Learning Objective 20-3
1) The sales level at which operating income is zero is called breakeven point.
2) The breakeven point represents the sales volume at which the company's net income is zero.
3) If all other factors remain constant, an increase in fixed costs will increase the breakeven point.
4) Fixed costs divided by contribution margin per unit equals breakeven point in unit sales.
5) CVP analysis assumes that the selling price per unit does not change as volume changes.
6) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
7) The breakeven point is the point where the sales revenues are equal to the fixed costs.
8) The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.
9) A CVP graph shows how changes in the level of sales will affect profits.
10) The fundamental assumption of cost-volume-profit (CVP) analysis is that in the long-run fixed costs become variable costs.