1.

The traditional income statement focuses on:

a. cost function b. cost behavior c. contribution margin d. variable costing

2. Which of the following would you not find on a traditional income statement?
a. Net income b. Gross profit c. Contribution margin d. Sales revenue

3. Which of the following would you not find on a contribution margin income statement?
a. Net income b. Gross profit c. Contribution margin d. Sales revenue

4. The difference between sales and cost of goods sold is called:

a. net income b. gross profit c. contribution margin d. finished goods inventory

5. The difference between sales and variable costs is called:

a. net income b. gross profit c. contribution margin d. cost of goods manufactured

6. The contribution margin income statement is structured in such a way as to emphasize:

a. cost functionality b. cost behavior c. organizational efficiency d. cost drivers

7. When preparing a contribution margin income statement, it is necessary to breakdown costs into what two categories?
a. Direct materials and indirect materials c. Variable and fixed
b. Product and period d. Avoidable and unavoidable

8. When preparing a traditional income statement, it is necessary to breakdown costs into what two categories?
a. Direct materials and indirect materials c. Variable and fixed
b. Product and period d. Avoidable and unavoidable

9. Which of the following statements is true regarding the traditional income statement?
a. Sales revenue is based on the units produced rather than the units sold
b. It will include a subtotal called contribution margin
c. It will group costs into categories based on their behavior (fixed versus variable)
d. It is required for external reporting purposes

10. Which of the following statements is false regarding the contribution margin income statement?
a. It will group costs into categories based on their behavior (fixed versus variable)
b. It will include a subtotal called gross profit
c. It is not allowed for external reporting purposes
d. It is used by management to perform cost-volume-profit analysis

11. Which of the following accounting system outputs is not needed for cost-volume-profit analysis?
a. Sales price per unit c. Total fixed costs
b. Variable costs per unit d. Fixed cost per unit

12. Which of the following is usually not one of the factors that cost-volume-profit analysis focuses on?
a. Sales prices of products c. Variable costs per unit
b. Mix of products or services produced d. Fixed costs per unit

13. All else being equal, which of the following would not cause the contribution margin to increase?
a. A decrease in variable costs per unit. c. A decrease in fixed costs per unit.
b. An increase in sales volume. d. An increase in the sales price per unit.

14. All else being equal, which of the following would not cause the contribution margin to decrease?
a. An increase in total variable costs c. A decrease in variable costs per unit
b. A decrease in sales volume d. A decrease in the sales price per unit

15. All else being equal, which of the following would cause the contribution margin to increase?
a. An increase in variable costs per unit c. A decrease in total fixed costs
b. An increase in total variable costs d. An increase in sales volume

16. All else being equal, which of the following would cause net income to increase?
a. An increase in total variable costs c. A decrease in sales price per unit
b. A decrease in total fixed costs d. A decrease in contribution margin
17. Assuming a company has net income, which of the following statements is true regarding the contribution margin per
unit?
a. It will decrease as the number of units sold increases
b. It will decrease as the number of units sold decreases
c. It indicates the amount that net income will increase with the sale of each additional unit
d. It indicates the amount that variable costs will decrease with the sale of each additional unit

18. Assuming a company has net income, with the sale of each additional unit, net income will increase by the ____
a. contribution margin ratio c. sales price per unit
b. contribution margin per unit d. fixed cost per unit

19. For each additional unit sold, the contribution margin per unit:
a. will increase c. will stay the same
b. will decrease d. cannot be predicted

20. The ____ represents the amount of each additional sales dollar that contributes towards the payment of fixed costs
and, ultimately, net profit.
a. contribution margin ratio c. break-even point
b. contribution margin per unit d. variable cost per unit

21. If a company has a positive contribution margin but net income is low or negative, what are some ways of increasing
net income?
a. increase sales price c. decrease variable costs
b. increase sales volume d. All of these are ways to increase net income

22. Assuming a company has a positive contribution margin, which of the following changes will cause net income to
increase?
a. A decrease in variable costs c. An increase in total fixed costs
b. A decrease in the sale price d. A decrease in the sales volume

23. All else being equal, which of the following changes would increase a company's net income?
a. An increase in fixed costs c. An increase in variable costs
b. A decrease in contribution margin d. A decrease in fixed costs

