Cost-Volume-Profit (CVP) Analysis

01. Which of the following is the equation for a straight-

line cost
function in cost-volume-profit (CVP) analysis?
a. y = mx + b
b. y = mx
c. y = bx + a
d. y = b
Answer: a.

02. Which of the following is the equation for calculating

the profit
in CVP analysis?
a. Profit = Sales - Fixed Costs - Variable Costs
b. Profit = Sales - Fixed Costs + Variable Costs
c. Profit = Sales + Fixed Costs - Variable Costs
d. Profit = Sales + Fixed Costs + Variable Costs
Answer: a.

03. Which of the following is the equation for

calculating the contribution margin in CVP analysis?
a. Contribution Margin = Sales - Variable Costs
b. Contribution Margin = Sales - Fixed Costs
c. Contribution Margin = Sales + Fixed Costs
d. Contribution Margin = Sales + Variable Costs
Answer: a.

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 04. Which of the following is the equation for
calculating the
break-even point in sales dollars?
a. Break-even Point = Fixed Costs / Contribution
Margin Ratio
b. Break-even Point = Fixed Costs / Sales Price per
Unit
c. Break-even Point = Variable Costs / Sales Price
per Unit
d. Break-even Point = Sales Price per Unit
/ Variable Cost per Unit
Answer: a.

05. Which of the following is the equation for

calculating the contribution margin ratio in CVP
analysis?
a. Contribution Margin Ratio = Contribution Margin

/ Sales
b. Contribution Margin Ratio = Sales - Variable
Costs
c. Contribution Margin Ratio = Sales Price per
Unit / Variable Cost per Unit
d. Contribution Margin Ratio = Fixed Costs / Sales
Answer: a.
06. What is the formula for calculating the target net
income in CVP analysis?
a. Target Net Income = (Fixed Costs + Target Net
Income) / Contribution Margin Ratio
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 b. Target Net Income = (Fixed Costs + Variable
Costs) / Contribution Margin Ratio
c. Target Net Income = (Fixed Costs + Target Net
Income) / Sales Price per Unit
d. Target Net Income = (Sales - Variable Costs) /
Contribution Margin Ratio
Answer: a.

7. What is the formula for calculating the degree of

operating leverage (DOL) in CVP analysis?
a. DOL = Contribution Margin / Net Income
b. DOL = Sales / Variable Costs
c. DOL = Contribution Margin / Fixed Costs
d. DOL = Net Income / Contribution Margin
Answer: c.

8. Which of the following is the equation for calculating

the margin of safety in CVP analysis?
a. Margin of Safety = Actual Sales - Break-even
Sales
b. Margin of Safety = Break-even Sales - Target
Sales
c. Margin of Safety = Target Sales - Actual Sales
d. Margin of Safety = Total Variable Costs - Total
Fixed Costs
Answer: a.

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 9. What is the formula for calculating the sales volume

required to achieve a target net income in CVP

analysis?
a. Sales Volume = (Fixed Costs + Target Net
Income) / Contribution Margin per Unit
b. Sales Volume = (Variable Costs + Target Net
Income) / Contribution Margin Ratio
c. Sales Volume = (Fixed Costs + Target Net
Income) / Sales Price per Unit
d. Sales Volume = Target Net Income /
Contribution Margin Ratio
Answer: a.

10. Which of the following is a limitation of CVP

analysis?
a. It assumes that the sales mix remains constant.

b. It assumes that fixed costs remain constant per

unit.
c. It does not consider the effect of changes in
selling price.
d. It does not consider the effect of changes in
production volume on variable costs.
Answer: a.
Cost-Volume-Profit (CVP) Analysis

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