Which of the Following Assumptions Is Implicit in the Simplified

question 46

Multiple Choice

Which of the following assumptions is implicit in the simplified contribution approach income statement?

• A) There are two cost drivers, both units of production and units of sales.
• B) The fixed expenses do vary with either units of production or units of sales.
• C) Units of production and units of sales are equal.
• D) Inventory levels in units do change.

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Definitions:

Variable Expenses

Costs that fluctuate with changes in production volume or business activity levels, such as raw materials and direct labor.

Fixed Expenses

Costs that do not change with the level of output or sales in the short term, such as rent, salaries, and insurance.

Break-even Point

The juncture where the sum of all costs matches the total income, leading to neither a profit nor a loss.

Contribution Margin Ratio

A financial ratio that measures the proportion of revenue remaining after variable costs have been deducted, indicating how much contributes to covering fixed costs and generating profit.