ACCT ch.9 test 2

contribution margin is defined as ___ minus ____ a. fixed cost, variable cost b. profit, fixed cost c. price, variable cost

c

technology decisions affect companies ___ a. profits b. production c. operations

c

the greater the ____ in sales and profits the less leverage you can safely afford a. price b. profits c. fluctuation

c

the more highly leveraged a firm, the ___ it is because of the obligations related to fixed costs that must be met even if the firm is having a bad year with low sales a. safest b. vulnerable c. riskier

c

contribution margin represents the amount of money available to be used to pay fixed costs and provide the firm with consumers T/F

F profits

the greater the D/E ratio the less highly leveraged the firm because debt illegally obligated the firm to annual interest payments T/F

F the greater the D/E ration the more highly leveraged the firm because debt legally obligated the firm to annual interest payments

you should never borrow money if the expected return on that money exceeds the interest rate you will have to pay to borrow that money T/F

F you should only borrow this money

lower fixed and variable cost increase the BEQ T/F

F higher fixed cost

OPM stands for other peoples money T/F

T

finanial leverage is the extent to which a firm obtains capital from debt versus equity T/F

T

more often then not the firms that have solvency problems are the ones that did not formally address the leverage issues head on T/F

T

the more highly leveraged a company is the greater the profits when sales are high T/F

T

____ makes sense when profits are very stable and there is little risk that the organization wont be able to make required interest and debt payments or required payments on fixed assets. a. high leverage b. financial leverage c. operating leverage

a

_____ is the degree to which a firm locks into fixed costs which can magnify profits or losses a. leverage b. interest c. contribution margin

a

contribution margin = ____ - variable cost a. selling price b. assets c. profit

a

contribution margin represents the ____ of money received from each sale that is available to cover ____ cost or provide a profit once all fixed costs have been covered a. amount, fixed b. level, variable c. price, variable

a

fixed costs are those that _____ change with changes in the volume of production a. do not b. do c. sometimes

a

if your firm is ___, noncyclical firm then use of dent will improve the rate of return earned by your shareholders a. stable b. unstable c. profitable

a

operating leverage is concerned with the extent to which a firm commits itself to high levels of fixed costs other than ______ a. interest payments b. returns c. investments

a

____ is the extent to which a firm commits to high levels of fixed costs other than interest a. financial leverage b. high leverage c. operating leverage

c

______ is the extent to which a firm gets it cash from debt rather than equity a. operating leverage b. financial leverage c. high leverageq

b

if your selling price is lower then your variable cost per unit you are guaranteed to ____ money a. gain b. lose

b

larger fixed costs-higher operating leverage-places pressure on the ___ of sales a. amount b. volume c. level

b

the degree to which a firm locks into fixed costs is referred to as its ____ position a. holding b. leverage c. permanent

b

the level of operating leverage a firm selects should be based in part on ___ from the managers directly involved in the ______ process a. information, production b. input, production c. effort, operations

b

to a great degree, your desired leverage position depends on the degree to which your sales and profits _____ a. stay constant b. fluctuate c. remain unchanged

b

break even quantity = fixed cost/price - _______ a. fixed costs b. contribution margin c. variable cost

c

what is an assumption inherent in the CVP analysis a. the selling price per unit does not change with volume b. managers can classify each costs as fixed or variable c. fixed costs are constant d. variable costs do not change with volume e. all of the above

e