2.4 Questions

1) A cost-volume-profit graph has a line for ________ and a line for ________.

A) revenues; variable costs only

B) revenues; fixed costs only

C) revenues; total costs

D) net profit; net loss

2) The break-even point on the cost-volume-profit graph is where the ________.

A) total cost line intersects the net profit line

B) total cost line intersects the net loss line

C) revenue line intersects the total cost line

D) revenue line intersects the variable cost line

3) On a cost-volume-profit graph, the vertical distance between the Revenue line and the Total Cost line represents ________ or ________.

A) mixed cost; step cost

B) variable cost; fixed cost

C) net profit; net loss

D) step cost; fixed cost

4) To construct the Total Cost line on a cost-volume-profit graph, plot ________ and then plot ________.

A) mixed costs; step costs

B) step costs; mixed costs

C) fixed costs; variable costs

D) fixed costs; fixed costs plus variable costs

5) On a cost-volume-profit graph, when the Total Cost line is higher than the Total Revenue line, the difference represents ________.

A) net income

B) a positive return on the investment

C) a net loss

D) not enough information is presented

6) It is misleading to call a cost-volume-profit graph a break-even graph. Why?

A) The graph reveals more information than the break-even point.

B) The graph does not show the break-even point.

C) The main purpose of the graph is to show the cost drivers for different activity levels.

D) The main purpose of the graph is to show the margin of safety.

7) If a company faces declining sales over time, it must restructure its costs to break-even at a lower volume. In order to carry this out, what costs can be reduced?

A) variable costs only

B) fixed costs only

C) variable and fixed costs

D) step costs only

8) On a cost-volume-profit graph, the net profit area is found ________.

A) at the break-even point

B) to the right of the break-even point

C) to the left of the break-even point

D) to the right of the intersection of the y-axis and x-axis

9) On a cost-volume-profit graph, at the point where the Total Revenue line intersects the Total Cost line, ________.

A) net income is positive

B) net income is negative

C) net income is zero

D) not enough information is given

10) The horizontal axis on the cost-volume-profit graph is the ________.

A) dollars of cost

B) sales volume in units

C) dollars of revenue

D) net income