Contribution Margin and Risk
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1- Controllable margin is used as a refined measure of strategic business unit reporting that is best described as:
A. Margins reported to strategic business unit managers related to revenues and costs specifically within the managers' control and responsibility.
B. Contribution margin net of controllable fixed costs (those costs that mangers can impact in less than one year)
C. Margins exclusively focused on entirely direct costs.
D. Margins derived after comprehensive consideration of all costs designed to achieve strategic objectives.
2- The Waller Walleye plant is operating at capacity and currently generates revenue of $1,600,000 per year by processing stewed for cat food. The plant currently has 15% contribution margin. The company has been offered the opportunity to prepare stewed sturgeon for upscale cat food using one- quarter of the plant's capacity. The sturgeon job would take one year and pay $600,000 with 25% contribution margin. The opportunity cost of not accepting the sturgeon project is:
A. $600,000
B. $200,000
C. $150,000
D. $90,000
3- Generally an organization will not operate beyond the limits of their risk appetite. Risk appetite has generally been exceeded when:
A. The likelihood and impact of negative events exceed residual risks.
B. The likelihood and impact of negative events significantly exceeds residual risk.
C. The likelihood and impact of positive events is within the residual risk.
D. The likelihood and impact of positive events is significantly below residual risk.
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Solution Summary
The solution provides an answer for each given business question regarding contribution margin and risk with a brief explanation.
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1- Controllable margin is used as a refined measure of strategic business unit reporting that is best described as:
B. Contribution margin net of controllable fixed costs (those costs that mangers can impact in less than one year)
(Yes only controllable fixed costs are ...
Purchase this Solution
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