True / False: You Answered Correctly!

You correctly answered 15 questions for a score of 55 percent.
Unanswered
questions were counted as incorrect in the calculation.
25-1. Cost-volume-profit analysis is often referred to as break-even analysis.
True / False
You answered correctly! Using cost-volume-profit analysis techniques will

reveal the break-even point. However, cost-profit-volume techniques will
reveal more than the break-even point of a firm.
25-2. A cost that remains unchanged in total within a relevant range of

operations, yet decreases per unit of product as production accelerates, is
known as a variable cost.
True / False
Wrong. The correct answer is false. Fixed costs remain unchanged in total
from period to period. However, with each additional unit of product produced,
the fixed cost assigned to each unit decreases.
25-3. Variable costs change in proportion to changes in volume and, as a

result, are shown on a graph as curvilinear line.
True / False
You answered correctly! Variable costs are shown as a straight line, with the
beginning point at the zero cost level, which slopes upward along the
horizontal axis.
25-4. A mixed cost is a combination (or acts as if it contains a combination) of

fixed and variable costs.
True / False
You answered correctly! A mixed cost is a combination of fixed and variable

cost components. For cost-volume-profit analysis, the fixed and variable cost
portions of mixed costs must be separated.
25-5. In cost-volume-profit analysis, some costs which do not have the

characteristics of fixed or variable costs are treated as either fixed or variable
for the purposes of the analysis.
True / False
You answered correctly! One example of such a cost is a step-wise or stair-

step cost, a cost which remains fixed for a certain production volume, then
increases with the next level of volume.
25-6. When a factory hires a new supervisor every time it adds a shift to its
production line, the salaries of the supervisors would be classified as a stair-
step cost.
True / False
You answered correctly! A stair-step or step-wise cost is a cost that remains

constant over a range of production, then increases by a lump sum if
production is expanded beyond that range.
25-7. Variable costs and nonlinear costs are plotted on graphs as straight
lines with a positive slope.
True / False
Wrong. The correct answer is false. Variable costs are graphed as straight
lines. Nonlinear costs vary with production, as do variable costs, but not in
direct proportion. Therefore, nonlinear cost lines tend to be curvilinear.
25-8. Curvilinear costs are linear in nature.
True / False
Wrong. The correct answer is false. Curvilinear costs increase as volume

increases but not at a constant ratio like pure variable costs. In other words,
curvilinear costs change with changes in production levels, but not
proportionately--they are nonlinear in nature.
25-9. One of the simplest methods of analyzing fixed and variable costs is to
use a scatter diagram, which requires a hand drawn 'best fit' line which begins
on the vertical axis at the level of total fixed costs, then slopes upward along
the horizontal axis to illustrate the slope of the variable cost line.
True / False
You answered correctly! The weaknesses in using a scatter diagram are the
estimates and judgment required on the part of the preparer which are subject
to interpretation.
25-10. Using the high-low method to draw an estimated line of cost behaviour
on a scatter diagram will result in a very precise line of estimated cost
behaviour.
True / False
You answered correctly! The high-low method considers only two plotted
positions on the scatter diagram--the highest and the lowest, either or both of
which may be extremes and not typical of the conditions of the other plotted
positions.
25-11. A method of estimating cost behaviour in which a line is drawn

between the highest and lowest total costs plotted on a scatter diagram is
known as the least-squares regression method.
True / False
Wrong. The correct answer is false. The high-low method of estimating cost
behaviour is based on the assumption that the highest and lowest costs
shown on a scatter diagram can be connected with a line upon which all of the
costs between the high and low costs will fall.
25-12. The least-squares regression method is a statistical method for

deriving an estimated line of cost behaviour that is more precise than the high-
low method.
True / False
You answered correctly! Least-squares regression is a method in which all

of the costs of each activity level within the period are plotted along a line
which, when determined with statistical analysis, is the best fit of the cost
behaviour.
25-13. When a company's total contribution margin is $200,000 at the break-

even point, its fixed costs are greater than $200,000.
True / False
Wrong. The correct answer is false. At the break-even point, the total
contribution margin is equal to the total fixed costs.
25-14. If one unit of product produces $2.00 of contribution margin when sold,
and fixed costs amount to $190, the pre-tax profit on the sale of 100 units will
be $10 (assuming taxes are not included in the determination of contribution
margin or fixed costs).
True / False
You answered correctly! Contribution margin is the result of revenues less

all variable costs. It is used to recover fixed costs and add to net profit: (100 x
$2) - $190 = $10.
25-15. When the variable costs are 60% of sales dollars, the contribution ratio
is 40%.
True / False
You answered correctly! The contribution ratio is the complement of the

variable costs expressed as a percent of sales dollars.
25-16. If the contribution margin is $45,000 at the break-even point, the fixed
costs must be $45,000.
True / False
You answered correctly! Contribution margin is the residual of revenues less

