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Cost Accounting 101 Practice Test: Cost-Volume-Profit Analysis
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Avg score: 50% • Most missed: “Which of the following will increase a company's breakeven point?”
Cost-volume-profit (CVP) analysis is a cost accounting method that helps companies understand how changes in costs and volume affect their operating profit. It's also known as breakeven analysis.  CVP analysis helps companies determine: Breakeven point: How many units need to be sold to cover all costs Minimum profit margin: How many units need to be sold to reach a certain profit margin Economic justification: Whether it's worth manufacturing a product  CVP analysis focuses on sales volume because sales price, labor, and material costs are usually known with some accuracy. Sales volume,... Show more
Cost Accounting 101 Practice Test: Cost-Volume-Profit Analysis
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25 Questions

1. Which of the following is true about the assumptions underlying basic CVP analysis?
2. If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.
3. Operating income calculations use:
4. In the graph method of CVP analysis, the breakeven point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.
5. Service sector companies will never report gross margin on an income statement.
6. To determine contribution margin use:
7. Which of the following statements about determining the breakeven point is FALSE?
8. The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.
9. If operating income is $40,000 and the income tax rate is 30%, then net income will be $28,000.
10. There is no unique breakeven point when there are multiple cost drivers.
11. All of the following are assumed in the above analysis EXCEPT:
12. If a company has a degree of operating leverage of 4.0, that means a 10% increase in sales will result in a 40% increase in variable costs.
13. If a company increases fixed costs, then the breakeven point will be lower.
14. If breakeven point is 1,000 units, each unit sells for $30, and fixed costs are $10,000, then on a graph the:
15. In the merchandising sector:
16. In the graph method of CVP analysis, the total revenue line can be calculated by determining the total revenue at only one real output level because the starting point of the line is always the intersection of the X and Y axes.
17. Events, as distinguished from actions, would include:
18. Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will:
19. Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.
20. A planned decrease in selling price would be expected to cause an increase in the quantity sold.
21. Total revenues less total fixed costs equal the contribution margin.
22. Pounds of yeast used by a bake shop is a potential measure of output for the bakery industry.
23. Breakeven point is that quantity of output where total revenues equal total costs.
24. If a change is made in one parameter of CVP analysis, it is an example of:
25. Gross Margin will always be greater than contribution margin.

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