Question

Which of the following statements is false?

Multiple Choice

• Margin of safety is the excess of budgeted or actual dollar sales over the break-even dollar sales.

• Operating leverage is a measure of how sensitive fixed costs are to a given percentage change in dollar sales.

• The break-even point is the level of sales at which the total contribution margin equals the total fixed costs.

• Sales mix refers to the relative proportions in which a company's products are sold.

Answer 1

Margin of safety = Actual or budgeted sales - breakeven sales. Hence, it is the excess of budgeted or actual sales over the breakeven dollar sales. Hence, first option is true.

The breakeven point is the point at which the contribution margin will be equal to the fixed costs which means that there is no profit or no loss. Hence, third statement is also true.

Sales mix is the relative proportions in which a company's products are sold. Hence, last option is also true.

Operating leverage is a measure of how sensitive net operating income is to a given percentage change in dollar sales. Hence, second statement is false because it says that it measures of how sensitive fixed costs are to a given percentage change in dollar sales.

Hence, option B is the correct answer.

SUMMARY:

Option B is the correct answer.