QUESTION 1 The contribution margin ratio is the contribution margin per unit div

Question

QUESTION 1 The contribution margin ratio is the contribution margin per unit divided by the selling price per unit. True False 2 points

QUESTION 2 Financial leverage is beneficial when company assets earns less than the cost of debt. True False 2 points

QUESTION 3 An increase in fixed costs will decrease the contribution margin. True False 2 points

QUESTION 4 If a company's return on assets is substantially higher than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio. True False 2 points

QUESTION 5 Most companies use the contribution approach in preparing financial statements for external reporting purposes. True False 2 points

QUESTION 6 Return on assets will generally equal return on common equity except when the company has no long-term debt. True False 2 points

QUESTION 7 In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. True False 2 points

QUESTION 8 An assumption made by break-even analysis is that total revenues are constant. True False 2 points

QUESTION 9 Variable costing separates the variable costs from fixed costs and therefore makes it easier to identify and assign control over costs. True False 2 points

QUESTION 10 Contribution margin is defined as sales revenue less variable costs. True False

Explanation / Answer

Q1) Answer is True

Q2) Answer is False

Financial Leverage is the firm taking debts to increase its assets and this is only beneficial when its assets earns more than the cost of debt.

Q3) Answer is False

Increase in fixed costs requires the contribution margin to be higher to cover the costs.

Q4) Answer is True

Debt to equity ratio is higher when the return on assets is higher than cost of borrowing.

Q5) Answer is False

Q6) Answer is True

Return on assets will equal return on equity plus long-term debt.

Q7) Answer is True

Q8) Answer is False

To find break-even point, revenues are equated to costs. Revenue need not be constant.

Q9) Answer is True

Variable costing considers only the variable costs and separates it from fixed costs.

Q10) Answer is True

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