Cost-Profit-Volume Analysis

Which statement is true about cost-volume profit analysis?

• CVP analysis is a powerful tool for planning and decision making.

• CVP analysis can be used in both single-product and multi- product firms.

• CVP analysis shows how revenues, expenses, and profits behave as volume changes.

• All of the above.

Which statement is not true about cost-volume profit (CVP) analysis?

• It can only be used for single-product firms.

• It is a powerful tool for planning and decision making.

• It shows how revenues, expenses, and profits behave as volume changes.

• It allows managers to do sensitivity analysis by examining the impact of various prices or cost levels on profit.

The contribution margin ratlo can be calculated in all the following ways except

• 1-variable cost ratio

• Contribution margin per unit / price

• Total contribution margin / total sales

• Fixed costs/contribution margin per unit

The break-even point is when

• Total sales equal variable costs

• Total revenue equal total costs

• The company is operating at a loss

• The company is earning a small profit

The indifference point is reached when

• The savings in variable cost is equal to the increase in fixed costs.

• The savings in variable cost is less than the increase in fixed costs.

• The savings in fixed cost is equal to the decrease in variable cost.

• The savings in fixed cost is more than the increase in variable costs.

Which of the following can be considered a risk in CVP analysis?

• Sales mix

• Break-even point

• Margin of safety

• Contribution margin

Operating leverage is

• The difference between sales and variable expense.

• Visually portrays the relationship between profits and units sold.

• The portion of each sales dollar available to cover fixed costs and provide for profit.

• The use of fixed costs to extract higher percentage changes in profits as sales activity changes.