Managerial Accounting Creating Value in a Dynamic Business Environment 11E – Hilton – Test Bank

Managerial Accounting Creating Value in a Dynamic Business Environment 11E – Hilton – Test Bank

Chapter 7
Cost-Volume-Profit Analysis
Answer Key

True / False Questions

1. The break-even point is that level of activity where total revenue equals total cost.
TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01
Feedback True: Correct! The break-even point is that level of activity where total revenue equals total cost.
Feedback False: This is a correct statement about the break-even point.

2. Total contribution margin is defined as total sales revenue plus total variable expenses.

FALSE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01
Feedback True: This is not the definition of total contribution margin.
Feedback False: Correct! This is not the definition of total contribution margin.

3. The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.
TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02
Feedback True: Correct! The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.
Feedback False: This is a correct statement about the contribution-margin ratio.

4. The contribution margin ratio can also be expressed as a percentage.

TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02
Feedback True: Correct! The contribution margin ratio can be expressed as a percentage.
Feedback False: This is a correct statement about the contribution margin ratio.

5. The relevant range is the range of activity in which management of a company expects to operate.

TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-03
Feedback True: Correct! The relevant range is the range of activity in which management of a company expects to operate.
Feedback False: This is a true statement about relevant range.

6. On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-03
Feedback True: Correct! On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.
Feedback False: This is a true statement.
7. The difference between budgeted sales revenue and break-even sales revenue is the operating leverage.
FALSE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04
Feedback True: This statement is false.
Feedback False: Correct! The difference between budgeted sales revenue and break-even sales revenue is not the operating leverage.

8. The safety margin is another name for the breakeven point.

FALSE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04
Feedback True: This is not a true statement.
Feedback False: Correct! Safety margin is not another name for the breakeven point.
9. For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.

TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05
Feedback True: Correct! For any organization selling multiple products, the relative proportion of each type of product sold is called the sales mix.
Feedback False: This statement is true.

10. Total contribution margin is an important assumption in multiproduct CVP analysis.

FALSE