Module 2 Quiz Correct Answers29 Incorrect Answers1 Points 38.67 /40 (96.

67%)

If a company is operating at the break-even point:

A. its contribution margin will be equal to its variable expenses.

B. its margin of safety will be equal to zero.

C. its fixed expenses will be equal to its variable expenses.

D. its selling price will be equal to its variable expense per unit. If both the fixed and variable expenses associated with a product decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?

Contribution margin ratio; Break-even point

A. decrease; increase

B. increase; increase

C. decrease; decrease

D. increase; increase

A company with high operating leverage will experience a lower reduction in net operating income in a period of declining sales than will a company with low operating leverage. True False

The impact on net operating income of any given dollar change in total sales can be estimated by multiplying the CM ratio by the dollar change in total sales. True False

At the break-even point:

A. sales would be equal to contribution margin.

B. contribution margin would be equal to fixed expenses.

C. contribution margin would be equal to net operating income.

D. sales would be equal to fixed expenses. Which of the following is the correct calculation for the degree of operating leverage?

A. Net operating income divided by total expenses.

B. Net operating income divided by total contribution margin.

C. Total contribution margin divided by net operating income.

D. Variable expense divided by total contribution margin. Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November.

If the company sells 5,300 units, its net operating income should be closest to:

A. $24,600

B.

$2,200

C. $22,874

D. $15,400

Which of the following is an assumption underlying standard CVP analysis?

A. In multiproduct companies, the sales mix is constant.

B. In manufacturing companies, inventories always change.

C. The price of a product or service is expected to change as volume changes.

D. Fixed expenses will change as volume increases.

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. True False

The margin of safety in dollars equals the excess of budgeted (or actual) sales over the break-even volume of sales. True False

The formula for the break-even point is the same as the formula to attain a given target profit for the special case where the target profit is zero. True False

The break-even point would be increased by:

A. A decrease in total fixed expenses.

B. A decrease in the ratio of variable expenses to sales.

C. An increase in the contribution margin ratio.

D. None of these . Which of the following is true regarding the contribution margin ratio of a single product company?

A.

As fixed expenses decrease, the contribution margin ratio increases.

B. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

C. The contribution margin ratio will decline as unit sales decline.

D. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

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

Target profit analysis is used to answer which of the following questions?

A. What sales volume is needed to cover all expenses?

B. What sales volume is needed to cover fixed expenses?

C. What sales volume is needed to earn a specific amount of net operating income?

D. What sales volume is needed to avoid a loss?

A company with sales of $70,000 and variable expenses of $40,000 should spend $10,000 on increased advertising if the increased advertising will increase sales by $20,000. True False

Break-even analysis assumes that:

A. Total revenue is constant.

B. Unit variable expense is constant.

C. Unit fixed expense is constant.

D. Selling prices must fall in order to generate more revenue

If Q is the quantity of a product sold, P is the price per unit, V is the variable expense per unit, and F is the total fixed expense, then the degree of operating leverage is equal to: [Q(P-V)] [Q(P-V)-F] True False

Which of the following strategies could be used to reduce the break-even point?

Fixed Expenses;

Contribution margin

A. increase; increase

B. decrease; decrease

C. decrease; increase

D. decrease; increase

E. increase; decrease

If the variable expense per unit increases, and all other factors remain constant, the contribution margin ratio will increase. True False

A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point. True False

Contribution margin can be defined as:

A. The amount of sales revenue necessary to cover variable expenses.

B. Sales revenue minus fixed expenses.

C. The amount of sales revenue necessary to cover fixed and variable expenses.

D. Sales revenue minus variable expenses . If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

A. Unit contribution margin.

B. Revenue.

C. Variable expense.

D.

Net operating income.

The unit sales volume necessary to reach a target profit is determined by dividing the target profit by the contribution margin per unit. True False

All other things the same, a reduction in the variable expense per unit will cause the break-even point to rise. True False

The margin of safety can be calculated by:

A. Sales (Fixed expenses/Contribution margin ratio).

B. Sales (Fixed expenses/Variable expense per unit).

C. Sales (Fixed expenses + Variable expenses).

D. Sales Net operating income.

One way to compute the total contribution margin is to add total fixed expenses to net operating income. True False

Module 2 Quiz
Week 2 | Cost-Volume-Profit (CVP) Relationships
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Which of the following statements is correct with regard to a CVP graph?

A. A CVP graph shows the maximum possible profit.

B. A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.

C. A CVP graph assumes that total expense varies in direct proportion to unit sales.

D. A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

An increase in total fixed expenses will not affect the break-even point so long as the contribution margin ratio remains unchanged. True False

All other things the same, the margin of safety in dollars at a given level of sales will tend to be lower for a capital-intensive company than for a labor-intensive company with high variable expenses. True False