Chapter 2 Smartbook ACC 2020

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

To prepare a CVP graph, lines must be drawn representing total revenue.

Total expense, and total fixed expense

Profit equals:

(P x Q) - (V x Q) - fixed expenses

Contribution margin ratio is equal to _____________________ _________________ divided by _________________.

Contribution margin Sales

When a company produces and sells multiple products:

Each product most likely creates a unique total of fixed costs. A change in the sales mix will most likely change the break-even point. Each product most likely has a unique contribution margin.

True or False: Cost structure refers to the relative portion of product and period costs in an organization.

False

A company with a high ratio of fixed costs:

Is more likely to experience a loss when sales are down than a company with a company with mostly variable costs. Is more likely to experience greater profits when sales are up than a company with mostly variable costs.

The amount by which sales can drop before losses are incurred is the _____________ of ________________.

Margin Safety

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total:

Sales

Pace the following items in the correct order in which they appear on the contribution margin format statement.

Sales Variable expenses Contribution margin Fixed expenses Net operating income

The break-even point calculation is affected by:

Sales mix Selling price per unit Costs per unit

Water World sells wake boards and water skis and pays sales commissions based on product sales price. The wake boards sell for a higher price than the skis and the skis have a higher contribution margin per unit than the wake boards. Which of the following are true?

Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them. The company would rather see more skis sold as it creates the higher profit per unit for the company.

True or False: Sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

The contribution margin is equal to sales minus:

Variable expenses

Variable expenses/ Sales is the calculation for the __________________ __________________ ratio.

Variable expenses

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Variable expenses Sales

The contribution margin equals sales minus:

all variable costs

The calculation of contribution margin (CM) ratio is:

contribution margin/ sales

A company has reached its break even point when the contribution margin _____________ fixed expenses.

covers

The measure of how a percentage change in sales affects profits at any given level of sales is the:

degree of operating leverage

The term "cost structure" refers to the relative proportion of ___________ and ______________ costs in an organization.

fixed variable

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

When preparing a CVP graph, the horizontal axis represents:

sales volume

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as:

the degree of operating leverage