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Principles of Accounting, Volume 2: Managerial Accounting

Questions

Principles of Accounting, Volume 2: Managerial AccountingQuestions

Questions

1.

LO 3.1Define and explain contribution margin on a per unit basis.

2.

LO 3.1Define and explain contribution margin ratio.

3.

LO 3.1Explain how a contribution margin income statement can be used to determine profitability.

4.

LO 3.2In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do not want to remain at the break-even point.

5.

LO 3.2What is meant by a product’s contribution margin ratio and how is this ratio useful in planning business operations?

6.

LO 3.3Explain how a manager can use CVP analysis to make decisions regarding changes in operations or pricing structure.

7.

LO 3.3After conducting a CVP analysis, most businesses will then recreate a revised or projected income statement incorporating the results of the CVP analysis. What is the benefit of taking this extra step in the analysis?

8.

LO 3.3Explain how it is possible for costs to change without changing the break-even point.

9.

LO 3.4Explain what a sales mix is and how changes in the sales mix affect the break-even point.

10.

LO 3.4Explain how break-even analysis for a multi-product company differs from a company selling a single product.

11.

LO 3.5Explain margin of safety and why it is an important measurement for managers.

12.

LO 3.5Define operating leverage and explain its importance to a company and how it relates to risk.

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