24. If sales revenue stays the same but the contribution margin ratio decreases, then:
a. net income will increase c. net income will decrease
b. fixed costs will decrease d. fixed costs will increase

25. Which of the following statements is true when making decisions using cost-volume-profit (CVP) analysis?
a. As long as the contribution margin is a positive number, net income will be positive
b. As long as variable costs are more than fixed costs, net income will be negative
c. As long as the contribution margin is greater than fixed costs, net income will be positive
d. As long as the sales price per unit is greater than fixed costs per unit, net income will be positive

26. L Company wishes to decrease variable costs. Which of the following options should she consider?
a. A decrease in advertising costs c. A decrease in direct labor costs
b. A decrease in rent d. An increase in equipment rentals

27. Which of the following statements is correct as it relates to a company that sells multiple products?
a. CVP analysis cannot be used
b. Contribution margin is based on sales mix
c. CVP analysis is much easier to use
d. The break-even point remains the same even if sales mix changes

28. When calculating the break-even point in a multi-product environment, which of the following statements is false?
a. The contribution margin per unit for each product needs to be determined
b. Total fixed costs need to be determined
c. Each product is assumed to count for an equal percentage of total sales
d. The weighted-average contribution margin per unit needs to be determined
29. When calculating the break-even point in a multi-product environment, which of the following pieces of information
would not be relevant?
a. Contribution margin per unit for each type of product c. Total fixed costs
b. Each product's percentage of total sales d. Fixed costs per unit

30. In a multi-product environment:

a. cost-volume-profit analysis should not be used
b. only the product with the highest contribution margin should be sold
c. the product with the highest sales prices per unit should account for the majority of the sales
d. a weighted-average contribution margin per unit should be computed for all products produced and sold

31. M Company ignored the effect of income taxes in its calculation of the sales volume needed to achieve a target profit
of 1,000,000. If the company considers the impact of income taxes in its calculation, which of the following statements
would be true?
a. Total fixed costs will increase c. Sales volume to reach an after-tax profit will increase
b. Contribution margin per unit will decrease d. Sales price per unit will decrease

32. When considering the impact of income taxes on the sales volume needed to achieve a desired after-tax profit, which
of the following statements is true?
a. Fixed costs will increase
b. As the tax rate increases, the number of units that need to be sold will decrease
c. The before-tax profit will need to be calculated
d. The contribution margin per unit will decrease

33. Which of the following is an assumption of CVP analysis?

a. Inventory levels increase at a constant rate c. The number of units sold is constant
b. Costs are linear throughout the relevant range d. Fixed costs increase as production increases

34. Which of the following is not an assumption of CVP analysis?

a. Selling prices change only at the end of the month
b. Costs can be thought of as fitting a linear function within the relevant range
c. Sales mix is constant
d. Inventory levels do not change

35. One of the major assumptions used in CVP analysis is:

a. that number of units sold each year remains the same
b. that in a multi-product environment, all products are assumed to be sold in identical proportion to total sales
c. that the tax rate is not known
d. that the sales price of a product will not change as volume changes

36. Cost structure refers to the relative proportion of:

a. variable costs to contribution margin c. fixed costs to variable costs
b. total costs to sales d. sales price per unit to variable costs per unit

37. Operating leverage measures:

a. how sensitive profit is to a change in fixed costs c. how sensitive profit is to a change in sales price per unit
b. how sensitive profit is to a change in sales volume d. how sensitive profit is to a change in tax rates

38. Which of the following statements is most likely true if R Company has an operating leverage of 2.0 while B
Company has an operating leverage of 1.4?
a. R Company is selling its products for a higher sales price than B Company
b. R Company's net income will be less sensitive to a change in sale volume than B Company
c. B Company's fixed costs in relation to variable costs are lower than R Company's
d. B Company has a lower contribution margin per unit than R Company

39. A company with a high level of operating leverage will:

a. experience fewer fluctuations in income as sales fluctuate than a company with a low level of operating leverage
b. experience wider fluctuations in income as sales fluctuate than a company with a low level of operating leverage
c. earn higher profits than a company with a low level of operating leverage
d. earn lower profits than a company with a low level of operating leverage