When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

1. The investigation of materials price variance usually begins in the:

controller’s office.

accounts payable department.

first production department.

purchasing department

2. Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?

35%

25%

75%

65%

Revenue = 20000
Variable Expenses = 13000
Contribution Margin = 7000
(20000-13000)/20000 = 0.35
Hollis Industries Contribution Margin Ratio is 35%

3. Which of the following statements is not true?

When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.

Companies that have higher fixed costs relative to variable costs have higher operating leverage.

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