CVP Graph and Break-Even Analysis Quiz

In a CVP graph (sometimes called a break-even chart), unit volume is represented on the horizontal (X) axis and dollars on the vertical (Y) axis.

• True

• False

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

• True

• False

In a CVP graph, the anticipated profit or loss at any given level of sales is measured by the vertical distance between the total revenue line (sales) and the total fixed expense line.

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• False

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

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• False

For a given level of sales, a low contribution margin ratio will produce more net operating income than a high contribution margin ratio.

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If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase.

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The break-even point in units can be obtained by dividing total fixed expenses by the unit contribution margin.

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• False

An increase in the number of units sold will decrease a company's break-even point.

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• False

Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income.

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• False

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

• True

• False