Question 1

If the company's volume doubles, the company's total cost will:

Accepted Answer

A) stay the same. 
B) double as well. 
C) increase but will not double. 
D) decrease. 
A) stay the same. 
B) double as well. 
C) increase but will not double. 
D) decrease.

Question 2

The following information is for Companies M and N for the most recent year: Based on this information, which of the following statements is incorrect?
$$\begin{array} { | l | c | c | } 
\hline & \text { Company M } & \text { Company N } \
\hline \text { Sales } & \$ 500,000 & \$ 500,000 \
\hline \text { Variable costs } & \$ 300,000 & \$ 200,000 \
\hline \text { Fixed costs } & \$ 50,000 & \$ 150,000 \
\hline
\end{array}$$

Accepted Answer

A) M's magnitude of operating leverage was lower than N's. 
B) N would suffer more than M from an equal drop in sales revenue. 
C) N's cost structure carries greater risk and greater potential for profit. 
D) If N's sales increased by 20%, its net income would increase by 40%. 
A) M's magnitude of operating leverage was lower than N's. 
B) N would suffer more than M from an equal drop in sales revenue. 
C) N's cost structure carries greater risk and greater potential for profit. 
D) If N's sales increased by 20%, its net income would increase by 40%.

Question 3

Based on the above data, which company has a higher operating leverage?

Accepted Answer

A) Gable, Inc. 
B) Harlowe, Inc. 
C) Operating leverage is the same for both companies 
D) Cannot be determined 
A) Gable, Inc. 
B) Harlowe, Inc. 
C) Operating leverage is the same for both companies 
D) Cannot be determined

Question 4

Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost?

Accepted Answer

A) Fixed cost 
B) Variable cost 
C) Mixed cost 
D) Relevant cost 
A) Fixed cost 
B) Variable cost 
C) Mixed cost 
D) Relevant cost

Question 5

If the company's volume increases to 5,000 units, the total cost per unit will be:

Accepted Answer

A) $18.00. 
B) $20.00. 
C) $20.50. 
D) $22.50. 
A) $18.00. 
B) $20.00. 
C) $20.50. 
D) $22.50.

Question 6

The variable cost per unit increases in direct proportion to the activity base.

Accepted Answer

A) True 
 B)False

Question 7

If the company's volume increases to 5,000 units, the company's total costs will be:

Accepted Answer

A) $100,000 
B) $90,000 
C) $102,500 
D) $80,000 
A) $100,000 
B) $90,000 
C) $102,500 
D) $80,000

Question 8

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20, variable general and administrative costs are $5, and fixed costs are $10 per unit.

Accepted Answer

A) True 
 B)False

Question 9

Assuming that cost behavior did not change over the two-year period, what is the annual amount of the company's fixed manufacturing overhead?

Accepted Answer

A) $12,000 
B) $24,000 
C) $26,000 
D) none of these 
A) $12,000 
B) $24,000 
C) $26,000 
D) none of these

Question 10

Select the incorrect statement regarding the relationship between cost behavior and profits.

Accepted Answer

A) A pure variable cost structure offers higher potential rewards. 
B) A pure fixed cost structure offers more security if volume expectations are not achieved. 
C) In a pure variable cost structure, when revenue increases by $1, so do profits. 
D) In a pure fixed cost structure, the unit selling price and unit contribution margin are equal. 
A) A pure variable cost structure offers higher potential rewards. 
B) A pure fixed cost structure offers more security if volume expectations are not achieved. 
C) In a pure variable cost structure, when revenue increases by $1, so do profits. 
D) In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.

Question 11

The following income statement was produced when volume of sales was at 400 units. $$\begin{array} { | l | l r | } 
\hline \text { Sales Revenue } & \$ & 2,000 \
\hline\text { Variable Cost } & & 1,200 \
\hline \text { Contribution Margin } & \$ & 800 \
\hline\text { Fixed Cost } & & 300 \
\hline \text { Net Income } & \$ & 500 \
\hline
\end{array}$$ If volume reaches 500 units, net income will be:

Accepted Answer

A) $625 
B) $1,800 
C) $700 
D) None of the above 
A) $625 
B) $1,800 
C) $700 
D) None of the above

Question 12

For Marvin Company, the magnitude of operating leverage was 3.5 during the current year. Demonstrate what this magnitude of operating leverage would mean for the company's profitability by creating an example.

Accepted Answer

Answers will vary
With magnitude of oper

Question 13

The BRC Company is considering the introduction of a new line of high end electronics. Because there is considerable uncertainty with regard to the demand for the products, the company would probably be served better by a variable cost structure.

Accepted Answer

A) True 
 B)False

Question 14

Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2?

