Question

True or False

Enter a T or an F in the blank to indicate whether the

statement is true or false.

___ 1. If product A has a higher unit contribution

margin than product B, then product A will also have a

higher CM ratio than product B.

___ 2. The break-even point occurs where the

contribution margin is equal to total variable expenses.

___ 3. The break-even point can be expressed ei-

ther in terms of units sold or in terms of total sales dol-

lars.

___ 4. If the sales mix changes, the break-even

point may change.

___ 5. For a given increase in sales dollars, a high

CM ratio will result in a greater increase in profits

than will a low CM ratio.

___ 6. If sales increase by 8%, and the degree of

operating leverage is 4, then profits can be expected to

increase by 12%.

___ 7. The degree of operating leverage remains

the same at all levels of sales.

___ 8. Once the break-even point has been

reached, net income will increase by the unit contribu-

tion margin for each additional unit sold.

___ 9. A shift in sales mix toward less profitable

products will cause the overall break-even point to fall.

___ 10. Incremental analysis focuses on the differ-

ences in costs and revenues between alternatives.

___ 11. If a company’s cost structure shifts toward

greater fixed costs and lower variable costs, one would

expect the company’s CM ratio to fall.

___ 12. One way to compute the break-even point

is to divide total sales by the CM ratio.

___ 13. When there is more than one product, a key

assumption in break-even analysis is that the sales mix

will not change.

Answer 1

1. False

When contribution margin increase than its mandatory that CM ratio will increase beacuse CM ration shows the Ratio show the ratio between sales and contribution margin that can be same for 2 diffrent products whether their contribution margin is high or low.

2.False

Breakeven point is the point where contribution margin is equal to fixed cost not variable cost.

3.True

Breakeven sales can be computed in units as well as dollars sales.

4.True

If there is two product change in sales mix may lead to change in breakeven sales.

5. True

If sales increase higher contribution margin ratio result to high profits.

6.false

Profits can be expected to increase by 32%

8% ×4 = 32%

7. False

Degree of operating leavrage changes as change in sales.

8.true

Beacuse on breakeven point fixed cost becomes equal to contribution margin.After every increase in unit sold will result to increase in profit by contribution margin per unit.

9. False

When sales mix shift towards less profitable product the company has to sell many product to achieve breakeven point.So breakeven point will increase.

10.True

Incremental cost is focuses on difference between cost and revenue between different alternative.

11.false

If company cost structure shift towards high fixed cost and lower variable cost than CM ratio will increase because increase in CM due to reduction in variable cost.

12. False

Breakeven point can be calculated by devide fixed cost from CM ratio.

13.true

When there is a sale mix breakeven point anlaysis assume there is no change in sales mix otherwise breakeven point may vary.