1. How is the CM per unit calculated? How is this value useful in planning business operations?
2. Where is the break-even point on a CVP graph?
3. Often the most direct route to a business decision is to perform an incremental analysis. What is meant by an incremental analysis?
4. What is meant by the term operating leverage?
5. What is meant by the term margin of safety?
6. If a company experiences a decrease in its CM ratio, what will be the impact on its break-even level of sales?
7. Name three approaches to break-even analysis. Briefly explain how each approach works. 4-8 In a CVP graph, what is the impact on the break-even level of sales if the slope of the total revenue line gets steeper, assuming no change to the total expense line? What is
the impact on the break-even level of sales if the slope of the total expenses line gets steeper, assuming no change to fixed expenses or to the slope of the total revenue line?
9. What effect would a 30% income tax rate have on the CVP formula?
10. What is meant by the term cost structure?
11. Companies X and Y are in the same industry. Company X is highly automated, whereas Company Y relies primarily on labour to make its products. If sales and total expenses in the two companies are about the same, which company would you expect to have the lower margin of safety? Why?
12. What is meant by the term sales mix? What assumption is usually made concerning sales mix in CVP analysis?
13. Assume that Company Z, which sells two products, has changed its sales mix so that it sells a higher proportion of the product with the higher CM. What will be the impact on the break-even level of sales? Explain your answer.