1) If the contribution margin is NOT sufficient to cover fixed expenses: A) total profit equals total expenses. B) a loss occurs. C) variable expenses equal contribution margin. D) contribution margin is negative. 2) Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? A) As fixed expenses decrease, the contribution margin ratio increases. B) The contribution margin ratio will decline as unit sales decline. C) The contribution margin ratio equals the selling price per unit less the variable pense ratio. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. 3) If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will: A) not change. B) decrease. C) increase. D) change but direction cannot be determined. 4) Accepting a special order will improve overall net operating income if the revenue from the special order exceeds: A) the variable costs associated with the order. B) the sunk costs associated with the order C) the contribution margin on the order. D) the incremental costs associated with the order.
1. B) a loss occurs,
net income/(loss) = contribution margin - fixed expenses, So if
contribution margin is sufficient to cover the fixed expenses then
the org. have profit and if contribution margin is not sufficient
to cover the fixed expesnes then a loss occurs.
2. D) Thre contribution margin ratio multiplied by the selling
price per unit equals the contribution margin per unit,
contribution margin ratio = contribution margin/ sales, so if
the contribution margin ration multiplied by sales price per unit,
we get contribution margin per unit.
3. A) no chnage,
It can be explanied with the following example -
Suppose sales price per unit $100, variable cost per unit $50
then contribution margin per unit $50 and suppose fixed cost total
$100,000 then break even point in units = $100,000/$50 = 2,000
and if increase sales price per unit and variable cost per unit
with $2 then there is no change in contribution margin per unit, so
break even point in units is same 2,000 units.
4. B) the incremental costs associated with the order