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Chapter 8 Examination
Choose the best answer.
1. The unit contribution margin is calculated as the difference between:
A) selling price and fixed cost per unit.
B) selling price and variable cost per unit.
C) selling price and product cost per unit.
D) fixed cost per unit and variable cost per unit.
E) fixed cost per unit and product cost per unit.
2. Which of the following would take place if a company were able to reduce its variable cost per unit?
Contribution Margin Break-even Point
A) Increase Increase
B) Increase Decrease
C) Decrease Increase
D) Decrease Decrease
E) Increase No effect
3. The break-even point is that level of activity where:
A) total revenue equals total cost.
B) variable cost equals fixed cost.
C) total contribution margin equals the sum of variable cost plus fixed cost.
D) sales revenue equals total variable cost.
E) profit is greater than zero.
4. The contribution margin ratio is:
A) the difference between the selling price and the variable cost per unit.
B) fixed cost per unit divided by variable cost per unit.
C) variable cost per unit divided by the selling price.
D) unit contribution margin divided by the selling price.
E) unit contribution margin divided by fixed cost per unit.
5. Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?
A) Product prices will remain constant as volume varies within the relevant range.
B) Expenses can be categorized as fixed, variable, or semivariable.
C) The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.
D) Total fixed expenses remain constant as activity changes.
E) Unit variable expense remains constant as activity changes.
6. The contribution income statement differs from the traditional income statement in which of the following ways?
A) The traditional income statement separates costs into fixed and variable components.
B) The traditional income statement subtracts all variable expenses from sales to obtain the contribution margin.
C) Cost-volume-profit relationships can be analyzed from the contribution income statement.
D) The effect of sales volume changes on profit is readily apparent on the traditional income statement.
E) The contribution income statement separates costs into product and period categories.
7. A company that desires to lower its break-even point should strive to:
A) decrease selling prices.
B) reduce variable costs.
C) increase fixed costs.
D) sell more units.
E) pursue more than one of the above actions.
8. The extent to which an organization uses fixed costs in its cost structure is measured by:
A) financial leverage.
B) operating leverage.
C) fixed cost leverage.
D) contribution leverage.
E) efficiency leverage.
9. A company, subject to a 40% tax rate, desires to earn $300,000 of after-tax income. How much should the firm add to fixed expenses when figuring the sales revenues necessary to produce this income level?
Edco Company produced and sold 45,000 units of a single product last year, with the following results:
10. Edco's break-even point in unit sales for the previous year was:
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