1. If the variable cost per unit goes up, Contribution margin Break-even point

a. Increases increases.

b. Increases decreases.

c. Decreases decreases.

d. Decreases increases.

e. Decreases remains unchanged.

2. The amount of revenue required to earn a targeted profit is equal to

a. Fixed cost divided by Contribution margin.

b. Fixed cost divided by Contribution margin ratio.

c. Fixed cost plus targeted profit divided by Contribution margin ratio.

d. Targeted profit divided by Contribution margin ratio.

e. Targeted profit divided by variable cost ratio.

3. Break-even revenue for the multiple-product firm can

a. Be calculated by dividing total fixed cost by the overall Contribution margin ratio.

b. Be calculated by dividing segment fixed cost by the overall Contribution margin ratio.

c. Be calculated by dividing total fixed cost by the package Contribution margin.

d. Be calculated by multiplying total fixed cost by the Contribution margin ratio.

e. Not be calculated; break-even revenue can only be computed for a single-product firm.

4. In the cost-volume-profit graph,

a. The break-even point is found where the total revenue curve crosses the x-axis.

b. The area of profit is to the left of the break-even point.

c. The area of loss cannot be determined.

d. Both the total revenue curve and the total cost curve appear.

e. Neither the total revenue curve nor the total cost curve appear.

5. An important assumption of cost-volume-profit analysis is that

a. Both costs and revenues are linear functions.

b. All cost and revenue relationships are analyzed within the relevant range.

c. There is no change in inventories.

d. Sales mix remains constant.

e. All of the above are assumptions of cost-volume-profit analysis.

6. The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves

a. Margin of safety.

b. Operating leverage.

c. Degree of operating leverage.

d. Sensitivity analysis.

e. Variable cost reduction.

7. If the margin of safety is 0, then

a. The company is operating at a loss.

b. The company is precisely breaking even.

c. The company is earning a small profit.

d. The margin of safety cannot be less than or equal to 0; it must be positive.

e. None of the above is true.

8. The Contribution margin is the

a. Amount by which sales exceed fixed costs.

b. Difference between sales and total expenses.

c. Difference between sales and operating income.

d. Difference between sales and total variable expense.

e. Difference between variable expense and fixed expense.

Use the following information for 4-9 and 4-10.

Corleone Company produces a single product with a price of $15, variable costs per unit of $12, and fixed costs of $9,000.

9. Corleone’s break-even point in units

a. Is 600.

b. Is 750.

c. Is 9,000.

d. Is 3,000.

e. cannot be determined from the information given.

10. The variable cost ratio and the Contribution margin ratio for Corleone are Variable cost ratio Contribution margin ratio

a. 80% 80%.

b. 20% 80%.

c. 20% 20%.

d. 80% 20%.

e. The Contribution margin ratio cannot be determined from the information given.

11. If a company’s fixed costs rise by $10,000, which of the following will be true?

a. The break-even point will decrease.

b. The variable cost ratio will increase.

c. The break-even point will be unchanged.

d. The variable cost ratio will decrease.

e. The Contribution margin ratio will be unchanged.

12. Solemon Company has fixed costs of $15,000, variable cost per unit of $5, and a price of $8. If Solemon wants to earn a targeted profit of $3,600, how many units must be sold?

a. 6,200

b. 5,000

c. 1,200

d. 3,720

e. 1,875