CVP

The amount by which an item contributes towards covering fixed cost and providing for profit is known as:

• gross profit

• gross margin

• contribution margin

• net margin

Contribution margin = ?

• Sales - Fixed expenses

• Sales - Selling expenses

• Sales - Admin. expenses

• Sales - Variable expenses

If the amount of contribution margin is not enough to cover all fixed expenses, the business will

• suffer a loss

• earn a profit

• neither earn a profit nor suffer a loss

• be closed

Consider the following information:

· Sales revenue: $12,000

· Variable manufacturing expenses: $3,000

· Variable marketing and admin. expenses: $1,000

· Fixed manufacturing expenses: $1,500

· Fixed marketing and admin. expenses: $500. What is the contribution margin?

• $9,000

• $8,000

• $10,500

• $10,000

A contribution margin income statement is usually used by:

• tax agencies and banks

• customers and suppliers

• creditors and investors

• internal management

Which of the following is correct about break even point of a company?

• Revenue > Variable expenses + Fixed expenses

• Revenue < Variable expenses + Fixed expenses

• Revenue = Variable expenses + Fixed expenses

• None of the above

Which of the following is a correct formula of break even point?

• Total fixed expenses/Total contribution margin

• Total fixed expenses/Contribution margin per unit

• Total variable expenses/Contribution margin per unit

• Total variable expenses/Total Contribution margin

Which of the following statements is correct about variable costs?

• Variable costs vary on per unit basis but remain the same in total as the level of activity changes

• Variable costs vary on per unit basis as the level of activity changes

• Variable costs vary in total in direct proportion to changes in the level of activity

• Variable costs remain the same in total as the level of activity changes

Which of the following statements is correct about fixed costs?

• Fixed costs vary on per unit basis as well as in total as the level of activity changes

• Fixed costs remain the same on per unit basis but vary in total as the level of activity changes

• Fixed costs vary in total as the level of activity changes

• Fixed costs vary on per unit basis but remain the same in total as the level of activity changes

If contribution margin ratio is 0.3 then contribution margin percentage will be:

• 3%

• 30%

• 0.3%

• 0.03%