.

Profits will remain constant with a decrease in total peso of sales if the sales mix also remains constant. inappropriate if a company has already established a target profit. Which of the following is a true statement about sales mix? A. C. used by companies that cannot classify their costs by behavior. C. Profits will remain constant with an increase in total peso of sales if the total sales in units remains constant. In order for the break-even computation to be meaningful to management.67. a substitute for CVP analysis. D. Bobadilla . Profits may decline with an increase in total peso of sales if the sales mix shifts to sell more of the high contribution margin product. least desirable mix D. Target costing is A. expected mix C. used in decisions to offer a new product or enter a new market. B. traditional mix Bobadilla 69. Bobadilla 68. sales mix should be computed using the A. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell more of the lower contribution margin product. most desirable mix B. B. D.