Question

Select the incorrect statement regarding cost-volume-profit relationships for multiple products.

For a company that sells many different products, the level of the break-even point is affected by the company's sales mix.

An increase in sales volume accompanied by a change in sales mix could cause a company's profits to decrease.

For a multi-product company, cost-volume-profit analysis can be done using the contribution margin ratio of the most profitable product.

None of these answers is correct.

Which of the following statements regarding cost-volume-profit analysis is incorrect?

Cost-volume-profit analysis assumes that fixed cost per unit is constant.

Cost-volume-profit analysis assumes that the selling price cost per unit is constant.

An increase in inventory during a period will affect cost-volume-profit relationships.

Although cost-volume-profit analysis is based on assumptions that seldom will be perfectly achieved, the technique is still useful to managers.

Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000, what is the contribution margin ratio?

40%

60%

50%

66%

Select the correct statement regarding the contribution margin ratio.

The contribution margin ratio can be calculated using either total amounts or per unit amounts.

The contribution margin ratio equals contribution margin per unit divided by variable cost per unit.

Total fixed costs divided by the contribution margin ratio equals the break-even point in units.

An increase in variable cost per unit will cause the contribution margin ratio to increase.

Answer 1

(1) Select the incorrect statement regarding cost-volume-profit relationships for multiple products :-

For a multi-product company, cost-volume-profit analysis can be done using the contribution margin ratio of the most profitable product.

If company produce more than one product, CVP analysis can be done using one product which consists highest profit

(2) Which of the following statements regarding cost-volume-profit analysis is incorrect?

Cost-volume-profit analysis assumes that fixed cost per unit is constant.

Fixed cost in total should remain constant but Fixed cost per unit should not be constant

(3) Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000, what is the contribution margin ratio?

Contribution margin ratio = (Sale price per unit – Variable cost per unit)/Sale price per unit

       = ($20 - $8)/$20 = 60%

(4) Select the correct statement regarding the contribution margin ratio.

The contribution margin ratio can be calculated using either total amounts or per unit amounts.

Contribution margin ratio is either calculated by = Total Contribution/Total sales

Or calculated by = Contribution per unit/Sales price per unit