MRK516 Week 5 In-Class Quiz

In order to use CVP analysis, costs must be separated into fixed and variable components.

• True

• False

Total cost equals total fixed costs plus variable cost per unit times the activity level in units.

• True

• False

Profit is equal to revenue minus total variable costs minus total fixed costs.

• True

• False

At the break-even point, total revenue equals total fixed costs.

• True

• False

Contribution margin is the difference between revenue and total costs.

• True

• False

If the contribution margin ratio is 32%, this means that every $1.00 of sales will contribute $0.32 towards covering fixed costs and generating a profit.

• True

• False

At the break-even point, total fixed costs equal total contribution margin.

• True

• False

The contribution margin ratio is determined by subtracting total costs from total sales revenue, and then dividing by total sales revenue.

• True

• False

CVP analysis for companies that sell more than one product assumes that the contribution margin ratio for all products is the same.

• True

• False

When the level of activity decreases, total variable costs

• increase.

• remain the same.

• decrease in direct proportion to the decrease in activity.

• decrease, but at a slower rate than the level of activity.