Answered: Define the following terms with…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Define the following terms with example.

RELEVANT COST
SUNK COST
OPPORTUNITY COST
AVOIDABLE AND UNAVOIDABLE COST
INCREMENTAL COST
BREAK-EVEN POINT

(B)
KPR manufactures installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
In Rs
Amount

Sales
80,000

Variable expenses
32,000

Contribution margin
48,000

Fixed expenses
-38,000

Net operating income
10,000

Required:
Compute the company’s degree of operating leverage.
Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in sales.
Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in sales.

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