CH 6 Managerial Accounting

Chapter 6 expands basic CVP analysis by introducing concepts such as sales mix, operating leverage, and sensitivity to changes in business conditions.

• True

• False

Sales mix refers to:

• The ratio of fixed to variable costs

• The relative percentage in which a company sells multiple products

• The total amount of sales revenue

• The relationship between net income and gross profit

In multiproduct CVP analysis, break-even calculations often rely on a weighted-average __________ margin.

• Contribution

• Gross

• Operating

• Profit

Sales mix is important in CVP analysis because:

• products have different selling prices and contribution margins, so changes in sales mix can significantly impact total profitability.

• it always leads to higher sales volume regardless of product type.

• it ensures all products are sold at the same price.

• it eliminates the need to analyze variable costs.

Match the term with its description:

• Proportion of products sold

• Sales Mix

• Combined average contribution per unit

• Margin of Safety

• Excess of actual sales over break-even sales

• Weighted-Average CM

• Use of fixed costs to magnify profit changes

• Operating Leverage

A company with high operating leverage experiences larger profit changes from small sales changes.

• True

• False

Which company would likely have the highest operating leverage?

• One with mostly variable costs

• One with low fixed costs

• One with high fixed costs

• One with

Operating leverage is highest when fixed costs are __________ relative to variable costs.

• High

• Low

• Equal

• Negligible

Weighted-average contribution margin is:

• The average contribution margin per unit based on the sales mix of multiple products.

• The total profit earned from all products sold.

• The highest contribution margin among all products.

• The contribution margin per unit for a single product.

• Lower profit

• Increase weighted-average CM

• Decrease fixed costs

• Eliminate break-even point