As a company's sales move farther from its breakeven point(increasing movement), one would expect the degree of operating leverage to a. Increase b. Decrease c. Remain unchanged d. vary in direct proportion to changes in the activity level

As a company's sales move farther from its breakeven point(increasing movement), one would expect the degree of operating leverage to a. Increase b. Decrease c. Remain unchanged d. vary in direct proportion to changes in the activity level

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

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 5MCQ: If sales and average operating assets for Year 2 are identical to their values in Year 1, yet...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

As a company's sales move farther from its breakeven point(increasing movement), one would expect the degree of operating leverage to

a. Increase

b. Decrease

c. Remain unchanged

d. vary in direct proportion to changes in the activity level

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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.
If company A has a higher degree of operating leverage than company B, then: company A is more profitable. company A has higher variable expenses. company A is less risky. company A's profits are more sensitive to percentage changes in sales.
Which of the following statements about operating leverage is false? a. Operating leverage measures how operating income will be affected by changes in sales b. The degree of operating leverage is higher for companies with lower fixed costs c. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. d. All of the given answers are true. e. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage.
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Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage?
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.
Explain how a shift in the sales mix could result in both a higher break-even point and a lower net operating income.
When sales volume increases, which company will experience a larger percentage increase in profit: company X, which has mostly fixed expenses, or company Y, which has mostly variable expenses?
For an enterprise, when at least one input is held constant while other inputs are increased, there will be an eventual decline in the rate of extra output or yieldage, making continued expansion unprofitable.” This is known as the a. law of increased returns to scale. b. law of cause and effect. c. law of increased relative cost. d. law of diminishing returns.
Which of the following is not one of the benefits of breakeven analysis to businesses?A. Determining the lowest selling priceB. Choosing the most profitable product typesC. Determination of firm valueD. Differentiation of fixed variable expensesE. Conducting decline in sales analysis
A firm with a below industry net profit margin can improve its return on total assets by: a. increasing its current ratio c. decreasing its fixed asset turnover b. decreasing its total asset turnover d. increasing its total asset turnover