44. The margin of safety is a key concept of CVP analysis. The margin of safety is A. The contribution margin rate.

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1 27. If a company raises its target peso profit, its A. break-even point rises. B. fixed costs increase. C. required total contribution margin increases. D. selling price rises. 28. Broadway Company sells three products: A, B and C. Product A's unit contribution margin is higher than Product B's which is higher than Products C's. Which one of the following events is most likely to increase the company's overall break-even point? A. The installation of new automated equipment and subsequent lay-off of factory workers. B. A decrease in Product C's selling price. C. An increase in the overall market demand for Product B. D. A change in the relative market demand for the products, with the increase favoring Product A relative to Product B and Product C. 29. Which of the following is not a benefit of using sensitivity analysis? A. More people can see the impact of their ideas on the project. B. The use of a spreadsheet program increases the accuracy of the projections. C. What will happen is not known in advance so a variety of options can be explored prior to making a decision. D. A well-written spreadsheet will allow for a variety of questions to be answered in a minimal amount of time. 30. A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area of Profitability". Which of the following best explains the difference between the two points on the graph? A. The area of loss represents the difference between Sales and Variable Cost. B. The area of loss begins with the concept that fixed costs have to be recovered prior to sales contributing to profit. C. The area of profit represents the difference between Sales and Variable Cost. D. The area of profit begins with the concept that no company would have any level of sales below the breakeven point. 31. Which of the following best describes the impact of selling more units? A. The increase in sales volume increases total variable cost. B. The increase in sales volume means an increase in total fixed cost. C. The increase in sales increases contribution margin, causing net income to decrease. D. The increase in sales increases contribution margin per unit causing the break-even point to decrease. 32. On a cost-volume-profit chart (break-even graph), where are the total fixed costs shown? A. As the point where the sales line intersects the vertical axis (pesos) B. As the point where the sales line crosses the total cost line C. As the point where the sales line crosses the horizontal axis (volume) D. As the point where the total cost line intersects the vertical axis (pesos) 33. When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which of the following is one of those assumptions? A. The contribution margin will change as volume increases B. The variable cost per unit will decrease as volume increases C. The sales price per unit will remain constant as volume increases D. Fixed cost per unit will remain the same as volume increases

2 34. Classifying a cost as fixed or variable depends on how it behaves A. per unit, as the volume of activity changes. B. in total, as the volume of activity changes. C. both A and B are correct. D. none of the above. 35. A fixed cost is the same percentage of sales in three different months. Which of the following is true? A. The company had the same sales in each of those months. B. The cost is both fixed and variable. C. The company is operating at its break-even point. D. The company is achieving its target level of profit. 36. Per-unit variable cost A. remains constant within the relevant range. B. increases as volume increases within the relevant range. C. decreases as volume increases within the relevant range. D. decreases if volume increases beyond the relevant range. 37. In planning product mix for maximum profit, CVP analysis would stimulate sales of the product by increasing the: A. sales price C. contribution margin B. variable cost per unit D. emphasis on customer priority 38. A relatively low margin of safety ratio for a product is usually an indication that the product: A. is losing money B. has a high contribution margin C. is riskier than higher margin of safety products D. is less risky than higher margin of safety products 39. Within the relevant range, total revenues and total costs A. increase, but at a decreasing rate. C. remain constant. B. decrease. D. can be graphed as straight lines. 40. An assumption in a CVP analysis is that a change in costs is caused by a change in A. unit direct material cost C. sales commission per unit B. the number of units D. efficiency due to learning curve effect 41. In CVP analysis, when the number of units changes, which one of the following will remain the same? A. Total sales revenues C. Total fixed costs B. Total variable costs D. Total contribution margin 42. As fixed costs for a firm rise, all other things held constant, the breakeven point will A. be unchanged C. increase B. not be affected by fixed costs D. decrease 43. Which of the following would not affect the breakeven point? A. Number of units sold. C. Total fixed costs. B. Variable cost per unit. D. Sales price per unit. 44. The margin of safety is a key concept of CVP analysis. The margin of safety is A. The contribution margin rate.

3 B. The difference between budgeted contribution margin and actual contribution margin. C. The difference between budgeted contribution margin and breakeven contribution margin D. The difference between budgeted sales and breakeven sales. 45. A technique for determining what would happen in a decision analysis if a key prediction or assumption proves to be wrong is called: A. CVP analysis. C. Post-audit analysis. B. Sensitivity analysis. D. Contribution-margin variation analysis. 46. An increase in the unit variable cost will generally cause an increase in all of the following except A. the break-even point. C. total variable costs. B. contribution margin. D. unit selling price. 47. The most likely strategy to reduce the breakeven point would be to A. Increase both the fixed costs and the contribution margin. B. Decrease both the fixed costs and the contribution margin. C. Decrease the fixed costs and increase the contribution margin. D. Increase the fixed costs and decrease the contribution margin. 48. The break-even point in total sales decreases when: A. variable cost increases and sales remain unchanged B. variable cost increases and sales increase C. fixed cost increases D. fixed cost decreases 49. Which of the following best describes the impact of an increase in fixed cost? A. The increase in fixed cost will result in an increase in selling more units. B. The increase in fixed cost will cause an increase in variable cost. C. The increase in fixed cost causes net income to decrease and the break-even point to decrease. D. The increase in fixed cost causes net income to decrease and the break-even point to increase. 50. A company s breakeven point in peso sales may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are equal within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in peso sales to A. Decrease by less than the percentage increase in selling price. B. Decrease by more than the percentage increase in the selling price. C. Increase by less than the percentage increase in selling price. D. Remain unchanged. 51. If the fixed costs attendant to a product increase while variable costs and sales price remains constant, what will happen to contribution margin (CM) and breakeven point (BEP)? A. B. C. D. CM Increase Decrease Unchanged Unchanged BEP Decrease Increase Increase Unchanged 52. Which of the following will decrease the breakeven point? Decrease in Selling Price Increase in Direct Labor Increase in Fixed Cost A. YES YES YES B. YES NO YES

