Question 1

When using CVP analysis to determine sales level for a desired amount of profit,the profit is treated as an additional cost to be covered.

Accepted Answer

In CVP analysis, the desired profit is not treated as a cost but as a goal to be achieved. It is added to the total costs to determine the sales level required to achieve that profit.

Question 2

Total variable costs vary directly with levels of production.

Accepted Answer

Total variable costs, such as raw materials or labor costs, increase or decrease in direct proportion to the amount of production.

Question 3

Total fixed costs vary inversely with levels of production.

Accepted Answer

Total fixed costs remain constant regardless of the level of production.

Question 4

On a CVP graph,the total variable cost line intersects the y-axis at zero.

Accepted Answer

This is true because at zero level of activity (no units produced), there are no variable costs incurred. Therefore, the total variable cost line starts from zero on the y-axis.

Question 5

After the break-even point is reached,each dollar of contribution margin is a dollar of before-tax profit.

Accepted Answer

This is because all fixed costs have already been covered by the sales revenue up to the break-even point. Therefore, any additional sales will result in pure profit.

Question 6

Dividing total fixed costs by the contribution margin ratio yields break-even point in sales dollars.

Accepted Answer

This statement is true. The break-even point is the level of sales at which total revenues equal total costs. By dividing total fixed costs by the contribution margin ratio (which is the difference between the unit selling price and unit variable cost), you can determine the amount of sales dollars needed to cover all fixed costs and break even.

Question 7

On a CVP graph,the total cost line intersects the y-axis at zero.

Accepted Answer

On a CVP (Cost-Volume-Profit) graph, the total cost line intersects the y-axis at the point representing fixed costs, not zero, because total costs include both fixed and variable costs.

Question 8

When computing profit on an after-tax basis,it is necessary to divide the pretax profit by the effective tax rate.

Accepted Answer

When computing profit on an after-tax basis, the pretax profit is multiplied by one minus the effective tax rate, not divided by it.

Question 9

Variable costs per unit remain unchanged with levels of production.

Accepted Answer

Variable costs are costs that vary with levels of production, but their cost per unit remains constant. For example, the cost of raw materials or direct labor may increase or decrease with production levels, but the cost per unit does not change.

Question 10

Dividing total fixed costs by the contribution margin ratio yields break-even point in units.

Accepted Answer

Dividing total fixed costs by the contribution margin per unit yields the break-even point in units. The contribution margin ratio is used to determine the break-even point in sales dollars, not units.

Question 11

Absorption costing is more useful than variable costing in determining a company's break-even point.

Accepted Answer

Variable costing separates fixed and variable costs, making it easier to calculate the break-even point. Absorption costing includes fixed manufacturing overhead in the cost of each unit, which can skew the break-even point calculation.

Question 12

Fixed costs per unit remain constant with levels of production.

Accepted Answer

Fixed costs per unit decrease as the level of production increases because the total fixed costs are spread over more units.

Question 13

Variable costing is more useful than absorption costing in determining a company's break-even point.

Accepted Answer

Variable costing separates fixed and variable costs, making it easier to determine the contribution margin and break-even point. Absorption costing includes fixed manufacturing costs in product costs, which can make it more difficult to accurately determine break-even points.

Question 14

Total fixed costs remain unchanged with levels of production.

Accepted Answer

Fixed costs do not vary with changes in production levels, hence they remain constant.

Question 15

Variable costs per unit vary directly with levels of production.

Accepted Answer

The answer of Variable costs per unit vary directly with...

Question 16

Fixed costs per unit vary inversely with levels of production.

Accepted Answer

This statement is true. When production levels increase, fixed costs per unit decreases as the fixed costs are spread over a larger number of units. Similarly, when production levels decrease, fixed costs per unit increase.

Question 17

When computing profit on an after-tax basis,it is necessary to divide the pretax profit by (1 - effective tax rate).

Accepted Answer

This formula adjusts for the impact of taxes on profit by dividing the pretax profit by (1 - effective tax rate).

Question 18

A company's break-even point is the level where total revenues equal total costs.

Accepted Answer

The definition of a break-even point is the level of sales at which total revenues equal total costs, indicating that the company is neither making a profit nor incurring a loss.

Question 19

Break-even point may be expressed in terms of units or dollars.

Accepted Answer

The break-even point can be expressed in terms of either the number of units sold or the total sales revenue (dollars) needed to cover all fixed and variable costs.

Question 20

After the break-even point is reached,each dollar of contribution margin is a dollar of after-tax profit.

Accepted Answer

After the break-even point, each dollar of contribution margin will go towards covering fixed costs and then towards profit. However, there may still be taxes and other expenses that need to be deducted, so each dollar of contribution margin will not necessarily equal a dollar of after-tax profit.

Quiz 9: Break-Even Point and Cost-Volume-Profit Analysis