Part l: True or False Questions (0.4 points each) 1. CVP analysis assumes that costs have been fairly accurately broken down into their 2. On a graph of sales revenue and costs, the fixed cost line is drawn from the point of 3. On a graph of sales revenue and costs, the breakeven point is that point where the 4. When a company incorporates its tax rate into the calculations for CVP analysis, the 5. The amount of cash on hand at the end of an accounting period should agree with the fixed and variable elements. intersection of the horizontal and vertical axes upward and to the right. fixed cost and the sales revenue lines intersect. desired profit before tax is calculated by dividing the after-tax net income by (1-Tax rate). amount of net income for that period. 6. To conserve cash in a business, it is wise to pay accounts payable only after their due date. 7. If annual property taxes were prepaid in January, and if monthly cash budgets were being prepared, one twelfth of the taxes would show as a disbursement for each of the twelve monthly cash budgets 8. Repayment of principal amounts on loans will show as a disbursement on a cash budget. 9. In establishing objectives in budgeting, limiting factors should be considered. 10. Past actual sales records are the foundation on which budgeted sales revenue is built. 11. Variance analysis is a method of analyzing the differences between budgeted figures and actual results. 12. A restaurant budgeted 1,000 customers with an average check of $12.00. Actual customers were 900 with an average check of $12.50. The price variance will be $250 favorable 13. An assumption under CVP analysis is that (a) Fixed costs will remain fixed in the long run (b) All relevant costs can be broken down into their fixed and variable elements (c) Variable costs will change in inverse fashion with sales revenue (d) Total costs will not increase as sales revenue increases 14. A restaurant specializes in a seafood buffet serving dinner only, at a price of $15.75 per person. Its average variable cost is $6.30 per person. The fixed cost is $6,000 per month How many buffet meals must be served monthly to break even? (a) 952 (b) 380 (c) 32 (d) 635 15. A restaurant has sales revenue of $500,000, variable costs of $200,000, and fixed costs of $200,000. The owner wants net income after tax of $40,000. The tax rate is 30%. What is the operating income (before tax)? (a) $ 17,143 (b) $ 40,000 (c) $ 57,143 (d) $133,333 16. A college's food operation has an average meal price of $6.00. Variable costs are $3.75 per meal and fixed costs total $75,000. How many meals must be sold to provide an operating income of $30,000? (a) 13,333 (b) 33,333 (c) 28,000 (d) 46,667 17. Given the facts in the Question 16, how many meals would have to be sold if variable costs increased 20%? (a) 50,000 (b) 23,333 (c) 46,667 (d) 70,000 18. Given the facts in Question 16, how many meals would have to be sold if fixed costs declined by 20%? (a) 40,000 (b) 24,000 (c) 46,667 (d) 70,000
