A firm with a high degree of operating leverage: " will have a more significant shift in income as sales volume changes O have lower fixed costs O have low contribution margin ratios O are less dependent on volume to add profits

A firm with a high degree of operating leverage: " will have a more significant shift in income as sales volume changes O have lower fixed costs O have low contribution margin ratios O are less dependent on volume to add profits

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 6MCQ: The use of fixed costs to extract higher percentage changes in profits as sales activity changes...

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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A firm with a high degree of operating leverage: *
will have a more significant shift in income as sales volume changes
O have lower fixed costs
have low contribution margin ratios
O are less dependent on volume to add profits

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The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. unit contribution margin. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
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Firms with a high degree of operating leverage: will have a more significant shift in income as sales volume changes have lower fixed costs have low contribution margin ratio are less dependent on volume to add profits
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Is my explanation correct? When the shit in sales toward the lower contribution margin. In the sales mix, if the shift in sales to a product that has a low contribution margin ratio, the break-even point will increase. In this case, the company will generate more sales; hence, the net operating income will increase. Also, the contribution margin ratio will increase. Moreover, the degree of operating leverage will increase, too. Please explain (True or False) in detail.
Companies often use leverage to augment profits. Based on what you learned this week, please explain the following in detail: With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?
If the percentage change in operating income resulting from a given percentagechange in sales is higher than the percentage change in sales itself, thena. an increase in the selling price would not alter the contribution marginper unit.b. variable costs per unit have increased.c. variable costs have decreased in total.d. the company has operating leverage.e. the company has no fixed costs.
true or false The smaller the contribution margin ratio, the larger the amount of sales required to cover a given amount of fixed expenses True False The margin of safety can be defined as the amount by which profit can decrease before losses are incurred by the company True False A big increase in sales will result in a small increase in profit if there is a low degree of operating leverage in a company True False
In competitive markets economic profit becomes zero in the long-run. However, it is also possible for some firms to earn a greater accounting profit and to enjoy a higher producer surplus than other firms. How is it possible? Explain in detail. explain it examples
If a firm's marginal revenue is smaller than its marginal cost, then the firm should collect additional information before taking any action. increase output to increase profit. keep output the same decrease output to increase profit.
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