Accepted Answer

A) $33,000 
B) $32,000 
C) $39,000 
D) $69,000 
A) $33,000 
B) $32,000 
C) $39,000 
D) $69,000

Question 15

The higher the magnitude of a company's operating leverage, the smaller the decrease in profit for a given percentage decrease in revenue.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

Accepted Answer

A) $2,775,000 
B) $1,500,000 
C) $2,250,000 
D) $150,000 
A) $2,775,000 
B) $1,500,000 
C) $2,250,000 
D) $150,000

Question 18

If the company's volume doubles, the total cost per unit will:

Accepted Answer

A) stay the same. 
B) decrease. 
C) double as well. 
D) increase but will not double. 
A) stay the same. 
B) decrease. 
C) double as well. 
D) increase but will not double.

Question 19

For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:

Accepted Answer

A) a fixed cost. 
B) a variable cost. 
C) a mixed cost. 
D) none of these 
A) a fixed cost. 
B) a variable cost. 
C) a mixed cost. 
D) none of these

Question 20

Southern Food Service operates six restaurants in the Atlanta area. The company pays rent of $20,000 per year for each shop. The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost?

Accepted Answer

A) Mixed cost 
B) Fixed cost 
C) Variable cost 
D) None of these 
A) Mixed cost 
B) Fixed cost 
C) Variable cost 
D) None of these

If the company's volume doubles, the company's total cost will:

The following information is for Companies M and N for the most recent year: Based on this information, which of the following statements is incorrect? Company M Company N Sales \ 500,000 \ 500,000 Variable costs \ 300,000 \ 200,000 Fixed costs \ 50,000 \ 150,000

Based on the above data, which company has a higher operating leverage?

If the company's volume increases to 5,000 units, the total cost per unit will be:

The variable cost per unit increases in direct proportion to the activity base.

If the company's volume increases to 5,000 units, the company's total costs will be:

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20, variable general and administrative costs are $5, and fixed costs are $10 per unit.

Assuming that cost behavior did not change over the two-year period, what is the annual amount of the company's fixed manufacturing overhead?

Select the incorrect statement regarding the relationship between cost behavior and profits.

The following income statement was produced when volume of sales was at 400 units. Sales Revenue \ 2,000 Variable Cost 1,200 Contribution Margin \ 800 Fixed Cost 300 Net Income \ 500 If volume reaches 500 units, net income will be:

For Marvin Company, the magnitude of operating leverage was 3.5 during the current year. Demonstrate what this magnitude of operating leverage would mean for the company's profitability by creating an example.

The BRC Company is considering the introduction of a new line of high end electronics. Because there is considerable uncertainty with regard to the demand for the products, the company would probably be served better by a variable cost structure.

Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2?

The higher the magnitude of a company's operating leverage, the smaller the decrease in profit for a given percentage decrease in revenue.

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

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

If the company's volume doubles, the total cost per unit will:

For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:

Management Accounting and Corporate Governance

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

If the company's volume doubles, the company's total cost will:

The following information is for Companies M and N for the most recent year: Based on this information, which of the following statements is incorrect? Company M Company N Sales \ 500,000 \ 500,000 Variable costs \ 300,000 \ 200,000 Fixed costs \ 50,000 \ 150,000

Based on the above data, which company has a higher operating leverage?

If the company's volume increases to 5,000 units, the total cost per unit will be:

The variable cost per unit increases in direct proportion to the activity base.

If the company's volume increases to 5,000 units, the company's total costs will be:

No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20, variable general and administrative costs are $5, and fixed costs are $10 per unit.

Assuming that cost behavior did not change over the two-year period, what is the annual amount of the company's fixed manufacturing overhead?

Select the incorrect statement regarding the relationship between cost behavior and profits.

The following income statement was produced when volume of sales was at 400 units. Sales Revenue \ 2,000 Variable Cost 1,200 Contribution Margin \ 800 Fixed Cost 300 Net Income \ 500 If volume reaches 500 units, net income will be:

For Marvin Company, the magnitude of operating leverage was 3.5 during the current year. Demonstrate what this magnitude of operating leverage would mean for the company's profitability by creating an example.

The BRC Company is considering the introduction of a new line of high end electronics. Because there is considerable uncertainty with regard to the demand for the products, the company would probably be served better by a variable cost structure.

Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2?

The higher the magnitude of a company's operating leverage, the smaller the decrease in profit for a given percentage decrease in revenue.

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

Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

If the company's volume doubles, the total cost per unit will:

For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:

Management Accounting and Corporate Governance

Analysis of Cost, Volume, and Pricing to Increase Profitability

Cost Accumulation, Tracing, and Allocation

Cost Management in an Automated Business Environment: Abc, Abm, and Tqm

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters