Part one short Answer 2. Define and explain contribution margin ratio.
1. Define and explain contribution margin on a per unit basis.
3. Explain how a contribution margin income statement can be used to determine profitability.
4. In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do not want to remain at the break-even point. What is meant by a product’s contribution margin ratio and how is this ratio useful in planning business operations?
5. Explain how a manager can use CVP analysis to make decisions regarding changes in operations or pricing structure.
6. After conducting a CVP analysis, most businesses will then recreate a revised or projected income statement incorporating the results of the CVP analysis. What is the benefit of taking this extra step in the analysis?
7. Explain how it is possible for costs to change without changing the break-even point.
8. Explain what a sales mix is and how changes in the sales mix affect the break-even point.
9. Explain how break-even analysis for a multi-product company differs from a company selling a single product.
10. Explain margin of safety and why it is an important measurement for managers.
11. Define operating leverage and explain its importance to a company and how it relates to risk.
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