Accounting Chapter 6

the degree of operating leverage

- decreases as sales and profits rise - is not a constant - is greatest at sales levels near the break even point

which of the following are assumptions of cost volume profit analysis?

- in multi product companies, the sales mix is constant - costs are linear and can be accurately divided into variable and fixed elements

the high low method

- is based on periods where the activity tends to be unusual - use only two data points

using the high low method the fixed cos is calculated

- using either the high or low level of activity - after the variable cost per unit is calculated

In the equation, Y = a +bX, b represents the:

- variable cost per unit of activity - slope of the line

In the equation, Y = a +bX, a represents the:

- vertical intercept of the line - total fixed cost

in the formula profit = Unit CM x Q - Fixed expense, settling profit to zero can be used to calculate the ________________ point.

break even

margin of safety in dollars is

budgeted (or actual) sales minus break even sales

when using the high low method if the high or low levels of cost do not match the high or low levels of activity

choose the periods with the highest and lowest level of activity and their associated costs

contribution margin ration is equal to ________ divided by ______.

contribution margin, sales

estimating the fixed and variable components of a mixed cost using the engineering approach involves a detailed analysis of what cost behavior should be.

engineering

whenever a straight line is a reasonable approximately for the relation between cost and activity, _________ cost behavior exists.

linear

the vertical distance between the total revenue line and the total expense line on a CVP graph represents the total

profit or loww

Profit = (selling price per unit X quantity sold) - (variable expense per __________ X quantity sold) - ( ___________ expenses)

variable, fixed