A measure of how sensitive net operating income is to a given percentage change in dollar sales is the a. Margin of safety. b. Degree of operating leverage. c. Sales mix. d. Target profit analysis. e. Contribution margin ratio. f. Break-even analysis.

A measure of how sensitive net operating income is to a given percentage change in dollar sales is the a. Margin of safety. b. Degree of operating leverage. c. Sales mix. d. Target profit analysis. e. Contribution margin ratio. f. Break-even analysis.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 10E

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A measure of how sensitive net operating income is to a given percentage change in dollar sales is the
a. Margin of safety.
b. Degree of operating leverage.
c. Sales mix.
d. Target profit analysis.
e. Contribution margin ratio.
f. Break-even analysis.

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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.
If sales and average operating assets for Year 2 are identical to their values in Year 1, yet operating income is higher, Year 2 return on investment (compared with Year 1 ROI) will a. decrease. b. increase. c. stay the same. d. The direction of change in ROI cannot be determined by this information.
The contribution margin is the a. amount by which sales exceed total fixed cost. b. difference between sales and total cost. c. difference between sales and operating income. d. difference between sales and total variable cost. e. difference between variable cost and fixed cost.
Would each of the following increase, decrease, or have an indeterminant effect on a firms break-even point (unit sales)? a. The sales price increases with no change in unit costs. b. An increase in fixed costs is accompanied by a decrease in variable costs. c. Variable labor costs decline; other things are held constant.
What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy b. A stable inventory policy
The dollar amount of sales needed to achieve a target operating income is computed by dividingbtarget operating income by the contribution margin ratio True False
Target profit is added to what other financial statement line item, or element, to determine the numerator in the overall target contribution margin (CM) calculation in break-even analysis? Variable costs Fixed costs Net income after taxes Operating profit
The amount by which a company's sales can decline before losses are incurred is called the:degree of operating leverage.margin of safety.profit loss.contribution margin ratio.
Which of the following is true regarding the contribution margin ratio of asingle product company? a. As fixed expenses decrease, the contribution margin ratio increases b. The contribution margin ratio increases as the number of units sold increase c. The contribution margin ratio multiplied by the variable expense per unit equals thecontribution margin per unit d. If sales increase, the peso increase in net operating income can be computed bymultiplying the contribution margin ratio by the peso increase in sales
Once a company exceeds its breakeven level, operating income can be calculated by multiplying: a. The sales price by unit sales in excess of breakeven units. b. Unit sales by the difference between the sales price and fixed cost per unit. c. The contribution margin ratio by the difference between unit sales and breakeven sales. d. The contribution margin per unit by the difference between unit sales and breakeven sales.
Which of the following is not an assumption underlying cost-volume-profit analysis? a.The break-even point will be passed during the period. b.Total sales and total costs can be represented by straight lines. c.Costs can be accurately divided into fixed and variable components. d.The sales mix is constant.
Refer to the income statements in requirement 1 above. For both current operations and the proposed new operations, compute (a) the degree of operating leverage, (b) the break-even point in dollars, and (c) the margin of safety in both dollar and percentage terms.