Reference no: EM132659459

Question (1.) Which of the following statements is true of the margin of safety?

a.It indicates the decrease in fixed costs necessary to achieve the target profit.

b.If the margin of safety is high, even a small decline in sales revenue may result in an operating loss.

c.It indicates the operating loss that would result due to an increase in variable cost.

d.If the margin of safety is low, even a small decline in sales revenue may result in an operating loss.

Question (2.) The relationship of a company's contribution margin to operating income is measured by _____.

a.operating leverage

b.margin of operations

c.the operating income ratio

d.the break-even point

Question (3.) A break-even point is the level of operations at which a company's:

a.revenues and fixed costs are equal.

b.revenues and expenses are equal.

c.revenues and variables costs are equal.

d.fixed costs and variable costs are equal.

Question (4.) _____ is the excess of sales over variable costs.

a.Net profit

b.Incremental margin

c.Gross profit

d.Contribution margin

Question (5.) Which of the following is a characteristic of variable costs?

a.Total variable costs remain the same irrespective of changes in the activity base.

b.Total variable costs change in inverse proportion to changes in the activity base.

c.Variable cost per unit remains the same irrespective of changes in the activity base.

d.Variable cost per unit changes in direct proportion to changes in the activity base.