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

Which of the following statements about the contribution margin ratio is true?

The contribution margin ratio is calculated as (Net Sales - Variable Costs) divided by Net Sales.

The contribution margin ratio is the same as the gross profit margin.

The contribution margin ratio is unaffected by changes in variable costs.

The contribution margin ratio increases when fixed costs increase.

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Verified step by step guidance

Understand the concept of the contribution margin ratio: It is a financial metric that shows the percentage of sales revenue remaining after covering variable costs, which can then be used to cover fixed costs and contribute to profit.

Recall the formula for the contribution margin ratio: \( \text{Contribution Margin Ratio} = \frac{\text{Net Sales} - \text{Variable Costs}}{\text{Net Sales}} \). This formula highlights the relationship between sales, variable costs, and the contribution margin.

Analyze the statement 'The contribution margin ratio is the same as the gross profit margin': This is incorrect because the gross profit margin includes fixed costs, whereas the contribution margin ratio focuses only on variable costs.

Evaluate the statement 'The contribution margin ratio is unaffected by changes in variable costs': This is incorrect because the contribution margin ratio directly depends on variable costs, as they are part of the formula.

Assess the statement 'The contribution margin ratio increases when fixed costs increase': This is incorrect because fixed costs do not affect the contribution margin ratio, as the ratio is calculated using variable costs and net sales only.