Question 1

CVP analysis stands for cost-variance-profit analysis.

True

False

Question 2

Contribution margin is calculated by subtracting ____________ from revenue.

All variable costs

Direct variable costs

Indirect variable costs

Overhead

Question 3

Sara is a manager in a retail clothing shop. She is considering adding a line of business attire, including suit jackets. Which of the following statements characterizes how Sara could use the break-even point? (Check all that apply.)

Sara compares her market demand to the break-even point to see whether demand allows for profitability.

The break-even point informs Sara about the best brands and colors to sell.

Sara can disclose the break-even point to external users of financial statements.

The break-even point informs Sara of the sales necessary to earn a profit.

Question 4

Total variable costs can be broken into which of the following two components?

Units sold and units produced

Quantity and cost per unit

Quantity and total cost

Selling price and overhead

Question 5

Which of the following statements are accurate about cost-volume-profit analysis? (Check all that apply.)

When the sales price increases, the break-even point increases.

When the total fixed costs increase, the break-even point increases.

When the variable cost per unit increases, the break-even point decreases.

When the variable cost per unit increases, the break-even point increases.

Question 6

Which of the following is an assumption underlying CVP analysis?

Inventory increases each period.

Sales price decreases with production volume.

Fixed costs per unit are constant.

Variable costs per unit are constant.

Question 7

Beginning and ending inventory has an impact on the breakeven calculation.

True

False

Question 8

Lucia is using cost-volume-profit analysis to predict profits for a new product line. Which of the following reflect how Lucia's analysis is subject to assumptions? (Check all that apply.)

If costs are not accurately categorized as fixed or variable, the analysis may reflect too high of a break-even point.

If the break-even point suggested by the analysis requires additional capacity (and related fixed costs), the analysis lacks validity.

If costs are not accurately categorized as fixed or variable, the analysis may reflect too low of a break-even point.

Because it is a new product line and actual cost information is not available, Lucia cannot use cost-volume profit analysis.

Question 9

Which of the following is used to calculate the weighted-average contribution margin?

Sales mix

Total fixed costs

Fixed costs for each product

Total variable costs

Question 10

Suppose that Jaxon Corporation has three products: red, black, and white. Red has the highest contribution margin per unit, black has the second highest contribution margin per unit, and white has the lowest contribution margin per unit. Suppose that the composite break-even point (i.e., using the weighted-average contribution margin) was computed relying on the relative sales mix of 40% red, 35% black, and 25% white.

If the sales mix were to change to 35% red, 35% black, and 30% white, what would happen to the composite break-even point?

It would decrease.

It would stay the same.

It would increase.