4 C. NO NO YES D. NO NO NO 53. Which of the following is an incorrect statement? A. The contribution income statement that is prepared for internal users is better than the traditional income statement as a management tool to predict the results of increases or decreases in sales volume, variable costs, and fixed costs. B. The greater the proportion of fixed costs in a firm's cost structure, the smaller will be the impact on profit from a given percentage change in sales revenue. C. In an economic recession, the highly automated company with high fixed costs will be less able to adapt to lower consumer demand than will a firm with a more labor-intensive production process. D. A major difference between income statements prepared under the traditional format and those prepared under the contribution format is that expenses under the traditional format are shown by function, while the expenses shown under the contribution format are shown by function and cost behavior. 54. If a company is operating at a loss, A. fixed costs are greater than sales. B. selling price is lower than the variable cost per unit. C. selling price is less than the average total cost per unit. D. fixed cost per unit is greater than variable cost per unit. 55. As volume increases, average cost per unit A. increases. B. decreases. C. remains constant. D. increases in proportion to the change in volume. 56. If all goes according to plan except that unit variable cost falls, A. total contribution margin will be lower than expected. B. the contribution margin percentage will be lower than expected. C. profit will be higher than expected. D. per-unit contribution margin will be lower than expected. 57. Which of the following decreases per-unit contribution margin the most for a company that is currently earning a profit? A. A 10% decrease in selling price. C. A 10% increase in fixed costs. B. A 10% increase in variable cost per unit. D. A 10% increase in fixed cost per unit. 58. If variable cost as a percentage of sales increases, the A. contribution margin percentage increases. B. selling price increases. C. break-even point in pesos increases. D. fixed costs decrease. 59. Introducing income taxes into cost-volume-profit analysis A. raises the break-even point. B. lowers the break-even point. C. increases unit sales needed to earn a particular target profit. D. decreases the contribution margin percentage. 60. If a company is earning a profit, its fixed costs

5 A. are less than total contribution margin. B. are equal to total contribution margin. C. are greater than total variable costs. D. can be greater than or less than total contribution margin. 61. A cost-volume-profit graph reflects relationships A. that are expected to hold over the relevant range. B. of results over the past few years. C. that the company's managers would like to have happen. D. likely to prevail for the industry. 62. The following diagram is a cost-volume-profit graph for a manufacturing company. E P A D C B O Volume The difference between line AB and line AC (area BAC) is the A. contribution ratio. C. total variable cost. B. contribution margin per unit. D. total fixed cost. 63. Select the answer that best describes the labeled item on the diagram. A. Area CDE represents the area of net loss. B. Line AC graphs total fixed costs. C. Point D represents the point at which the contribution margin per unit increases. D. Line AC graphs total costs. 64. In a cost-volume-profit graph A. the total revenue line crosses the horizontal axis at the breakeven point. B. beyond the breakeven sales volume, profits are maximized at the sales volume where total revenues equal total costs. C. an increase in unit variable costs would decrease the slope of the total cost line. D. an increase in the unit selling price would shift the breakeven point in units to the left. 65. An increase in the income tax rate A. raises the break-even point. B. lowers the break-even point. C. decreases sales required to earn a particular after-tax profit. D. increases sales required to earn a particular after-tax profit. 66. If the sales mix shifts toward higher contribution margin products, the break-even point A. decreases. B. increases. C. remains constant. D. it is impossible to tell without more information.

6 67. Target costing is A. a substitute for CVP analysis. B. used by companies that cannot classify their costs by behavior. C. inappropriate if a company has already established a target profit. D. used in decisions to offer a new product or enter a new market. 68. In order for the break-even computation to be meaningful to management, sales mix should be computed using the A. expected mix C. most desirable mix B. least desirable mix D. traditional mix 69. Which of the following is a true statement about sales mix? A. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell more of the high contribution margin product. B. Profits may decline with an increase in total peso of sales if the sales mix shifts to sell more of the lower contribution margin product. C. Profits will remain constant with an increase in total peso of sales if the total sales in units remains constant. D. Profits will remain constant with a decrease in total peso of sales if the sales mix also remains constant.