How to Select a Cost Structure for CVP

Instructions:

Choose an answer and hit 'next'. You will receive your score and answers at the end.

question 1 of 3

Identify the company that has the highest operating leverage.

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1. Calculate the contribution margin ratio given the following information: sales revenue = $200,000; variable costs = $75,000; fixed costs = $50,000.

2. Calculate a company's break-even in unit given the following information: fixed costs = $100,000; unit contribution margin = $20; variable cost per unit = $15.

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About This Quiz & Worksheet

This quiz and worksheet deals with the considerations and factors of choosing cost structures for CVP. You'll be tested on how well you understand these factors as well as related calculations and components.

Quiz & Worksheet Goals

The questions on this quiz/worksheet involve:

  • High operating leverage
  • Calculating contribution margin ratios and break-even points
  • Selecting a cost structure
  • Fixed cost

Skills Practiced

  • Problem solving - use acquired knowledge to solve practice problems involving relevant calculations
  • Defining key concepts - ensure that you can accurately identify the qualities of high operating leverage as well as a representation of fixed cost
  • Distinguishing differences - make sure you can accurately differentiate between factors that a company should and shouldn't consider when choosing cost structure

Additional Learning

To learn more about cost structure, you can study the accompanying lesson called, How to Select a Cost Structure for CVP. This lesson contains the following objectives:

  • Define variable costs
  • Describe cost-volume-profit analysis
  • Know what depreciation refers to
  • Learn what the contribution margin represents
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