ACC222 – Managerial Accounting Chapter 7

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1. The Contribution margin is

a. Sales Revenue minus cost of goods sold
b. Sales Revenue minus fixed expenses
c. Sales Revenue minus operating expenses
d. Sales Revenue minus variable expenses

b. Sales Revenue minus fixed expenses

2. The contribution margin ratio is

a. Fixed expenses divided by variable expenses
b. Contribution margin divided by variable expenses
c. Contribution margin divided by sales revenue
d. Sales Revenue divided by contribution margin

c. Contribution margin divided by sales revenue

3. The formula to find the break-even point or a target profit volume in terms of number of units that need to be sold is

b. (Fixed expenses + Operating Income ) / Contribution Margin per Unit

b. (Fixed expenses + Operating Income ) / Contribution Margin per Unit

4. On a CVP graph, the breakeven point is

c. The intersection of the total revenue line and the total expenses line

c. The intersection of the total revenue line and the total expenses line

5. All else being equal, if a company’s variable expenses increase

It’s contribution margin ration will decrease

It’s contribution margin ration will decrease

6. All else being equal, a decrease in company’s fixed expenses will

c. Decrease the sales needed to break-even

Decrease the sales needed to break-even

7. Which of the following is true regarding a company that offers more than one product?

b. The break-even point is dependent on sales mix assumptions

b. The break-even point is dependent on sales mix assumptions

8. A company with low operating leverage

b. Has relatively more variable cost than fixed costs.

b. Has relatively more variable cost than fixed costs.

9. for given level of sales, a company’s operating leverage is defined as
c. Contribution margin / Operating Income

c. Contribution margin / Operating Income

10. Which of the following is false regarding choosing between two costs structures.

b. Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point

b. Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point

Break-Even Point
p.387

the sales level at which operating income is zero: Total revenue = Total Expenses.

Contribution Margin
p.385

Sales Revenue minus variable expenses

Contribution Margin Income Statement
p384

An income statement that groups costs by behavior rather than function; it can be used only by internal management.

Contribution Margin Per Unit
p385

the excess of the unit sales price over the variable cost per unit’ also called unit contribution margin

Contribution Margin Ratio
p385

ratio of contribution margin to sales revenue

Cost-Volume-Profit (CVP) Analysis
p.383

express the relationships among cost, volume, and profit or loss.

Indifferent Point
p.411

the volume of sales at which a company would be indifferent between alternative cost structures because they would result in the same total cost

Margin of Safety
p.407

excess of expected sales over break-even sales; the drop in sales a company can absorb without incurring an operating loss.

Operating Leverage
p.408

the relative amount of fixed and variable costs that make up a firm’s total cost.

Operating Leverage Factor
p.409

at a given level of sales. the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from 1% change in sales volume.

Sales Mix
p.384

the combination of products that make up total sales.

Sensitivity Analysis
p.398

A "what-if" technique that asks what results will be if actual prices or costs change or if an underlying assumption changes.

Unit Contribution Margin
p.385

the excess of the unit sales price over the variable cost per unit also called contribution margin per unit

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