CHAPTER 4 - CVP ANALYSIS

A cost which remains constant per unit at various levels of activity is a

• variable cost.
• fixed cost.
• mixed cost.
• manufacturing cost.

A fixed cost is a cost which

• varies in total with changes in the level of activity
• remains constant per unit with changes in the level of activity.
• varies inversely in total with changes in the level of activity.
• remains constant in total with changes in the level of activity.

Fixed costs normally will not include

• property taxes.
• direct labor.
• supervisory salaries.
• depreciation on buildings and equipment.

Cost behavior analysis is a study of how a firm's costs

• relate to competitors' costs.
• relate to general price level changes.
• respond to changes in the level of business activity.
• respond to changes in the gross national product.

Which one of the following is not an assumption of CVP analysis?

• All units produced are sold.
• All costs are variable costs.
• Sales mix remains constant.
• The behavior of costs and revenues are linear within the relevant range.

Contribution margin

• is always the same as gross profit margin.
• excludes variable selling costs from its calculation.
• is calculated by subtracting total manufacturing costs per unit from sales revenue per unit.
• equals sales revenue minus variable costs.

The break-even point is where

• total sales equal total variable costs.

• contribution margin equals total fixed costs.

• total variable costs equal total fixed costs.

• total sales equal total fixed costs.

In evaluating the margin of safety, the

• break-even point is not relevant.

• higher the margin of safety ratio, the greater the margin of safety.

• higher the dollar amount, the lower the margin of safety.

• higher the margin of safety ratio, the lower the fixed costs.

The margin of safety is the units sold or the revenue earned above the _____.

• projected sales volume
• break-even sales volume
• target volume
• profit volume

For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

• True

• False