Cost Accounting

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CHAPTER 3
COST-VOLUME-PROFIT ANALYSIS

TRUE/FALSE

1.To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

Answer:TrueDifficulty:1Objective:1
Terms to Learn:cost-volume-profit (CVP) analysis

2.Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant.

Answer:TrueDifficulty:1Objective:1
Terms to Learn:cost-volume-profit (CVP) analysis, sales mix

3.It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

Answer:FalseDifficulty:2Objective:1
Terms to Learn:cost-volume-profit (CVP) analysis
It is assumed in CVP analysis that the unit selling price, unit variable costs, and total fixed costs are known and constant.

4.In CVP analysis, the number of output units is the only revenue driver.

Answer:TrueDifficulty:2Objective:1
Terms to Learn:cost-volume-profit (CVP) analysis, revenue driver

5.Many companies find even the simplest CVP analysis helps with strategic and long-range planning.

Answer:TrueDifficulty:1Objective:1
Terms to Learn:cost-volume-profit (CVP) analysis

6.In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

Answer:TrueDifficulty:2Objective:1
Terms to Learn: cost-volume-profit (CVP) analysis

7.In CVP analysis, variable costs include direct variable costs, but do not include indirect variable costs.

Answer:FalseDifficulty:2Objective:1
Terms to Learn: cost-volume-profit (CVP) analysis
In CVP analysis variable costs include direct variable costs and indirect variable costs.

8.In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

Answer:FalseDifficulty:2Objective:1
Terms to Learn: cost-volume-profit (CVP) analysis
In CVP analysis, an assumption is made that the total revenues and the total costs are non-linear with respect to output units.

9.A revenue driver is defined as a variable that causes changes in prices.

Answer:FalseDifficulty:2Objective:1
Terms to Learn:revenue driver
A revenue driver is defined as a variable that causes changes in revenues.

10.If the selling price per unit is $20 and the contribution margin percentage is 30%, then the variable cost per unit must be $6.

Answer:FalseDifficulty:2Objective:2
Terms to Learn:contribution margin
Then the variable cost per unit must be $14, [$20 – (.30 x $20)] = $14.

11.Total revenues less total fixed costs equal the contribution margin.

Answer:FalseDifficulty:1Objective:2
Terms to Learn: contribution margin
Total revenues less total variable costs equal the contribution margin.

12.Gross margin is reported on the contribution income statement.

Answer:TrueDifficulty:1Objective:2
Terms to Learn:contribution income statement

13.If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.

Answer:TrueDifficulty:2Objective:2
Terms to Learn:contribution income statement

14.The selling price per unit is $30, variable cost per unit $20, and fixed cost per unit is $3. When this company operates above the breakeven point, the sale of one more unit will increase net income by $7.

Answer:FalseDifficulty:2Objective:3
Terms to Learn:contribution income statement
The sale of one more unit will increase net income by $10, ($30 – $20 = $10).

15.A company with sales of...
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