Cost accounting chapter 3 TB

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Cost-volume-profit analysis is used primarily by management

as a planning tool

One of the first steps to take when using CVP analysis to help make decisions is

identifying which costs are variable and which costs are fixed

Cost-volume-profit analysis assumes all of the following EXCEPT

total variable costs remain the same over the relevant range

Which of the following items is NOT an assumption of CVP analysis

When graphed, total costs curve upward.

Which of the following items is NOT an assumption of CVP analysis

Unit selling price, unit variable costs, and unit fixed costs are known and remain constant

A revenue driver is defined as

any factor that affects revenues

Operating income calculations use

cost of goods sold and operating costs

Which of the following statements about net income (NI) is true

NI = operating income less income taxes

Which of the following is true about the assumptions underlying basic CVP analysis

Only selling price, variable cost per unit, and total fixed costs are known and constant

The contribution income statement

can be used to predict future profits at different levels of activity

Contribution margin equals

revenues minus variable costs

The contribution income statement highlights

variable and fixed costs

All of the following are assumed in the above analysis EXCEPT

fixed costs increase when activity increases

All of the following are assumed in the above analysis EXCEPT

per unit variable costs increase when activity increases

Gross margin is

sales revenue less cost of goods sold

In the merchandising sector

only variable costs are subtracted to determine gross margin

In the manufacturing sector

fixed overhead costs are subtracted to determine gross margin

To determine contribution margin use

both variable manufacturing costs and variable nonmanufacturing costs

The selling price per unit less the variable cost per unit is the

contribution margin per unit

The breakeven point is the activity level where

revenues equal the sum of variable and fixed costs

Breakeven point is

fixed costs divided by contribution margin per unit

The breakeven point in CVP analysis is defined as

fixed costs divided by the contribution margin per unit

Which of the following statements about determining the breakeven point is FALSE?

Breakeven revenues equal fixed costs divided by the variable cost per unit

If unit outputs exceed the breakeven point

Both total sales revenue exceeds total costs and there is a profit

In CVP analysis, focusing on target net income rather than operating income

will not change the breakeven point

To determine the effect of income tax on a decision, managers should evaluate

target net income

If the tax rate is t, it is possible to calculate planned operating income by

dividing net income by 1- t

The breakeven point decreases if

total fixed costs decrease

(CPA adapted, November 1992) The strategy most likely to reduce the breakeven point would be to

decrease the fixed costs and increase the contribution margin

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when

variable costs per unit decrease

Which of the following will increase a company's breakeven point?

increasing variable cost per unit

Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will

reduce operating income

Assume there is an increase in advertising expenditures and all other CVP parameters remain constant. This change will

reduce operating income

________ is the process of varying key estimates to identify those estimates that are the most critical

A sensitivity analysis

The margin of safety is the difference between

budgeted revenues and breakeven revenues

If a change is made in one parameter of CVP analysis, it is an example of

sensitivity analysis

In a company with low operating leverage

less risk is assumed than in a highly leveraged firm

Fixed costs

are considered variable costs over the long run

When a greater proportion of costs are fixed costs, then

when demand is low the risk of loss is high

If a company would like to increase its degree of operating leverage it should

increase its fixed costs relative to its variable costs

Multiple cost drivers

have no unique breakeven point

"Uncertainty" may be defined as

the possibility that an actual amount will be either higher or lower than the expected amount

Events, as distinguished from actions, would include

a financial recession

Expected monetary value may be defined as

the weighted average of the outcomes with the probability of each outcome serving as the weight

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