Cost-Volume-Profit Analysis: Master the Fundamentals of Managerial Accounting

Question 1

Operating leverage measures the:

Accepted Answer

Sensitivity of profit to changes in sales volume.

Answer

Proportion of fixed costs to total costs.

Answer

Contribution margin ratio.

Answer

Break-even point.

Question 2

Which of the following factors does NOT affect the contribution margin?

Accepted Answer

Fixed costs

Answer

Variable cost per unit

Answer

Selling price per unit

Answer

Number of units sold

Question 3

The target net income method of CVP analysis is used to determine:

Accepted Answer

The required sales volume to achieve a desired profit goal

Answer

The break-even point in units

Answer

The contribution margin per unit

Answer

The fixed costs of the company

Question 4

What is the distinction between the contribution margin ratio and the gross profit ratio?

Accepted Answer

The contribution margin ratio excludes fixed costs, whereas the gross profit ratio includes fixed costs

Answer

The gross profit ratio excludes fixed costs, whereas the contribution margin ratio includes fixed costs

Answer

They are calculated in the same way

Answer

The contribution margin ratio is a percentage, while the gross profit ratio is a dollar value

Question 5

Which of the following will lead to an increase in operating leverage?

Accepted Answer

Increase in fixed costs

Answer

Increase in variable costs

Answer

Decrease in unit contribution margin

Answer

Decrease in sales volume

Question 6

What is the purpose of sensitivity analysis in cost-volume-profit analysis?

Accepted Answer

To determine the impact of changes in assumptions on breakeven point

Answer

To evaluate the company's financial performance

Answer

To forecast future sales revenue

Answer

To reduce the impact of qualitative factors

Question 7

What is the impact of increasing fixed costs on breakeven point?

Accepted Answer

Increases breakeven point

Answer

Decreases breakeven point

Answer

No impact on breakeven point

Answer

Only increases breakeven point if sales revenue increases

Question 8

Which of the following factors does NOT influence the break-even point calculation?

Accepted Answer

Production volume

Answer

Fixed costs

Answer

Variable costs

Answer

Selling price

Question 9

What is the primary purpose of conducting sensitivity analysis in Cost-Volume-Profit Analysis?

Accepted Answer

Evaluating the impact of varying assumptions on business performance.

Answer

Determining the exact break-even point.

Answer

Identifying the optimal production quantity.

Answer

Assessing different pricing strategies.

Question 10

Cost-Volume-Profit Analysis has limitations. Which of the following is a key limitation?

Accepted Answer

Assumes a linear relationship between cost and activity levels.

Answer

Only considers long-term perspectives.

Answer

Requires minimal data collection and analysis.

Answer

Can accurately predict future performance.

Question 11

Calculate the contribution margin ratio using the formula:

Accepted Answer

Contribution Margin / Sales Revenue

Answer

Sales Revenue / Contribution Margin

Answer

Fixed Costs / Contribution Margin

Answer

Variable Costs / Contribution Margin

Question 12

A high operating leverage indicates which characteristic?

Accepted Answer

A large proportion of fixed costs.

Answer

Predominantly variable costs.

Answer

Low degree of operating risk.

Answer

High break-even point.

Question 13

How does an increase in fixed costs affect the break-even point?

Accepted Answer

Increases break-even point

Answer

Decreases break-even point

Answer

No effect on break-even point

Answer

Unpredictable effect

Question 14

How does operating leverage impact a company's earnings volatility?

Accepted Answer

Increases volatility

Answer

Decreases volatility

Answer

No effect on volatility

Answer

Unpredictable effect

Question 15

Which of the following is NOT a characteristic of fixed costs?

Accepted Answer

Vary with the level of activity

Answer

Examples include rent and salaries

Answer

Remain constant within a relevant range

Answer

Depreciation expense

Question 16

What is the break-even point?

Accepted Answer

The point at which total revenue equals total costs

Answer

The point at which total costs exceed total revenue

Answer

The point at which total revenue exceeds total costs

Question 17

Which of the following statements about operating leverage is accurate?

Accepted Answer

High operating leverage can amplify both profits and losses

Answer

Operating leverage has no impact on fixed costs

Answer

Operating leverage is always beneficial

Question 18

What is the primary objective of cost-volume-profit analysis?

Accepted Answer

To examine the relationship between costs, volume, and profit

Answer

To evaluate investment opportunities

Answer

To solely predict future cash flows

Question 19

Which of the following is a limitation of cost-volume-profit analysis?

Accepted Answer

Assumes linear relationships without considering step-costs or economies of scale

Answer

Straightforward to implement

Answer

Provides precise predictions of future performance

Question 20

What is the main distinction between absorption costing and variable costing?

Accepted Answer

Absorption costing includes fixed manufacturing overhead costs in inventory valuation, while variable costing does not

Answer

Variable costing includes fixed manufacturing overhead costs in inventory valuation, while absorption costing does not

Answer

There is no difference between absorption costing and variable costing

Question 21

Which graphical representation is commonly used in cost-volume-profit analysis to illustrate the relationship between volume and profit?

Accepted Answer

CVP graph

Answer

Pie chart

Answer

Scatterplot

Answer

Histogram

Question 22

What is the formula for calculating the degree of operating leverage?

Accepted Answer

Percentage change in EBIT / Percentage change in Sales

Answer

Percentage change in Sales / Percentage change in EBIT

Answer

Sales / EBIT

Answer

EBIT / Sales