2.

FMediumThe break-even point in units can be obtained by dividing total xed expenses by the
contribution margin ratio.

3.FMediumIn two companies making the same product and with the same total sales and total
expenses, the contribution margin ratio will tend to be lower in the company with a higher proportion of
xed expenses in its cost structure.

4.TMediumFor a given level of sales, a low contribution margin ratio will produce less net income than a
high contribution margin ratio.

5.TEasyOnce the break-even point has been reached, increases in contribution margin will be reected
dollar for dollar in increased net income.

6.TMediumThe formula for the break-even point is the same as the formula to attain a given target
prot for the special case where the target prot is zero.

7.TEasyAt the break-even point: Sales - Variable expenses = Fixed expenses.

8.FMediumIf xed expenses increase by $10,000 per year, then the level of sales needed to break even
will also increase by $10,000.

9.T.The total volume in sales dollars that would be required to attain a given target prot is determined
by dividing the sum of the xed expenses and the target prot by the contribution margin ratio

10.FMediumA company with sales of $70,000 and variable expenses of $40,000 should spend $10,000
on increased advertising if the increased advertising will increase sales by $20,000.

11.TMediumIf the xed expenses increase in a company, and all other factors remain unchanged, then
one would expect the margin of safety to decrease.

12.TEasyThe margin of safety percentage is equal to the margin of safety in dollars divided by total sales
in dollars.

13.FMediumIf two companies produce the same product and have the same total sales and same total
expenses, operating leverage will be lower in the company with a higher proportion of xed expenses in
its cost structure.

14.TMediumIf two companies have the same total sales and total expenses and make the same product,
the volatility of net income with changes in sales will tend to be greater in the company with a higher
proportion of xed expenses in its cost structure.

15.TEasyA company with a degree of operating leverage of 4 would expect net income to increase by
200% if sales increased from $100,000 to $150,000.
Multiple Choice

16.DEasyCMA adapted

The dierence between total sales in dollars and total variable expenses is called:a. net operating
income.b. net prot.c. the gross margin.d. the contribution margin.

17.BHardCMA adaptedBrasher Company manufacturers and sells a single product that has a positive
contribution margin. If the selling price and variable expenses both decrease by 5% and xed expenses
do not change, then what would be the eect on the contribution margin per unit and the contribution
margin ratio?

Contribution margin per unit Contribution margin ratio

a. Decrease Decrease

b. Decrease No change

c. No change Decrease

d. No change No change

18.BEasyOnce the break-even point is reached:

a. the total contribution margin changes from negative to positive.b. net income will increase by the unit
contribution margin for each additional item sold.c. variable expenses will remain constant in total.d.
the contribution margin ratio begins to decrease.

19.BMediumCPA adaptedThe contribution margin ratio always increases when the:

a. variable expenses as a percentage of sales increase.b. variable expenses as a percentage of sales

decrease.c. break-even point increases.d. break-even point decreases.

20.CMediumCPA adaptedIf the xed expenses of a product increase while variable expenses and the
selling price remain constant, what will happen to the total contribution margin and the break-even
point?

Contribution margin Break-even point

a. Increase Decreaseb. Decrease Increasec. Unchanged Increased. Unchanged Unchanged

21.CEasyCPA adaptedThe total contribution margin decreases if sales volume remains the same and:

a. xed expenses increase.b. xed expenses decrease.c. variable expense per unit increases.d. variable
expense per unit decreases.
22.DEasyThe break-even in units sold will decrease if there is an increase in:

a. unit sales volume.b. total xed expenses.c. unit variable expenses.d. selling price.

23.BEasyCPA adaptedBreak-even analysis assumes that:a. total costs are unchanged.b. unit variable
expenses are unchanged.c. variable expenses are nonlinear.d. unit xed expenses are unchanged

24.DHardCPA adaptedA company increased the selling price for its product from $1.00 to $1.10 a unit
when total xed expenses increased from $400,000 to $480,000 and variable expense per unit remained
unchanged. How would these changes aect the break-even point?

a. The break-even point in units would increase.b. The break-even point in units would decrease.c. The
break-even point in units would remain unchanged.d. The eect cannot be determined from the
information given.

25.AEasyCMA adaptedThe ratio of xed expenses to the unit contribution margin is the:

a. break-even point in unit sales.b. prot margin.c. contribution margin ratio.d. margin of safety.

26.AEasyCMA adaptedThe break-even point in unit sales increases when variable expenses:

a. increase and the selling price remains unchanged.b. decrease and the selling price remains
unchanged.c. decrease and the selling price increases.d. remain unchanged and the selling price
increases.

27.DEasyThe margin of safety percentage is computed as:

a. Break-even sales/Total sales.b. Total sales - Break-even sales.c. (Total sales - Break-even sales)/Break-
even sales.d. (Total sales - Break-even sales)/ Total sales.

28.CEasyThe margin of safety is equal to:

a. Sales - Net income.b. Sales - (Variable expenses/Contribution margin).c. Sales - (Fixed

expenses/Contribution margin ratio).d. Sales - (Variable expenses + Fixed expenses).

29.CEasyThe amount by which a company's sales can decline before losses are incurred is called the

:a. contribution margin ratio.b. degree of operating leverage.c. margin of safety.d. contribution margin
ratio.

30.DEasyThe degree of operating leverage can be calculated as:

a. contribution margin divided by sales.b. gross margin divided by net income.c. net income divided by
sales.d. contribution margin divided by net income

1. Which of the following equations is CORRECT? A. Sales revenues = Variable expenses - (Fixed
expenses + Operating income) B. Sales revenues - Variable expenses - Fixed expenses = Operating
income C. Sales revenues + Variable expenses + Fixed expenses = Operating income D. Sales revenues -
Fixed expenses = Variable expenses - Operating income

2. The break-even point is A. the volume of activity where all fixed costs are recovered. B. where fixed
costs equal total variable costs. C. where total revenues equal total costs. D. where total costs equal
total contribution margin.

3. The break-even point in units can be calculated using the contribution margin approach in the formula
A. Total Costs / Unit Contribution Margin. B. Total Costs / Fixed Costs. C. Fixed Costs / Selling Price per
unit. D. Fixed Costs / Unit Contribution Margin.

4. The variable cost ratio A. expresses variable costs as a percentage of total costs. B. expresses the
proportion between fixed costs and variable costs. C. expresses variable cost in terms of sales dollars. D.
expresses the proportion of sales dollars available to cover fixed costs and provide for a profit.

5. Sales Contribution Margin is a short-cut of what formula? A. Sales (Variable cost ratio Sales) B.
Sales (Fixed Costs + Variable Costs) C. Sales / Fixed Costs D. Fixed Costs / Unit Contribution Margin

6. Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis? A. the ability to conduct
sensitivity analysis of cost or price changes B. the identification of price and efficiency variances C. how
many units must be sold to break even D. what is the impact on the break-even point of an increase or
decrease in fixed costs

7. Baker Company sells its product for $60. In addition, it has a variable cost ratio of 40 percent and total
fixed costs of $9,000. What is the break-even point in units for Baker Company? A. 375 units B. 3,600
units C. 250 units D. 2,400 units

8. Total contribution margin is calculated by subtracting A. cost of goods sold from total revenues. B.
fixed costs from total revenues. C. total manufacturing costs from total revenues. D. total variable costs
from total revenues.

9. Which of the following items would NOT be considered in cost-volume-profit analysis? A. units of
production B. fixed costs C. product mix D. gross profit margin

10. The contribution margin at the break-even point A. equals total fixed costs. B. is zero. C. plus total
fixed costs equals total revenues. D. is greater than variable costs