Reference no: EM132541077

TRUE or FALSE. Write the word TRUE if the statement is correct and FALSE if it is incorrect.

Question 1. A variable cost remains constant per unit at various levels of activity.

Question 2. A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Question 3. If volume increases, all costs will increase.

Question 4. If the activity index decreases, total variable costs will decrease proportionately.

Question 5. Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

Question 6. For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

Question 7. The relevant range of activity is the activity level where the firm will earn income.

Question 8. Costs will not change in total within the relevant range of activity.

Question 9. The high-low method is used in classifying a mixed cost into its variable and fixed elements.

Question 10. A mixed cost has both selling and administrative cost elements.

Question 11. The fixed cost element of a mixed cost is the cost of having a service available.

Question 12. The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Question 13. When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

Question 14. In CVP analysis, the term cost includes manufacturing costs, and selling and administrative expenses.

Question 15. Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

Question 16. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Question 17. The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price.

Question 18. Both variable and fixed costs are included in calculating the contribution margin.

Question 19. The break-even point is where total sales equals total variable costs.

Question 20. The break-even point is equal to the fixed costs plus net income.

Question 21. If the unit contribution margin is $1 and unit sales are 5,000 units above the break-even volume, then net income will be $5,000.

Question 22. The margin of safety is the difference between contribution margin and fixed costs.

Question 23. A target net income is calculated by taking actual sales minus the margin of safety.

Question 24. A CVP income statement shows contribution margin instead of gross profit.

Question 25. A CVP income statement classifies total costs by functional areas.