Chapter 18 Quiz

A variable cost is a cost that

varies in total in proportion to changes in the level of activity

a variable cost remains constant per unit at various levels of activity

true

the margin of safety is the difference between sales at breakeven and sales at a determined activity level

true

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

false

the relevant range of activity is the activity level where the firm will earn income

false

if the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net income will be $10,000

true

if variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000

True

a target net income is calculated by taking actual sales minus the margin of safety

false

a mixed cost has both selling and administrative cost elements

false

both variable and fixed costs are included in calculating the contribution margin

false

changes in the level of activity ill cause unit variable and unit fixed costs to change in opposite directions

false

the contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit

false

an assumption of CVP analysis is that all costs can be classified as either variable or fixed

true

an activity index identifies the activity that has a casual relationship with a particular cost

true

a CVP income statement shows contribution margin instead of gross profit

true

a mixed cost contains

a variable and a fixed element

contribution margin is the amount of revenues remaining after deducting cost of goods sold

false

the high-low method id used in classifying a mixed cost into its variable and fixed elements

true

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

false