Question

Evaluate whether each statement is true or false.

1. On a CVP graph, the break-even point will move up and to the right if a company increases units sold.                            [ Select ]                       ["False", "True"]      

2. Holding all else equal, if production decreases then the contribution margin ratio will remain the same but gross margin percentage will decrease.                            [ Select ]                       ["False", "True"]      

3. If a company expects sales to decrease, it is better for the company to have low operating leverage.                            [ Select ]                       ["True", "False"]      

4. If a company wishes to attain a target profit, it can divide that target profit by the contribution margin per unit to calculate how many units it must sell.                            [ Select ]                       ["False", "True"]      

5. Holding all else equal, if a company expects sales to increase next month, it could calculate the additional profit it will generate using the additional sales in dollars and the contribution margin ratio

Answer 1

1) answer : False

explanation : if company increases sales units (production ) , on the CVP graph BEP point does not move up t and to the right ,

break even point is not influenced by units sold ,it is influenced by fixed costs and variable costs

2)True

explanation

if increases production then the contribution margin ratio will remains same but gross margin percentage will decrease . contribution margin ratio is not influed by changes in sales or production volume

3)False

explanation

if decrease sales the operating leverage will be increased so it is false

4)False

explanation

if company want to attain a target profit ; units to sell to get target profit = (target profit +fixed cost)/ contribution margin per unit  

so it is false

5) True

explanation

if company expects to increase sales next month , it could calculate the additional profit will generate by using the additional dollar sales and the contribution margin ratio