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CH 5 Quiz 1

The document contains a student's answers to chapter questions from a managerial accounting class. It includes definitions for terms like contribution margin ratio, incremental analysis, operating leverage, break-even point, and explanations of how changing variables in a CVP graph like price, fixed costs, or variable costs would affect the break-even point. It also defines margin of safety and sales mix and notes the usual assumption made about sales mix in CVP analysis.

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Jessa Basadre
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68 views

CH 5 Quiz 1

The document contains a student's answers to chapter questions from a managerial accounting class. It includes definitions for terms like contribution margin ratio, incremental analysis, operating leverage, break-even point, and explanations of how changing variables in a CVP graph like price, fixed costs, or variable costs would affect the break-even point. It also defines margin of safety and sales mix and notes the usual assumption made about sales mix in CVP analysis.

Uploaded by

Jessa Basadre
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Basadre, Jessa G.

BSA 3rd yr.

Managerial Accounting
Chapter 5 Quiz 1

5-1.What is meant by a product’s contribution margin ratio? How is this ratio useful
in planning business operations?

 Contribution margin ratio is the percentage of sales, shows how the contribution margin
will be affected by a change in total sales. Contribution margin ratio is used in cost-profit
calculations. Used in target profit and break even analysis and can be used to quickly
estimate the effects on profits of a change in sales revenue.

5-2.Often the most direct route to a business decision is an incremental analysis.


What is meant by an incremental analysis?

 Focuses on the changes in revenues and costs that will result from a particular action.

5-3.In all respects, CompanyA and Company B are identical except that CompanyA’s
costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales
increase, which company will tend to realize the greatest increase in profits? Explain.

 Company B will realize the greatest increase in profits because they have higher fixed
costs and lower variable costs, therefore will have a higher contribution margin.

5-4.What is meant by the term operating leverage?

 A measure of how sensitive net operating income is to a given percentage change in


dollar sales. Operating leverage acts as a multiplier. If operating leverage is high, a
small percentage increase in sales can produce a much larger percentage increase in
net operating income.

5-5.What is meant by the term break-even point?

 The level of sales at which profits are zero.

5-6.In response to a request from your immediate supervisor, you have prepared a
CVP graph portraying the cost and revenue characteristics of your company’s
product and operations. Explain how the lines on the graph and the break-even point
would change if (a) the selling price per unit decreased, (b) fixed cost increased
throughout the entire range of activity portrayed on the graph, and (c) variable cost
per unit increased.

(a) If the selling price decreased, then the total revenue line would rise less steeply, and the
break-even point would occur at a higher unit volume. (b) If the fixed cost increased, then
both the fixed cost line and the total cost line would shift upward and the break-even point
would occur at a higher unit volume. (c) If the variable cost increased, then the total cost line
would rise more steeply and the break-even point would occur at a higher unit volume

5-7.What is meant by the margin of safety?

 The excess of budgeted or actual sales dollars over the break even volume of sales
dollars. The amount by which sales can drop before losses are incurred
5-8.What is meant by the term sales mix? What assumption is usually made
concerning sales mix in CVP analysis?

 The relative proportions in which a company's products are sold. The idea to achieve
the combination or mix that will yield the greatest profits. The usual assumption CVP
analysis is that the sales mix will not change.

5-9.Explain how a shift in the sales mix could result in both a higher break-even point
and a lower net income.

 Could result if the sales mix shifted from high contribution margin products to low
contribution margin products. Would cause the average contribution margin ratio in the
company to decline, resulting in a less total contribution margin.

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