Question 1

A ________ groups cost by behavior; costs are classified as either variable costs or fixed costs.

Accepted Answer

The contribution margin income statement groups costs by behavior, specifically into variable costs (costs that vary with changes in activity level) and fixed costs (costs that remain constant regardless of activity level).

Question 2

A CVP graph shows how changes in the level of sales will affect profits.

Accepted Answer

A CVP (Cost-Volume-Profit) graph shows the relationship between sales volume, costs, and profits. It helps determine the breakeven point and the level of sales required to achieve a desired level of profit. Therefore, it shows how changes in the level of sales will impact profits.

Question 3

CVP analysis assumes that the sales price per unit does not change as volume changes.

Accepted Answer

CVP analysis assumes that the sales price per unit remains constant regardless of changes in volume. This assumption may not always hold true, but it simplifies the analysis and provides a good starting point for evaluating costs and profits at different levels of activity.

Question 4

Which of the following is a period cost?

Accepted Answer

Administrative cost is a period cost as it is not directly related to the production of goods, but rather to the general operation of the business. Manufacturing overhead, direct labor cost, and direct materials cost are all examples of product costs as they relate directly to the production of goods.

Question 5

Darwin Company sells glass vases at a wholesale price of $4.50 per unit.The variable cost to manufacture is $1.75 per unit.The monthly fixed costs are $8,500.Its current sales are 29,000 units per month.If the company wants to increase its operating income by 20%,how many additional units must it sell? (Round any intermediate calculations to two decimal places and your final answer to the nearest whole number. )

Accepted Answer

D)
 11ea86d6_82e8_59ab_92b6_b54e11c302f1_TB2804_00 Target profit = $71,250 × (1 + 20%)= $85,500
Required sales in units = (Fixed costs + Target profit)/ Contribution margin per unit = = 94,000 / $1.75 = 34,182 units
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Question 6

The breakeven point is the point where the sales revenues are equal to the fixed costs.

Accepted Answer

The breakeven point is the point where total sales revenues equal total costs (both fixed and variable), not just fixed costs.

Question 7

Which of the following is not an assumption of cost-volume-profit (CVP)analysis?

Accepted Answer

D)The price per unit does not change as volume changes.

Question 8

Which of the following appears as a line item in a contribution margin income statement?

Accepted Answer

Contribution margin income statement is a statement that shows the contribution margin of each product and the total contribution margin earned by the company. Operating income (also called operating profit) is the difference between the contribution margin and the fixed costs. Therefore, operating income appears as a line item in a contribution margin income statement. Gross profit, total cost of goods sold, and total selling and administrative expenses are all used in a traditional income statement, not a contribution margin income statement.

Question 9

The fundamental assumption of cost-volume-profit (CVP)analysis is that,in the long run,fixed costs become variable costs.

Accepted Answer

The fundamental assumption of CVP analysis is that variable costs are constant per unit, while fixed costs remain constant in total. There is no assumption that fixed costs become variable costs in the long run.

Question 10

Galose Coffee Company sold 7,000 units in October at a sales price of $45 per unit.The variable cost is $20 per unit.The monthly fixed costs are $8,000.What is the operating income earned in October?

Accepted Answer

C)
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Question 11

Companies can use the contribution margin ratio approach to compute required sales in terms of units rather than in sales dollars.

Accepted Answer

Companies can use the contribution margin ratio approach to compute required sales in terms of sales dollars rather than in units.

Question 12

Target profit can be determined by using the contribution margin,contribution margin ratio,or break even approach.

Accepted Answer

Target profit can be determined by using the equation,contribution margin or contribution margin ratio approach.

Question 13

Savannah Company sells glass vases at a wholesale price of $5 per unit.The variable cost of manufacture is $2.50 per unit.The fixed costs are $6,200 per month.It sold 5,700 units during this month.Calculate Savannah's operating income (loss)for this month.

Accepted Answer

B)
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Question 14

The dollar amount that provides for covering fixed costs and then provides for operating income is called ________.

Accepted Answer

The dollar amount that covers fixed costs and then provides for operating income is called contribution margin. This is the amount of revenue that remains after all variable expenses have been subtracted from sales revenue. It is important for businesses to know their contribution margin to determine how much revenue is needed to cover fixed costs and generate a profit.

Question 15

Andres Napkin Company sells a product for $80 per unit.Variable costs are $25 per unit,and fixed costs are $4,000 per month.Andres sold 2,000 units in October.Prepare an income statement for October using the contribution margin format.

Accepted Answer

The answer of Andres Napkin Company sells a product for...

Question 16

A contribution margin income statement classifies costs by function; that is,costs are classified as either product costs or period costs.

Accepted Answer

A contribution margin income statement classifies costs by behavior, not function. Costs are classified as either variable or fixed, and are then deducted from revenue to determine the contribution margin.

Question 17

List the cost-volume-profit (CVP)assumptions.

Accepted Answer

The answer of List the cost-volume-profit (CVP)assumptions....

Question 18

Target profit is the operating income that results when sales revenue minus variable and fixed costs equals management's profit goal.

Accepted Answer

Target profit is defined as the amount of operating income that management desires to achieve from a given level of sales. It is calculated by subtracting total variable costs and total fixed costs from expected sales revenue. The resulting figure represents the profit that management hopes to earn from the level of sales predicted.

Question 19

Complete the following statements:
-
A traditional income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is,costs are classified as either ________ costs or ________ costs.

Accepted Answer

The answer of Complete the following statements:
-
A traditional income statement...

Question 20

Contribution margin is the amount that contributes to covering the fixed costs and then to providing operating income.

Accepted Answer

Contribution margin is defined as the amount of revenue that remains after deducting all variable costs associated with producing a product or providing a service. This amount then contributes towards covering the fixed costs of the business and ultimately provides operating income. Therefore, the statement is true.

Quiz 20: Cost-Volume-Profit Analysis