Identifying Homogeneous Cost Pools

question 114

Multiple Choice

Identifying homogeneous cost pools:

• A)requires judgment and should be reevaluated on a regular basis
• B)should include the input of management
• C)should include a cost-benefit analysis
• D)All of these answers are correct.

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Definitions:

Variable Component

An element of cost or expense that varies directly with changes in production volume, business activity, or other drivers.

Contribution Margin Ratio

The percentage of each sales dollar remaining after variable costs have been deducted, indicating how much contributes to fixed costs and net profit.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit, indicating the amount each unit contributes to covering fixed costs and generating profit.

Degree of Operating Leverage

A financial ratio that measures the percentage change in operating income in response to a percentage change in sales.