. To estimate what the profit will be at various levels of activity, a manager can simply take the…

1. To estimate what the profit will be at various levels of activity, a manager can simply take the number of units to be sold over the break-even point and multiply that number by the unit contribution margin.

2. Incremental analysis is generally the simplest and most direct approach to decision  making.

3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.

4. One assumption in CVP analysis is that inventories do not change.

5. On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line.

6. If sales volume increases, and all other factors remain unchanged, the contribution  margin ratio will decrease.

7. The break-even point for a capital intensive, automated company will tend to be higher than for a less capital intensive company while the margin of safety will tend to be lower.

8. An increase in the number of units sold will decrease a company”s break-even point.

9. Assuming that the unit contribution margin is positive, a 10% decrease in selling price will increase the break-even point in terms of unit sales more than will a 10% increase in the variable expense.

10. The break-even point is the point where total contribution margin equals total variable expenses.

11. The break-even point can usually be determined by simply adding together all of the expenses from the income statement.

12. Two companies with the same margin of safety in dollars will also have the same total  contribution margin.

13. If a company has high operating leverage, then profits will be very sensitive to changes in sales.

14. Operating leverage will decrease as the company”s margin of safety increases.

15. The overall contribution margin ratio for a company producing three products may be obtained by adding the contribution margin ratios for the three products and dividing the total by three.

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