Questions on Cost-Volume-Profit Analysis

5129 Words Oct 15th, 2013 21 Pages
CHAPTER 3
COST-VOLUME-PROFIT ANALYSIS

TRUE/FALSE

1. To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

Answer: True/False

2. It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

Answer: True/False

3. In CVP analysis, variable costs include direct variable costs, but do not include indirect variable costs.

Answer: True/False

4. In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

Answer: True/False

5. If the selling price per unit is $20 and the
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Which of the following items is NOT an assumption of CVP analysis?
a. Costs may be separated into separate fixed and variable components.
b. Total revenues and total costs are linear in relation to output units.
c. Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
d. Proportion of different products will remain constant when multiple products are sold.

5. Operating income calculations use:
a. net income
b. income tax expense
c. cost of goods sold and operating costs
d. nonoperating revenues and nonoperating expenses

6. Which of the following statements about net income (NI) is TRUE?
a. NI = operating income plus nonoperating revenue.
b. NI = operating income plus operating costs.
c. NI = operating income less income taxes.
d. NI = operating income less cost of goods sold.

7. Which of the following is true about the assumptions underlying basic CVP analysis?
a. Only selling price is known and constant.
b. Only selling price and variable cost per unit are known and constant.
c. Only selling price, variable cost per unit, and total fixed costs are known and constant.
d. Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

8. The contribution income statement:
a. reports gross margin
b. is allowed for external reporting to shareholders
c. categorizes costs as either direct or indirect
d. can be used to predict future profits at different levels
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