true or false The smaller the contribution margin ratio, the larger the amount of sales required to cover a given amount of fixed expenses True False The margin of safety can be defined as the amount by which profit can decrease before losses are incurred by the company True False A big increase in sales will result in a small increase in profit if there is a low degree of operating leverage in a company True False

true or false The smaller the contribution margin ratio, the larger the amount of sales required to cover a given amount of fixed expenses True False The margin of safety can be defined as the amount by which profit can decrease before losses are incurred by the company True False A big increase in sales will result in a small increase in profit if there is a low degree of operating leverage in a company True False

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 44MCQ: When a Dupont analysis reveals that a company has much higher than average asset turnover and much...

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Which of the following statements about operating leverage is false? a. Operating leverage measures how operating income will be affected by changes in sales b. The degree of operating leverage is higher for companies with lower fixed costs c. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. d. All of the given answers are true. e. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage.
Margin of Safety (MOS) in dollars indicates how much sales must decrease before the company will be operating at a loss. TRUE FALSE
The amount by which a company's sales can decline before losses are incurred is called the:degree of operating leverage.margin of safety.profit loss.contribution margin ratio.
A high operating margin implies that ______________ . The company is in a better position to increase its finance cost The company is in a better position to absorb the finance cost The company is in a better position to reduce its overheads The company is in a better position to increase its prices
If a firm's marginal revenue is smaller than its marginal cost, then the firm should collect additional information before taking any action. increase output to increase profit. keep output the same decrease output to increase profit.
In competitive markets economic profit becomes zero in the long-run. However, it is also possible for some firms to earn a greater accounting profit and to enjoy a higher producer surplus than other firms. How is it possible? Explain in detail. explain it examples
Which of the following statements about operating leverage is false? O a. If the degree of operating leverage higher for a company, this means that the company is more riskyt another company with low degree of operating leverage. O b. Keeping all factors constant, the higher the contribution margin, the lower the operating leverage. O c. Operating leverage measures how operating income will be affected by changes in sales O d. All of the given answers are true. The degree of operating leverage is higher for comnanies with higher fived costs = here to search - hp %23 6. 7 V 3 4 W E R T' Y 岁 S D F G H K. V M. Σ 00 近

Low profit margins always imply low return on net operating assests. True OR False
Which of the following statements about operating leverage is false? O a. All of the given answers are true. O b. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. OC. Operating leverage measures how operating income will be affected by changes in sales O d. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage. The degree of operating leverage is higher for companies with lower fixed costs O e.
The margin of safety is the amount that sales can drop before the company incurs a loss True False
The degree of operating leverage cannot be used to compare companies. measures how much of each sales dollar is available to cover fixed expenses. does not provide a reliable measure of a company’s earnings volatility. is computed by dividing total contribution margin by net income.
Break-Even Point AnalysisThe break-even point is usually expressed as the amount of revenue that must berealized for the firm (or product or activity or group of products or activities) to haveneither profit nor loss (that is, operating income equal to zero). The break-even pointis useful to managers because it expresses a minimum revenue target, and managersfrequently find it easier to think in terms of revenues rather than variable and fixedexpenses. In addition, the amount of sales (or revenues) generated by the firm is easilydetermined daily from the accounting system.The contribution margin model is used to determine the break-even point by setting operating income equal to zero and solving the model for the revenue or physicalsales volume that will cause that result. The calculation of break-even point in termsof units and total revenues is illustrated here:Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .…