The break-even point can usually be determined by
simply adding together all of the expenses from the
income statement.
FALSE
Two companies with the same margin of safety in
dollars will also have the same total contribution
margin.
FALSE
The overall contribution margin ratio for a company
producing three products may be obtained by adding
the contribution margin ratios for the three products
and dividing the total by three.
FALSE
An increase in the number of units sold will decrease a
company's break-even point.
FALSE
Assuming that the unit contribution margin is positive, a
10% decrease in selling price will increase the break-
even point in terms of unit sales more than will a 10%
increase in the variable expense.
TRUE
In a Cost-Volume-Profit graph (sometimes called a
break-even chart), unit volume is represented on the
horizontal (X) axis and dollars on the vertical (Y) axis.
True
On a Cost-Volume-Profit graph for a profitable
company, the total expense line will be steeper than the
total revenue line.
False
In a Cost-Volume-Profit graph, the anticipated profit or
loss at any given level of sales is measured by the
vertical distance between the total revenue line (sales)
and the total fixed expense line.
False
In two companies making the same product and with
the same total sales and total expenses, the
contribution margin ratio will be lower in the company
with a higher proportion of fixed expenses in its cost
structure
False
If the variable expense per unit decreases, and all other
factors remain the same, the contribution margin ratio
will increase.
True
The break-even point in units can be obtained by
dividing total fixed expenses by the unit contribution
margin.
True
An increase in the number of units sold will decrease a
company's break-even point.
False
For a capital intensive, automated company the break-
even point will tend to be higher and the margin of
safety will be lower than for a less capital-intensive
company with the same sales.
True
The total volume in sales dollars that would be required
to attain a given target profit is determined by dividing
the target profit by the contribution margin ratio.
False
Two companies with the same margin of safety in
dollars will also have the same total contribution
margin.
False
Fawn Company's margin of safety is $90,000. If the
company's sales drop by $80,000, it will still have
positive net operating income.
True
The margin of safety is the amount by which sales can
decrease before losses are incurred by the company.
True
The margin of safety percentage is equal to the margin
of safety in dollars divided by total contribution margin.
False
The degree of operating leverage in a company is
smallest at the break-even point and increases as sales
volumes rise.
False
The degree of operating leverage is computed by
dividing sales by the contribution margin.
False
Segment margin is sales less variable expenses less
traceable fixed expenses.
True
All other things the same, if a division's traceable fixed
expenses decrease then the division's segment margin
will decrease.
False
The salary paid to a store manager is not a traceable
fixed expense of the store.
False
A company has two divisions, each selling several
products. If segment reports are prepared for each
product, the division managers' salaries should be
considered as common fixed costs of the products.
True
Allocating common fixed costs to segments on
segmented income statements increases the usefulness
of such statements.
False
Segmented statements for internal use should not be
prepared using the contribution format.
False
When using segmented income statements, the dollar
sales for a company to break even equals the traceable
fixed expenses divided by the overall CM ratio.
False
Common fixed expenses should not be allocated to
business segments when performing break-even
calculations and making decisions.
True
When computing the break even for a segment, the
calculations include the company's common fixed
expenses.
False
The cash budget is the starting point in preparing the
master budget.
False
The master budget consists of a number of separate but
interdependent budgets.
True
The production budget is typically prepared prior to the
sales budget.
False
The selling and administrative budget is typically
prepared before the cash budget.
True
A benefit from budgeting is that it forces managers to
think about and plan for the future.
True
Cash collections in a schedule of cash collections
typically consist of collections on sales made to
customers in prior periods plus collections on sales
made in the current budget period.
True
The number of units to be produced in a period can be
determined by adding the expected sales to the desired
ending inventory and then deducting the beginning
inventory.
True
In a production budget, if the number of units in
finished goods inventory at the end of the period is less
than the number of units in finished goods inventory at
the beginning of the period, then the expected number
of units sold is less than the number of units to be
produced during the period.
False
When preparing a direct materials budget, beginning
inventory for raw materials should be added to
production needs, and desired ending inventory should
be subtracted to determine the amount of raw
materials to be purchased.
False
The direct labor budget begins with the required
production in units from the production budget.
True
Waste on the production line will result in an
unfavorable materials price variance.
False
Material price variances are often isolated at the time
materials are purchased, rather than when they are
placed into production, to facilitate earlier recognition
of variances.
True
The materials price variance is computed based on the
amount of materials purchased during the period.
True
In general, the production manager is responsible for
the materials price variance.
False
An unfavorable materials quantity variance occurs when
the actual quantity used in production is less than the
standard quantity allowed for the actual output of the
period.
False There are various budgets within the master budget.
One of these budgets is the production budget. Which
If the actual hourly rate is greater than the standard
of the following BEST describes the production budget?
hourly rate, the labor rate variance is labeled
It is calculated based on the sales budget and the
unfavorable (U).
desired ending inventory.
True

If a company increases its selling price by $2 per unit

due to an increase in its variable labor cost of $2 per
unit, the break-even point in units will:
not change.

The break-even point occurs on the Cost-Volume-Profit

graph where:
total contribution margin equals total fixed expenses

Which of the following would not affect the break-even

point?
A. number of units sold
B. selling price per unit
C. total fixed expense
D. variable expense per unit

In describing the cost formula equation, Y = a + bX,

in the high-low method, "b" equals the change in cost
divided by the change in activity

Which of the following is true regarding the

contribution margin ratio of a company that produces
only a single product?
The contribution margin ratio multiplied by the selling
price per unit equals the contribution margin per unit.

Hayworth Corporation has just segmented last year's

income statement into its ten product lines. The chief
executive officer (CEO) is curious as to what effect
dropping one of the product lines at the beginning of
last year would have had on overall company profit.
What is the best number for the CEO to look at to
determine the effect of this elimination on the net
operating income of the company as a whole?
the product line's segment margin

The usual starting point for a master budget is:

the sales forecast or sales budget.

When preparing a direct materials budget, the required

purchases of raw materials in units equals:
raw materials needed to meet the production schedule
+ desired ending inventory of raw materials −
beginning inventory of raw materials.