variable costs. At the break-even point, there must be a sufficient amount of
contribution margin to cover the fixed costs.
25-17. If the contribution ratio for a product is 65%, then the variable costs of
the product are 35% of the sales price of the product.
True / False
You answered correctly! The contribution ratio is the percent that the
contribution margin per unit is of the sales price per unit. The contribution
margin per unit is determined by subtracting the variable costs from the sales
price.
25-18. When the selling price of a unit is $10 and the variable costs to make
and sell the unit are $6, the contribution ratio is 40.0%.
True / False
Wrong. The correct answer is true. The contribution margin is $4 ($10 - $6)
and the contribution ratio (contribution margin/sales price) is 40% ($4 / $10).
25-19. One of the assumptions for cost-volume-profit analysis is that the

selling price per unit remains unchanged for all units sold during the planning
period.
True / False
You answered correctly! While the statement is true, the assumptions used
in cost-volume-profit analysis are not always realistic; units selling prices can
change, the cost per unit can change, and fixed costs can change over the
planning period.
25-20. While curvilinear costs are not illustrated as straight lines on a CVP
graph, they tend to be nearly straight within the relevant range of operations.
True / False
You answered correctly! The relevant range of operations is the normal

operating range of the business which excludes extremely high and low
operating levels that are unlikely to occur.
25-21. If fixed costs are $10,000 and the variable cost per unit is $2, then
expected sales of 20,000 units at $4 each should generate income (before
taxes) of $30,000.
True / False
Wrong. The correct answer is true. Income from expected sales can be
determined by subtracting fixed costs and variable costs (at the level of sales)
from sales. (20,000 x $4) - (20,000 x $2) - $10,000 = $30,000.
25-22. It is not possible to estimate the dollar of sales required to achieve a

target income, after taxes, using CVP analysis.
True / False
You answered correctly! The formula for estimating the dollar sales required
to achieve an after-tax target income is: Dollar Sales = (Fixed Costs + Target
Income + Income Taxes) / Contribution Margin Ratio.
25-23. If the current level of sales if $450,000 and the break-even point is
$300,000, the margin of safety is 50%.
True / False
Wrong. The correct answer is false. The margin of safety can be shown two
ways: (1) as the difference between the current level of sales (when sales
exceed break-even) and the break-even point, or (2) as a percent of the
current level of sales (($450,000 - $300,000) / $450,000 = 0.333 = 33.3%).
25-24. The profit of a company is equal to its margin of safety.
True / False
Wrong. The correct answer is false. The margin of safety is the difference
between the current level of sales (which exceeds break-even) and the break-
even point; and includes the variable costs and contribution margin after
break-even.
25-25. A company with current sales of $450,000 and a break-even point of

$460,000 has a $10,000 margin of safety.
True / False
The question was not answered. The correct answer

is "False". (Coaching responses are only available for answered questions)
25-26. It is not possible to apply break-even analysis to firms that sell more
than one product, when each product has a different variable cost.
True / False
The question was not answered. The correct answer

is "False". (Coaching responses are only available for answered questions)
25-27. If the degree of operating leverage is 1.5, then a 10% increase in sales
(within the relevant range of operations) will result in a 150% increase in
income.
True / False

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You correctly answered 15 questions for a score of 55 percent.

25-1. Cost-volume-profit analysis is often referred to as break-even analysis.

You answered correctly! Using cost-volume-profit analysis techniques will

25-2. A cost that remains unchanged in total within a relevant range of

25-3. Variable costs change in proportion to changes in volume and, as a

25-4. A mixed cost is a combination (or acts as if it contains a combination) of

You answered correctly! A mixed cost is a combination of fixed and variable

25-5. In cost-volume-profit analysis, some costs which do not have the

You answered correctly! One example of such a cost is a step-wise or stair-

You answered correctly! A stair-step or step-wise cost is a cost that remains

25-8. Curvilinear costs are linear in nature.

Wrong. The correct answer is false. Curvilinear costs increase as volume

25-11. A method of estimating cost behaviour in which a line is drawn

25-12. The least-squares regression method is a statistical method for

You answered correctly! Least-squares regression is a method in which all

25-13. When a company's total contribution margin is $200,000 at the break-

You answered correctly! Contribution margin is the result of revenues less

You answered correctly! The contribution ratio is the complement of the

You answered correctly! Contribution margin is the residual of revenues less

25-19. One of the assumptions for cost-volume-profit analysis is that the

You answered correctly! The relevant range of operations is the normal

25-22. It is not possible to estimate the dollar of sales required to achieve a

25-24. The profit of a company is equal to its margin of safety.

25-25. A company with current sales of $450,000 and a break-even point of

The question was not answered. The correct answer

The question was not answered. The correct answer

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