chapter 16

Question 1

break-even point

Answer 1

is that level of operations at which a company realizes no net income or loss

Question 2

Fixed Costs

Answer 2

are expenses that are not dependent on the amount of goods or services produced by the business

Question 3

Variable Costs

Answer 3

are volume related and are paid per quantity or unit produced

Question 4

Contribution margin

Answer 4

is the portion of revenue that is not consumed by variable cost

Question 5

𝐵𝐸𝑢𝑛𝑖𝑡𝑠 =

Answer 5

𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 / 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

Question 6

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 =

Answer 6

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 / 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

Question 7

Product mix

Answer 7

refers to the proportion of the company’s total sales attributable to each type of product sold.

Question 8

Margin safety =

Answer 8

Current sales – Break-even sales

Question 9

Working capital

Answer 9

is the excess of current assets over current liabilities

Question 10

current (or working capital) ratio

Answer 10

relates current assets to current liabilities

Question 11

acid-test (quick) ratio,

Answer 11

is the ratio of quick assets to current liabilities

Question 12

inventory turnover ratio

Answer 12

shows the number of times its average inventory is sold during a period

Question 13

AICPA Code of Professional Conduct

Answer 13

a collection of codified statements issued that outline a CPA’s ethical and professional responsibilities

Question 14

What does AICPA stand for?

Answer 14

American Institute of Certified Public Accountants