Contribution Margin Ratio, Behavior Pattern of a Cost & Sales Increase Effect

7. Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the sales mix shifts toward selling more of the product with the higher contribution ratio, which of the following is true?
a. Operating income will increase.
b. The average contribution margin ratio will increase.
c. The breakeven point will decrease.
d. All of the above are true.

9. Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:
a. variable costs will not change.
b. the effect on net income will depend on the behavior pattern of various costs.
c. fixed costs will rise proportionately.
d. net income will change proportionately.

10. A firm has revenues of $120,000, a contribution margin ratio of 30%, and fixed expenses that total $56,000. If revenues increase by $20,000, then:
a. the contribution margin ratio will increase by 1/8.
b. fixed expenses will increase $8000.
c. operating income will be 0.
d. operating income will increase by $6000.

Solution Summary

The solution provides the answers to multiple choice question with some explanation.