FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 11: Cost Behavior, Operating Leverage, and Profitability Analysis

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements regarding Company A is incorrect?

A) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units.
B) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit.
C) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, once it has covered its fixed costs, net income will increase by $30 for each additional unit sold.
D) Both if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units and if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit are incorrect.

E) A) and D)
F) A) and B)

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total gasoline cost:

A) varies inversely with the number of hours the lawn equipment is operated.
B) is not affected by the number of hours the lawn equipment is operated.
C) increases in direct proportion to the number of hours the lawn equipment is operated.
D) none of the above.

E) A) and B)
F) B) and C)

Correct Answer

verified

Show Answer

Question 33

Multiple Choice

Review LaterAdd Note

The following income statements are provided for two companies operating in the same industry: Assuming sales increase by $1,000, select the correct statement from the following:

Select the incorrect statement regarding the contribution margin income statement.

When computing the break-even point in units, a company should round to the next whole unit because partial units ordinarily are not sold.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the production manager's salary is an example of:

Select the incorrect statement regarding the relevant range of volume.

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units, the total cost per unit will be:

Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold. If a salesperson sells 800 units of product in January, the employee would be paid:

Martin Company currently produces and sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of:

The contribution margin format income statement is not widely used for external financial reporting, but is allowed by GAAP.

Contribution margin represents the amount available to cover fixed expenses and then provide company profits.

A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750, what is the new breakeven point in units?

Select the term from the list provided that best matches each of the following descriptions. A) A condition in which a percentage change in revenue will produce a proportionately larger percentage change in net income B) A cost that changes in total in direct proportion to changes in volume C) A factor that causes (or drives) changes in costs D) Costs composed of both fixed and variable components E) The difference between a company's sales revenue and its variable costs F) The way a cost changes relative to change in a measure of activity G) A cost that remains constant in total when volume changes H) A company's cost mix or relative proportion of variable and fixed costs to total costs -Cost Structure

Whether a cost behaves as a fixed cost or as a variable cost depends upon the:

Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000 of rent expense per month for each shop. The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis. Relative to the number of shops, the cost of rent is which kind of cost?

Contribution margin cannot be calculated for a service-type business, and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:

The results below represent what form of cost behavior?

Risk refers to the possibility that sacrifices may exceed benefits.