1. The contribution margin ratio is the contribution margin per unit divided by the selling price per unit. True False
2. Financial leverage is beneficial when company assets earns less than the cost of debt. True False
3. An increase in fixed costs will decrease the contribution margin. True False
4. If a company's return on assets is substantially higher than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio. True False
5. Most companies use the contribution approach in preparing financial statements for external reporting purposes. True False
6. Return on assets will generally equal return on common equity except when the company has no long-term debt. True False
7. In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. True False
8. An assumption made by break-even analysis is that total revenues are constant. True False
9. Variable costing separates the variable costs from fixed costs and therefore makes it easier to identify and assign control over costs. True False
10. Contribution margin is defined as sales revenue less variable costs. True False