Chapter 6 Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships - Chapter 6...

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Chapter 6 Cost-Volume-Profit Relationships 258 Garrison, Managerial Accounting, 12th Edition True/False Questions 1. To estimate what the profit will be at various levels of activity, a manager can simply take the number of units to be sold over the break-even point and multiply that number by the unit contribution margin. Answer: True Level: Medium LO: 1 2. Incremental analysis is generally the simplest and most direct approach to decision making. Answer: True Level: Easy LO: 1 3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis. Answer: False Level: Medium LO: 1 4. One assumption in CVP analysis is that inventories do not change. Answer: True Level: Easy LO: 1 5. On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line. Answer: False Level: Medium LO: 2 6. If sales volume increases, and all other factors remain unchanged, the contribution margin ratio will decrease. Answer: False Level: Medium LO: 3 7. The break-even point for a capital intensive, automated company will tend to be higher than for a less capital intensive company while the margin of safety will tend to be lower. Answer: True Level: Medium LO: 5,7 8. An increase in the number of units sold will decrease a company's break-even point. Answer: False Level: Medium LO: 5
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Chapter 6 Cost-Volume-Profit Relationships Garrison, Managerial Accounting, 12th Edition 259 9. Assuming that the unit contribution margin is positive, a 10% decrease in selling price will increase the break-even point in terms of unit sales more than will a 10% increase in the variable expense. Answer: True Level: Hard LO: 5 10. The break-even point is the point where total contribution margin equals total variable expenses. Answer: False Level: Medium LO: 5 11. The break-even point can usually be determined by simply adding together all of the expenses from the income statement. Answer: False Level: Medium LO: 5 12. Two companies with the same margin of safety in dollars will also have the same total contribution margin. Answer: False Level: Medium LO: 7 13. If a company has high operating leverage, then profits will be very sensitive to changes in sales. Answer: True Level: Easy LO: 8 14. Operating leverage will decrease as the company's margin of safety increases. Answer: True Level: Hard LO: 7,8 15. The overall contribution margin ratio for a company producing three products may be obtained by adding the contribution margin ratios for the three products and dividing the total by three. Answer: False Level: Hard LO: 9
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Chapter 6 Cost-Volume-Profit Relationships 260 Garrison, Managerial Accounting, 12th Edition Multiple Choice Questions 16. Which of the following is correct? The break-even point occurs on the CVP graph where: A) total profit equals total expenses. B) total profit equals total fixed expenses.
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This note was uploaded on 01/23/2012 for the course ADMS 2510 taught by Professor Beavis during the Fall '08 term at York University.

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Chapter 6 Cost-Volume-Profit Relationships - Chapter 6...

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