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Chapter 12 - Financial and Cost-Volume-Profit Models Chapter 12 Financial and Cost-Volume-Profit Models True / False Questions 1. Estimates of sales price, variable costs per unit and profit targets are examples of a model's parameter. TRUE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Medium Learning Objective: 3 2. Generally, changing a model's parameters will change the model's outcomes. TRUE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Medium Learning Objective: 3 3. When setting up a computer spread sheet model, the formulas in the analysis section should generally not contain the actual numerical values. TRUE AACSB: Technology AICPA BB: Critical Thinking AICPA FN: Leveraging Technology Difficulty: Medium Learning Objective: 3 4. The Theory of Constraints states that companies should emphasize the most productive aspects of the value chain, as they are the most profitable. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Medium Learning Objective: 7 12-1 Chapter 12 - Financial and Cost-Volume-Profit Models 5. If a company's sales mix changes from selling relatively high-margin items to relatively low-margin items, its break-even point will increase. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Medium Learning Objective: 2 6. Outsourcing should never be used to increase capacity because it defeats the theory of constraints. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Medium Learning Objective: 6 7. An assumption made by break-even analysis is that total revenues are constant. FALSE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Easy Learning Objective: 2 8. Operating Leverage is profit divided by the fixed cost. FALSE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Medium Learning Objective: 2 12-2 Chapter 12 - Financial and Cost-Volume-Profit Models 9. Product-level activities are required for an organization to have the capacity to produce goods and services. FALSE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Medium Learning Objective: 4 10. An increase in fixed costs will decrease the contribution margin. FALSE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Easy Learning Objective: 1 11. An increase in building insurance will result in an increase in the break-even point. TRUE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Easy Learning Objective: 2 12. If a company has a high level of operating leverage, a small decrease in sales will have a small effect on operating income. FALSE AACSB: Analytic AICPA BB: Critical Thinking Difficulty: Medium Learning Objective: 2 12-3 Chapter 12 - Financial and Cost-Volume-Profit Models 13. When a company has a scarce resource, they should allocate it all to the product that will provide the highest contribution margin per unit produced. ... View Full Document

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