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### 36 Cards in this Set

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• Back
 An activity index identifies the activity that has a causal relationship with a particular cost. True A variable cost remains constant per unit at various levels of activity. True A fixed cost remains constant in total and on a per unit basis at various levels of activity. False If volume increases, all costs will increase. False If the activity index decreases, total variable costs will decrease proportionately. True Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions. False For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity. True The relevant range of activity is the activity level where the firm will earn income. False Costs will not change in total within the relevant range of activity False The high-low method is used in classifying a mixed cost into its variable and fixed elements. True A mixed cost has both selling and administrative cost elements. False The fixed cost element of a mixed cost is the cost of having a service available True For planning purposes, mixed costs are generally grouped with fixed costs. False The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost. False When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element. True An assumption of CVP analysis is that all costs can be classified as either variable or fixed. True In CVP analysis, the term cost includes manufacturing costs, and selling and administrative expenses. True Contribution margin is the amount of revenues remaining after deducting cost of goods sold. False Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income. True The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price. False Both variable and fixed costs are included in calculating the contribution margin. False A CVP income statement shows contribution margin instead of gross profit. True The break-even point is equal to the fixed costs plus net income. False If the unit contribution margin is \$1 and unit sales are 15,000 units above the break-even volume, then net income will be \$15,000. True The break-even point is where total sales equal total variable costs. False At the break-even point, total revenue equals total fixed costs plus total variable costs. True A target net income is calculated by taking actual sales minus the margin of safety. False Target net income is the income objective for an individual product line. True The margin of safety is the difference between contribution margin and fixed costs. False The margin of safety is the difference between sales at breakeven and sales at a determined activity level. True The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars. True The trend in most companies is to have more variable costs and fewer fixed costs. False For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements. False A cost-volume-profit graph shows the amount of net income or loss at each level of sales. 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 The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales. True