Quiz 7 Accounting II Chapter 7.docx

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Your answer is correct. C. has relatively more fixed costs than variable costs. D. has an equal proportion of fixed and variable costs. QC7-9 (book/static) For a given level of sales, a company's operating leverage is defined as A. contribution margin / operating income.

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Your answer is correct. B. sales revenue / contribution margin. C. contribution margin / sales. D. operating income / contribution margin. QC7-10 (book/static) Which of the following is false regarding choosing between two cost structures: A. The indifference point is the point where total revenues equal total expenses. Your answer is correct. B. The indifference point is the point at which costs under two options are the same. C. Choose the higher operating leverage option when sales volume is expected to be higher than the indifference point. D. Choose the lower operating leverage option when sales volume is expected to be lower than the indifference point. S7-1  (book/static )     Review Skill  Builder FunTimeFunTime  Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United  States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for  \$ 50\$50  per passenger.  FunTimeFunTime  Cruiseline's variable cost of providing the dinner is  \$ 30\$30  per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is
\$ 210 comma 000\$210,000  per month. The company's relevant range extends to  20 comma 00020,000  monthly passengers.  Use this information to compute the following: a. What is the contribution margin per passenger? b. What is the contribution margin ratio? c. Use the unit contribution margin to project operating income if monthly sales total  17 comma 00017,000  passengers. d. Use the contribution margin ratio to project operating income if monthly sales revenue totals  \$ 595 comma 000\$595,000.  Review Only LOADING... Click the icon to see the Worked Solution. a. What is the contribution margin per passenger?  First identify the formula, then compute the contribution margin per passenger. Sales price per passenger - Variable cost per passenger = Contribution margin per passenger \$50 - \$30 = \$20 b. What is the contribution margin ratio? (Enter the contribution margin ratio as a whole percent.) First identify the formula, then compute the contribution margin ratio. Contribution margin per passenger / Sales price per passenger = Contribution margin ratio \$20 / \$50 = 40 % c. Use the unit contribution margin to project operating income if monthly sales total  17 comma 00017,000  passengers.

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