Chap006(3) - Chapter 006 Cost-Volume-Profit Relationships True False Questions 1 One way to compute the total contribution margin is to add total

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Chapter 006, Cost-Volume-Profit Relationships True / False Questions 1. One way to compute the total contribution margin is to add total fixed expenses to net operating income. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 1 Level: Medium 2. On a CVP graph for a profitable company, the total revenue line will be steeper than the total cost line. TRUE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 2 Level: Easy 3. 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. FALSE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Medium 6-1
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Chapter 006, Cost-Volume-Profit Relationships 4. If the variable expense per unit increases, and all other factors remain constant, the contribution margin ratio will increase. FALSE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Medium 5. 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 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 3 Level: Easy 6. 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. FALSE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 4 Level: Medium 7. 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 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 5 Learning Objective: 6 Level: Medium 6-2
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8. An increase in total fixed expenses will not affect the break-even point so long as the contribution margin ratio remains unchanged. FALSE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 5 Level: Medium 9. All other things the same, a reduction in the variable expense per unit will cause the break- even point to rise. FALSE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 5 Level: Medium 10. The unit sales volume necessary to reach a target profit is determined by dividing the target profit by the contribution margin per unit. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Learning Objective: 6 Level: Medium 11. 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
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This note was uploaded on 12/02/2009 for the course ACC 201 taught by Professor Lewis during the Spring '09 term at NC Wesleyan.

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Chap006(3) - Chapter 006 Cost-Volume-Profit Relationships True False Questions 1 One way to compute the total contribution margin is to add total

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