#1
What does contribution margin represent?
The portion of sales revenue remaining after deducting variable costs.
ExplanationContribution margin is sales revenue minus variable costs.
#2
What is the formula to calculate the contribution margin ratio?
Contribution Margin Ratio = (Total Revenue - Total Variable Costs) / Total Revenue
ExplanationContribution Margin Ratio = (Total Revenue - Total Variable Costs) / Total Revenue
#3
Which of the following is true about operating leverage?
It indicates how sensitive a company's profits are to changes in sales volume.
ExplanationOperating leverage shows sensitivity of profits to sales volume changes.
#4
What is the primary focus of managerial accounting?
Providing information for internal decision making.
ExplanationManagerial accounting focuses on providing internal decision-making information.
#5
Which of the following statements best defines operating leverage?
It measures the sensitivity of a company's profits to changes in sales volume.
ExplanationOperating leverage measures profit sensitivity to sales volume changes.
#6
In decision making, what is the significance of the break-even point?
It helps determine the minimum level of sales required to cover all costs.
ExplanationBreak-even point determines minimum sales to cover all costs.
#7
What effect does an increase in fixed costs have on the contribution margin ratio?
It decreases the contribution margin ratio.
ExplanationIncreased fixed costs decrease contribution margin ratio.
#8
Which of the following is a characteristic of a product with high contribution margin?
It contributes a large portion of revenue towards covering fixed costs.
ExplanationHigh contribution margin products contribute more revenue to fixed costs.
#9
What is the main advantage of using contribution margin analysis?
It assists in understanding the relationship between fixed and variable costs.
ExplanationContribution margin analysis aids in understanding fixed and variable cost relationship.
#10
How does a high degree of operating leverage affect a company's risk?
It increases the company's risk due to higher sensitivity to sales volume changes.
ExplanationHigh operating leverage increases risk due to sales volume sensitivity.
#11
What role does contribution margin ratio play in decision making?
It indicates the proportion of total sales revenue that contributes to covering fixed costs.
ExplanationContribution margin ratio shows proportion of sales revenue covering fixed costs.
#12
Which of the following decisions would be influenced by understanding operating leverage?
Expanding production capacity
ExplanationUnderstanding operating leverage influences decisions like expanding production.
#13
What does a low contribution margin indicate?
The product contributes a small portion of revenue towards covering fixed costs.
ExplanationLow contribution margin means product contributes less revenue to fixed costs.
#14
In what situation would a company with high operating leverage be more profitable than a company with low operating leverage?
When sales are increasing.
ExplanationHigh operating leverage is more profitable when sales are rising.