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What is the effect of an increase in variable costs as a percentage of sales onthe contribution margin and on the break-even dollar amount?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 5DQ

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Would each of the following increase, decrease, or have an indeterminant effect on a firms break-even point (unit sales)? a. The sales price increases with no change in unit costs. b. An increase in fixed costs is accompanied by a decrease in variable costs. c. Variable labor costs decline; other things are held constant.
The amount of a units sales price that helps to cover fixed expenses is its ____________________. A. contribution margin B. profit C. variable cost D. stepped cost
The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. unit contribution margin. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
When should a segment be dropped? A. only when the decrease in total contribution margin is less than the decrease in fixed cost B. only when the decrease in total contribution margin is equal to fixed cost C. only when the increase in total contribution margin is more than the decrease in fixed cost D. only when the decrease in total contribution margin is less than the decrease in variable cost
In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do not want to remain at the break-even point.
When fixed costs increase and all other variables remain unchanged, the contribution margin will A. remain unchanged _____________________. B. increase C. decrease D. increase variable costs per unit
If the sales mix in a multi-product environment shifts to a higher volume in low contribution margin products, the break-even point will ____________________________________ . A. remain unchanged because all products are included in the calculation of break-even B. increase because the low contribution margin products have little effect on break-even C. increase because the per composite unit contribution margin will decrease D. decrease because the per composite unit contribution margin will increase
Which of the following statements is true regarding average fixed costs? A. Average fixed costs per unit remain fixed regardless of level of activity. B. Average fixed costs per unit rise as the level of activity rises. C. Average fixed costs per unit fall as the level of activity rises. D. Average fixed costs per unit cannot be determined.
If both the fixed costs associated with a product and the variable costs (as apercentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?a. Decrease, increase.b. Increase, decrease.c. Decrease, decrease.d. Increase, increase.
What is the contribution margin per unit? contribution margin ratio? Unit sales at break even point? Dollar sales at break even point? Expected net income?
What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?
The break-even point can be calculated with the following formula: Total fixed expenses / (Variable cost per unit Selling price per unit)TRUEFALSE