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Chap006 - Chapter 06 Cost-Volume-Profit Relationships...

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Chapter 06 - Cost-Volume-Profit Relationships Chapter 06 Cost-Volume-Profit Relationships True / False Questions 1. A contribution approach income statement can usually be easily prepared from the information contained in a corporation's published income statement. True False 2. The profit in cost-volume-profit equations is the same as the net operating income on a contribution income statement. True False 3. On a cost-volume-profit graph, the revenue line will be shown above the total expense line for any activity level above the break-even point. True False 4. On a CVP graph for a profitable company, the line representing total expenses is steeper than the line representing total revenue. True False 5. The contribution margin ratio measures the effect on the total contribution margin of a given change in total sales. True False 6. A company with sales of $100,000, variable expenses of $70,000, and fixed expenses of $50,000 will reach its break-even point if sales are increased by $20,000 with no change in selling price. True False 6-1
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Chapter 06 - Cost-Volume-Profit Relationships 7. At the break-even point, variable expenses and fixed expenses are equal. True False 8. All other things the same, a decrease in variable expense per unit will reduce the break- even point. True False 9. An increase in the number of units sold will decrease the break-even point. True False 10. All other things equal, the margin of safety in a company with high fixed costs and low variable costs will tend to be higher than the margin of safety in a similar company that has low fixed costs and high variable costs. True False 11. As total sales increase beyond the break-even point, the degree of operating leverage will also increase. True False 12. The degree of operating leverage is greatest at sales levels near the break-even point and decreases as sales rise. True False 13. All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high variable costs and low fixed costs than in a company with high fixed costs and low variable costs. True False 6-2
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Chapter 06 - Cost-Volume-Profit Relationships 14. If the sales mix changes, the average contribution margin ratio is likely to change as well. True False Multiple Choice Questions 15. Which of the following is an assumption that is NOT made in most cost-volume-profit calculations? A. Selling price, variable expense per unit, and fixed expense per unit do not change throughout the relevant range. B. There is no change in inventory levels. C. In a multiproduct company, the sales mix does not change. D. The selling price is constant.
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