Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

A measure to assess the effect of changes in the level of sales on income is the:

Current ratio

Contribution margin ratio

Gross profit percentage

Inventory turnover

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Verified step by step guidance

Understand the concept of Contribution Margin Ratio: It is a financial metric that measures the percentage of sales revenue remaining after deducting variable costs. This ratio helps assess how changes in sales levels impact income.

Recall the formula for Contribution Margin Ratio: \( \text{Contribution Margin Ratio} = \frac{\text{Contribution Margin}}{\text{Sales Revenue}} \). Contribution Margin is calculated as Sales Revenue minus Variable Costs.

Analyze why Contribution Margin Ratio is relevant: It directly shows the proportion of sales revenue that contributes to covering fixed costs and generating profit. A higher ratio indicates that a larger portion of sales revenue is available for these purposes.

Compare the other options: The Current Ratio measures liquidity, Gross Profit Percentage evaluates profitability relative to sales, and Inventory Turnover assesses inventory management efficiency. None of these directly measure the effect of sales changes on income.

Conclude that the Contribution Margin Ratio is the correct measure for assessing the impact of sales changes on income, as it focuses on the relationship between sales revenue and variable costs.