Multiple Choice Questions
1. If the variable cost per unit goes down, Contribution margin Break-even point
a. Increases, increases.
b. Increases, decreases.
c. Decreases, decreases.
d. Decreases, increases.
e. Decreases remains unchanged.
2. The amount of revenue required to earn a targeted profit is equal to
a. Total fixed cost divided by contribution margin.
b. Total fixed cost divided by the contribution margin ratio.
c. Targeted profit divided by the contribution margin ratio.
d. Total fixed cost plus targeted profit divided by contribution margin ratio.
e. Targeted profit divided by the variable cost ratio.
3. Break-even revenue for the multiple-product firm can
a. Be calculated by dividing total fixed cost by the overall contribution margin ratio.
b. Be calculated by dividing segment fixed cost by the overall contribution margin ratio.
c. Be calculated by dividing total fixed cost by the overall variable cost ratio.
d. Be calculated by multiplying total fixed cost by the contribution margin ratio.
e. Not be calculated; break-even revenue can only be computed for a single-product firm.
4. In the cost-volume-profit graph,
a. The break-even point is found where the total revenue curve crosses the x-axis.
b. The area of profit is to the left of the break-even point.
c. The area of loss cannot be determined.
d. Both the total revenue curve and the total cost curve appear.
e. Neither the total revenue curve nor the total cost curve appear.
5. An important assumption of cost-volume-profit analysis is that
a. Both costs and revenues are linear functions.
b. All cost and revenue relationships are analyzed within the relevant range.
c. There is no change in inventories.
d. The sales mix remains constant.
e. All of the above are assumptions of cost-volume-profit analysis.
6. The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves
a. Margin of safety.
b. Operating leverage.
c. Degree of operating leverage.
d. sensitivity analysis.
e. Variable cost reduction.