Chapter 5 Learn Smart
True or False: Simple CVP analysis can be relied on for changes in volume outside the relevant range
False
True or False: When a company sells multiple products, an increase in total sales always results in an increase in total profits
False
if operating leverage is high, a small percentage increase in sales can produces a ___ percentage increase in net operating income than if operating leverage is low (higher/lower)
higher
The contribution margin statement is primarily used for
internal decision making
Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by:
174,000
Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is
19
If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by
20%
when using the high-low method, the slope of the line equals the ____ cost per unit of activity
variable
Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by the end of the year, net operating income for the year will increase by:
137,500 (250,000 x 55%)
the variable cost per unit using the high-low method is calculated as:
change in cost / change in units [activity]
True or False: Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.
False
True or False: Cost Structure refers to the relative portion of product and period costs in an organization
False
CVP analysis is based on some ___ that may be violated in practice, but the tool is still generally useful
assumptions
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
estimating the fixed and variable components of a mixed cost using the ____ approach involves a detailed analysis of what cost behavior should be
engineering
Goldin Corporation currently pays its saleperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will:
increase by $7,000
The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total:
profit or loss
the relative proportions in which a company's products are sold is referred to as
sales mix
the term used for the relative proportion in which a company's products are sold is
sales mix