American University of Sharjah

• ACCOUNTING 201

• Chapter 05 Cost-Volume-Profit Relationships True / False Questions 1. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $5 if one more unit is sold. True False 2. Incremental analysis is an analytical approach that focuses only on those revenues and costs that will change as a result of a decision. True False 3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis. True False 4. On a CVP graph for a profitable company, the total revenue line will be steeper than the total expense line. True False 5. On a CVP graph for a profitable company, the total expense line will be steeper than the line representing fixed costs. True False 6. For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio. True False 7. The impact on net operating income of a given dollar change in sales can be computed by applying the contribution margin ratio to the dollar change in sales. True False