1. The financial approach organizes costs around contribution margin.

• ❌ True

• ✅ False
  Explanation: Contribution margin is used in managerial (internal) reporting, not financial accounting.

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2. Statements about financial vs managerial approaches (Check all that apply):

• ❌ The financial approach reports higher costs.

• ✅ Both approaches report the same revenues.

• ❌ The managerial approach reports higher costs.

• ❌ Both approaches report the same profit.
  Explanation:
  Revenues are the same.
  Costs & profit differ because financial uses GAAP; managerial uses contribution format.

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3. True statements about the contribution margin (Check all that apply):

• ❌ Always reported per unit

• ✅ Total CM varies with units sold

• ❌ Always reported in total (not always)

• ✅ Used for internal decision-making
  Explanation:
  CM can be per-unit or total; it is mainly for internal analysis.

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4. Cost-volume-profit analysis is best characterized as:

• ✅ Useful tool for facilitating decisions

• ❌ Useful for influencing decisions

• ❌ Focused on revenues

• ❌ Focus on gross margin
  Explanation: CVP helps decision-making about cost, volume, profit relationships.

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5. True statements about the break-even point (Check all that apply):

• ✅ CM = fixed costs at break-even

• ❌ Variable costs = fixed costs

• ❌ Managers usually report BEP in currency

• ✅ Managers usually report BEP in units
  Explanation:
  Classic break-even = where profit = 0 → CM = fixed costs.

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6. How Sara could use the break-even point (Check all that apply):

• ❌ Disclose BEP to external users (not allowed)

• ❌ Determines best brands/colors (not relevant)

• ✅ Compare market demand to BEP

• ✅ Shows sales needed to earn profit
  Explanation: BEP helps evaluate feasibility & profit potential.

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7. Accurate CVP statements (Check all that apply):

• ❌ VC per unit ↑ → BEP ↓

• ❌ Total fixed cost ↑ → BEP ↓

• ✅ VC per unit ↑ → BEP ↑

• ✅ Sales price ↑ → BEP ↓
  Explanation: BEP = Fixed costs ÷ Contribution margin per unit.

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8. CVP analysis is subject to assumptions.

• ✅ True

• ❌ False
  Explanation: CVP assumes linear costs, constant price, constant cost behavior, etc.

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9. Chad’s assumptions when using CVP (Check all that apply):

• ✅ Mixed costs can be split into fixed/variable

• ❌ Sales price increases over relevant range

• ✅ Variable cost per unit does not change

• ✅ Inventory does not increase substantially
  Explanation: CVP assumes constant price, constant VC per unit, stable inventory.

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10. Lucia’s CVP assumptions (Check all that apply):

• ❌ Cannot use CVP for new product (she can estimate costs)

• ❌ Additional fixed costs make analysis invalid (they just change BEP)

• ✅ Incorrect cost categorization may show too low BEP

• ✅ Incorrect cost categorization may show too high BEP
  Explanation: Misclassification affects contribution margin and BEP direction.

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🧾 SUMMARY TABLE

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