Module 9 CVP Analysis –
Basics test questions and
answers
What are variable costs?
Costs that change in total in direct proportion to changes
in activity level.
What are fixed costs?
Costs that remain constant in total, regardless of activity
level, at least over a certain range of activity.
What is cost-volume-profit (CVP) analysis?
Techniques for determining how changes in revenues,
costs, and level of activity affect the profitability of an
organization.
What is cost behavior?
The way a cost is affected by changes in activity levels.
What important question does CVP analysis allows a
manager to answer?
How much do I need to sell to earn a profit?
What are the key factors involved in CVP analysis?
Revenues from the sales prices charged for goods and
services, fixed and variable costs, sales volume, mix of
products, and resulting profits.
What is an example of a mixed cost?
Electricity costs to run a doughnut shop will increase as
more doughnuts are sold because the cost of the power to
make the additional doughnuts. But even if no doughnuts
, are sold, the owner will have to pay some utility costs just
to keep the shop open.
What is an example of a stepped cost?
Supervisor's salary is not normally going to increase as
more doughnuts are sold until there are so many
customers that there is a need to hire an additional
supervisor to help with the higher volume. At this point,
the fixed cost of salaries will jump to a new level.
What are some of the most common activity bases used?
Number of units sold and number of units produced in
manufacturing firms, number of units sold in
merchandising firms, and number of contract hours paid
for or billed in service firms.
What is variable cost behavior pattern?
When the level of activity increases, total variable costs
rise at a directly proportional rate. For example, if the
level of activity doubles, the total variable costs will also
double.
What is the relevant range?
The range of operating level, or volume of activity, over
which the relationship between total costs (variable plus
fixed) and activity level is approximately linear.
What is economies of scale?
A proportionate saving in costs gained by an increased
level of production.
What are stepped costs?
Costs that change in total in a stairstep fashion (in large
amounts) with changes in volume of activity.
What are mixed costs?
Basics test questions and
answers
What are variable costs?
Costs that change in total in direct proportion to changes
in activity level.
What are fixed costs?
Costs that remain constant in total, regardless of activity
level, at least over a certain range of activity.
What is cost-volume-profit (CVP) analysis?
Techniques for determining how changes in revenues,
costs, and level of activity affect the profitability of an
organization.
What is cost behavior?
The way a cost is affected by changes in activity levels.
What important question does CVP analysis allows a
manager to answer?
How much do I need to sell to earn a profit?
What are the key factors involved in CVP analysis?
Revenues from the sales prices charged for goods and
services, fixed and variable costs, sales volume, mix of
products, and resulting profits.
What is an example of a mixed cost?
Electricity costs to run a doughnut shop will increase as
more doughnuts are sold because the cost of the power to
make the additional doughnuts. But even if no doughnuts
, are sold, the owner will have to pay some utility costs just
to keep the shop open.
What is an example of a stepped cost?
Supervisor's salary is not normally going to increase as
more doughnuts are sold until there are so many
customers that there is a need to hire an additional
supervisor to help with the higher volume. At this point,
the fixed cost of salaries will jump to a new level.
What are some of the most common activity bases used?
Number of units sold and number of units produced in
manufacturing firms, number of units sold in
merchandising firms, and number of contract hours paid
for or billed in service firms.
What is variable cost behavior pattern?
When the level of activity increases, total variable costs
rise at a directly proportional rate. For example, if the
level of activity doubles, the total variable costs will also
double.
What is the relevant range?
The range of operating level, or volume of activity, over
which the relationship between total costs (variable plus
fixed) and activity level is approximately linear.
What is economies of scale?
A proportionate saving in costs gained by an increased
level of production.
What are stepped costs?
Costs that change in total in a stairstep fashion (in large
amounts) with changes in volume of activity.
What are mixed costs?
