# Cost accounting chapter 3 TB

### 44 terms by cpa2011

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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

Example: