True or False

Enter a T or an F in the blank to indicate whether the

statement is true or false.

___ 1. If product A has a higher unit contribution

margin than product B, then product A will also have a

higher CM ratio than product B.

___ 2. The break-even point occurs where the

contribution margin is equal to total variable expenses.

___ 3. The break-even point can be expressed ei-

ther in terms of units sold or in terms of total sales dol-

lars.

___ 4. If the sales mix changes, the break-even

point may change.

___ 5. For a given increase in sales dollars, a high

CM ratio will result in a greater increase in profits

than will a low CM ratio.

___ 6. If sales increase by 8%, and the degree of

operating leverage is 4, then profits can be expected to

increase by 12%.

___ 7. The degree of operating leverage remains

the same at all levels of sales.

___ 8. Once the break-even point has been

reached, net income will increase by the unit contribu-

tion margin for each additional unit sold.

___ 9. A shift in sales mix toward less profitable

products will cause the overall break-even point to fall.

___ 10. Incremental analysis focuses on the differ-

ences in costs and revenues between alternatives.

___ 11. If a companys cost structure shifts toward

greater fixed costs and lower variable costs, one would

expect the companys CM ratio to fall.

___ 12. One way to compute the break-even point

is to divide total sales by the CM ratio.

___ 13. When there is more than one product, a key

assumption in break-even analysis is that the sales mix

will not change.