Chapter 6 part #1

Question 1

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using
____________cost.

Answer 1

incremental

Question 2

The variable expense ratio equals variable expenses divided by _____.

Answer 2

sales

Question 3

contribution margin is first used to cover _______________ expenses. once the break-even point has been reached, contribution margin becomes _______________

Answer 3

fixed; profit

Question 4

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

Answer 4

$0.35

Question 5

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

Answer 5

False

Question 6

given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a _______________

Answer 6

$40,000 - $50,000 = $10,000 net operating loss

Question 7

seating galore sells high-end desk chairs. the variable expense per chair is $85.05 and the chairs sell for $189 each. the variable expense ratio for seating galore’s chairs is _______________

Answer 7

$85.05 / $189 = 45%

Question 8

the amount by which sales can drop before losses are incurred is the _______________ of _______________

Answer 8

margin; safety

Question 9

a company has a target profit of $204,000. the company’s fixed costs are $305,000. the contribution margin per unit is $40. the break-even point in unit sales is ______________

Answer 9

$305,000 / $40 = 7,625

Question 10

if a company has a variable expense ratio of 35%, its cm ration must be ______________

Answer 10

65%