1. Reynold Enterprises sells a single product for $25.

The variable expense per unit is $15 and the

fixed expense per unit is $5 at the current level of sales. The company's net operating income will
increase by $5 if one more unit is sold.
True False

2. Incremental analysis is an analytical approach that focuses only on those revenues and costs
that will change as a result of a decision.
True False

3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.

True False
4. On a CVP graph for a profitable company, the total revenue line will be steeper than the total
expense line.
True False

5. On a CVP graph for a profitable company, the total expense line will be steeper than the line
representing fixed costs.
True False

6. For a given level of sales, a low contribution margin ratio will produce less net operating
income than a high contribution margin ratio.
True False

20. The difference between total sales in dollars and total variable expenses is called:
A. net operating income.
B. net profit.
C. the gross margin.
D. the contribution margin.

21. With regard to the CVP graph, which of the following statements is not correct?
A. The CVP graph assumes that volume is the only factor affecting total cost.
B. The CVP graph assumes that selling prices do not change.
C. The CVP graph assumes that variable costs go down as volume goes up.
D. The CVP graph assumes that fixed expenses are constant in total within the relevant range.
22. East Company manufactures and sells a single product with a positive contribution margin. If
the selling price and the variable expense per unit both increase 5% and fixed expenses do not
change, what is the effect on the contribution margin per unit and the contribution margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D

23. Which of the following formulas is used to calculate the contribution margin ratio?
A. (Sales - Fixed expenses)  Sales
B. (Sales - Cost of goods sold)  Sales
C. (Sales - Variable expenses)  Sales
D. (Sales - Total expenses)  Sales
24. Brasher Company manufactures and sells a single product that has a positive contribution
margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not
change, then what would be the effect on the contribution margin per unit and the contribution
margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D
25. The break-even point in unit sales is found by dividing total fixed expenses by:
A. the contribution margin ratio.
B. the variable expenses per unit.
C. the sales price per unit.
D. the contribution margin per unit.
26. Break-even analysis assumes that:
A. total costs are constant.
B. the average fixed expense per unit is constant.
C. the average variable expense per unit is constant.
D. variable expenses are nonlinear.

27. If Q equals the level of output, P is the selling price per unit, V is the variable expense per
unit, and F is the fixed expense, then the break-even point in units is:
A. Q  (P-V).
B. F  (P-V).
C. V  (P-V).
D. F  [Q(P-V)].

28. The 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.

29. The 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.

30. The amount by which a company's sales can decline before losses are incurred is called the:
A. contribution margin.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin ratio.