ACCT 2301 Ch.

4 Concepts
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1. The contribution income statement highlights: variable and fixed costs

2. To determine contribution margin use: both variable manufac-

turing costs and variable
nonmanufacturing costs

3. Total revenues less total fixed costs equal the False

contribution margin.

4. The difference between total revenues and total True

variable costs is called contribution margin.

5. Most firms would like to earn operating income False

equal to the break-even point.

6. Contribution margin equals: revenues minus variable

costs

7. The impact on a firm's income resulting from a True

change in the number of units sold can be as-
sessed by multiplying the unit contribution mar-
gin by the change in units sold assuming that
fixed costs remain the same.

8. The contribution margin income statement pro- True

vides a good check to determine if the sale of a
certain number of units really results in operat-
ing income of the given amount.

9. Which is the equation for operating income? (Price x Units sold) -

(Unit variable cost x
Units sold) - Fixed cost

10. If variable expenses decrease and the price in- True

creases, the break-even point decreases.

11. The contribution margin is: the difference between

sales and variable
costs.

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12. If variable costs per unit decrease, sales volume decrease.
at the break-even point will

13. If the contribution margin per unit decreases, the will increase.
break-even point in units

14. The breakeven point in CVP analysis is defined fixed costs divided by
as: the contribution margin
per unit

15. Breakeven point is: fixed costs divided by

contribution margin per
unit

16. Which of the following will increase a company's increasing variable cost
breakeven point? per unit

17. If one increases variable costs per unit, the False

break-even point will decrease.

18. If fixed costs increase, the break-even point de- False

creases.

19. If fixed costs increase, the break-even point in increase

units will

20. The break-even point is when total revenue equals to-

tal cost.

21. If variable cots per unit increase, then the False

breakeven point will decrease.

22. If a company increases fixed costs, then the False

breakeven point will be lower.

23. If the selling price per unit increases, the decrease.

break-even point in units will

24. If the selling price per unit increases, the increase.

break-even point in units will
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25. The contribution margin ratio can be calculated True

by subtracting the variable cost ratio from one.

26. The breakeven point is the activity level where: revenues equal the sum
of variable and fixed
costs

27. At the break-even point, total contribution margin

equals total fixed cost.

28. The breakeven point decreases if: total fixed costs de-
crease

29. If variable costs per unit increase, then the False

breakeven point will decrease.

30. The break-even point is where total sales rev- True

enue equals total cost.

31. Degree of operating leverage is calculated as Contribution margin/

Operating income

32. Operating leverage is the use of fixed costs to

extract higher percent-
age changes in prof-
its as sales activity
changes.

33. Sales can decline by how much before losses are margin of safety
incurred?

34. The margin of safety in dollars is expected sales minus

sales as break-even.

35. If the break-even point increases, the margin of False

safety increases.

36. A company with a low degree of operating lever- False

age is at greater risk during downturns in the
economy.
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37. The margin of safety measures the units sold True

or the revenue earned above the break-even vol-
ume.

38. The margin of safety is the difference between: budgeted revenues and
breakeven revenues

39. If actual sales equal break-even sales the margin of safety

equals zero.

40. Companies with a greater proportion of fixed True

costs have a greater risk of loss than companies
with a greater proportion of variable costs.

41. A profit-volume graph visually portrays the rela- profits and units sold.
tionship between

42. On a cost-volume-profit graph, the break-even the revenue line inter-

point is where sects the total cost line.

43. The cost-volume profit graph depicts the rela- True

tionships among cost, volume, and profits, by
plotting the total revenue line and the total cost
line on the graph.

44. The profit-volume graph shows the relationship True

between operating income and the number of
units sold.

45. The profit-volume graph shows the relationship True

between profits and units sold.

46. The cost-volume-profit graph plots the total revenue

line and the total cost
line.

47. A "what-if" technique that examines the impact sensitivity analysis.

of changes in underlying assumptions on a re-
sult is
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48. Managers can use CVP analysis to handle risk True

and uncertainty.

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