Listed below are nine technical accounting terms: Contribution Margin ratio Marg

Question

Listed below are nine technical accounting terms:

Contribution Margin ratio
Margin of Safety
Cost-Volume-Profit analysis
Activity Base
Break-Even Point
High –Low Method
Variable Cost
Contribution Margin
Cost Driver

Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms.

(a) The amount by which sales revenue exceeds total variable cost expressed as a percentage of sales.

(b) The amount by which sales volume exceeds the break-even point

(c) The study of financial statements by a potential investor or creditor as a means of evaluating the profitability and solvency of a business.

(d) A type of activity that has a causal effect in the occurrence of a particular cost.

(e) The level of sales at which revenue equals operating expenses.

(f) A cost that responds to changes in sales volume by less than a proportionate amount.

Explanation / Answer

(a) The amount by which sales revenue exceeds total variable cost expressed as a percentage of sales. - contribution margin (b) The amount by which sales volume exceeds the break-even point - Margin of safety (c) The study of financial statements by a potential investor or creditor as a means of evaluating the profitability and solvency of a business. - None (d) A type of activity that has a causal effect in the occurrence of a particular cost. High - low method (e) The level of sales at which revenue equals operating expenses. - break even point (f) A cost that responds to changes in sales volume by less than a proportionate amount. - None

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