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

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Question 51

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A company can use target profit analysis to determine the level of sales required to earn a target loss.

A) True
B) False

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Question 52

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A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.

A) True
B) False

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Question 53

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Which of the following items would not be found on a contribution format income statement?

The following information is for Gable, Inc. and Harlowe, Inc. for the recent year. What total amount of net income will Harlowe, Inc. earn if it experiences a 10 percent increase in revenue?

The following income statement is provided for Ramirez Company for the current year: What amount was the company's contribution margin?

Mug Shots operates a chain of coffee shops. The company pays rent of $15,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The managers of each shop are paid a salary of $2,500 per month and all other employees are paid on an hourly basis. The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost, respectively?

The magnitude of operating leverage for Perkins Corporation is 4.5 when sales are $100,000. If sales increase to $110,000, profits would be expected to increase by what percent?

The contribution margin format income statement classifies costs according to their behavior patterns.

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 -Activity base

In order to perform cost-volume-profit analysis, a company must be able to identify its variable and fixed costs.

Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

For the last two years BRC Company had net income as follows: What was the percentage change in income from Year 1 to Year 2?

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 company's total costs will be:

The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000. If sales increase by 5%, what is net income expected to be?

Columbus Industries makes a product that sells for $25 a unit. The product has a $5 per unit variable cost and total fixed costs of $9,000. At budgeted sales of 2,000 units, the margin of safety ratio is:

The higher the magnitude of a company's operating leverage, the more benefit the company will receive from a given percentage increase in revenue.

Select the incorrect statement regarding cost structures.

The following income statement was produced when volume of sales was at 400 units. If volume reaches 500 units, net income will be:

Rose Corporation sells backpacks. Variable costs for this product are $30 per unit, and the sales price per unit is $50 per unit. Total fixed costs amount to $100,000. How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

A cost that is considered variable for one activity base may be considered fixed for a different activity base.