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