What does Cost-Volume-Profit (CVP) analysis primarily help in determining?
a) The relationship between cost, volume, and profit
b) The price of raw materials
c) The company’s stock valuation
d) The total number of employees required
Which of the following is NOT an assumption of CVP analysis?
a) Fixed costs remain constant
b) Selling price per unit is variable
c) All costs can be classified as either fixed or variable
d) Efficiency and productivity remain constant
The break-even point is the level of sales at which:
a) Total revenue equals total cost
b) Total profit is maximized
c) Total revenue exceeds total cost
d) Total cost is minimized
The contribution margin is calculated as:
a) Sales revenue minus variable costs
b) Sales revenue minus fixed costs
c) Fixed costs minus variable costs
d) Sales revenue divided by total costs
Which of the following best describes the contribution margin ratio?
a) Contribution margin divided by sales revenue
b) Contribution margin multiplied by sales revenue
c) Contribution margin plus fixed costs
d) Contribution margin minus fixed costs
The margin of safety represents:
a) The difference between total sales and break-even sales
b) The ratio of fixed costs to total revenue
c) The profit at the break-even point
d) The total revenue from all sales
Which of the following is NOT a component of CVP analysis?
a) Fixed costs
b) Variable costs
c) Sales volume
d) Capital structure
If fixed costs increase, what happens to the break-even point?
a) It increases
b) It decreases
c) It remains unchanged
d) It becomes zero
If the selling price per unit increases while all other factors remain constant, the break-even point will:
a) Increase
b) Decrease
c) Remain the same
d) Double
Which of the following statements is true about CVP analysis?
a) It assumes all costs are variable
b) It helps in profit planning
c) It ignores changes in production volume
d) It does not consider fixed costs
The break-even point in units is calculated as:
a) Fixed costs / Contribution margin per unit
b) Variable costs / Fixed costs
c) Sales revenue / Fixed costs
d) Total costs / Contribution margin per unit
What happens to the contribution margin if variable costs per unit increase?
a) It increases
b) It decreases
c) It remains constant
d) It becomes negative
If the contribution margin ratio is 40%, what does this mean?
a) 40% of sales revenue contributes to covering fixed costs and profit
b) 40% of sales revenue covers variable costs
c) 40% of costs are fixed
d) 40% of costs are variable
In CVP analysis, fixed costs are assumed to be:
a) Constant
b) Variable
c) Dependent on production volume
d) Always decreasing
A company can increase its margin of safety by:
a) Increasing sales revenue
b) Decreasing fixed costs
c) Decreasing variable costs
d) All of the above
Which factor will NOT change the break-even point?
a) An increase in fixed costs
b) A change in variable costs
c) A decrease in selling price per unit
d) An increase in production efficiency
What is the main benefit of CVP analysis?
a) It determines the best advertising strategy
b) It helps managers understand profit relationships
c) It replaces traditional accounting methods
d) It calculates total asset values
Which of the following will decrease the break-even point?
a) Increasing fixed costs
b) Decreasing the selling price per unit
c) Increasing the contribution margin
d) Increasing variable costs
The unit contribution margin is calculated as:
a) Sales price per unit – Variable cost per unit
b) Sales revenue – Fixed costs
c) Fixed costs – Variable costs
d) Sales revenue / Total units sold
In multi-product CVP analysis, the break-even point is calculated using:
a) Weighted average contribution margin
b) Fixed cost per unit
c) Direct labor costs
d) Gross profit margin
What does the CVP model assume about production and sales?
a) They are equal
b) Sales are always higher than production
c) Production is always higher than sales
d) They have no impact on each other
If the break-even point is 5,000 units and the company sells 6,000 units, the margin of safety is:
a) 1,000 units
b) 5,000 units
c) 6,000 units
d) 10,000 units
When total sales revenue is greater than total costs, the company is:
a) At break-even
b) Earning a profit
c) Experiencing a loss
d) Unable to cover fixed costs
An increase in variable costs per unit will:
a) Decrease the break-even point
b) Increase the break-even point
c) Have no effect on the break-even point
d) Reduce total costs
A high contribution margin ratio means that:
a) A large portion of sales revenue is available to cover fixed costs and generate profit
b) A small portion of sales revenue is used to cover variable costs
c) The company has no fixed costs
d) The company is operating at a loss
