Question 1

The margin of safety ratio can be defined as the:

Accepted Answer

A)  Excess of budgeted sales over break-even sales divided by break-even sales. 
B)  Excess of budgeted sales over break-even sales divided by budgeted sales. 
C)  Excess of budgeted sales over fixed costs divided by budgeted sales. 
D)  Excess of budgeted sales over variable costs divided by budgeted sales. 
A)  Excess of budgeted sales over break-even sales divided by break-even sales. 
B)  Excess of budgeted sales over break-even sales divided by budgeted sales. 
C)  Excess of budgeted sales over fixed costs divided by budgeted sales. 
D)  Excess of budgeted sales over variable costs divided by budgeted sales.

Question 2

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage?

Accepted Answer

A)  9.00% 
B)  10.0% 
C)  9.09% 
D)  None of these answers is correct. 
A)  9.00% 
B)  10.0% 
C)  9.09% 
D)  None of these answers is correct.

Question 3

ETutor is an online tutoring service provider that is particularly popular with college students. The company is interested in estimating the fixed and variable components of its tutoring services costs. The manager believes that these costs are driven by the number of hours of tutoring services provided. The following information was gathered for the last six months of business: $\begin{array}{|l|r|r|}
\hline \text { Month } & \text { Number of Hours } & \
\hline \text { January } & 25,000 & \text { Tutoring costs } \
\hline \text { February } & 41,000 & \$ 308,000 \
\hline \text { March } & 29,000 & 420,000 \
\hline \text { Apnl } & 31,000 & 352,000 \
\hline \text { May } & 34,000 & 373,000 \
\hline \text { June } & 18,000 & 378,000 \
\hline
\end{array}$ 
Required:
1) Compute the average tutoring cost per hour for the six-month period.
2) Use the high-low method to estimate the total fixed cost and the variable cost per hour.
3) Name one advantage and one disadvantage of the high-low method.
4) Describe the scatter graph method that can be used to analyze mixed costs.

Accepted Answer

1) Average tutoring cost per hour:
$2,08

Question 4

Variable costs will become fixed outside the relevant range.

Accepted Answer

A) True 
 B)False

Question 5

If a company shifts its cost structure by decreasing fixed costs and increasing variable costs, it will lower both the level of risk and its potential for profits.

Accepted Answer

A) True 
 B)False

Question 6

At the break-even point:

Accepted Answer

A)  Sales would be equal to total costs. 
B)  Contribution margin would be equal to total fixed costs. 
C)  Sales would be equal to fixed costs. 
D)  Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct. 
A)  Sales would be equal to total costs. 
B)  Contribution margin would be equal to total fixed costs. 
C)  Sales would be equal to fixed costs. 
D)  Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

Question 7

What advantages does the regression method of cost estimation offer, compared to the high-low and scatter graph methods of estimating mixed costs?

Accepted Answer

The regression method is more accurate t

Question 8

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

Accepted Answer

A)  Fixed cost 
B)  Variable cost 
C)  Gross margin 
D)  Net income 
A)  Fixed cost 
B)  Variable cost 
C)  Gross margin 
D)  Net income

Question 9

The excess of a product's selling price over its variable costs is referred to as:

Accepted Answer

A)  gross profit 
B)  gross margin 
C)  contribution margin 
D)  manufacturing margin 
A)  gross profit 
B)  gross margin 
C)  contribution margin 
D)  manufacturing margin

Question 10

Select the correct statement regarding fixed costs.

Accepted Answer

A)  There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. 
B)  Fixed cost per unit is not fixed. 
C)  Total fixed cost remains constant when volume changes. 
D)  All of these are correct statements. 
A)  There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. 
B)  Fixed cost per unit is not fixed. 
C)  Total fixed cost remains constant when volume changes. 
D)  All of these are correct statements.

Question 11

Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $18,000. The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 9,000 units of product. What sales price would have to be charged to earn a $99,000 target profit assuming the investment in technology is made?

Accepted Answer

A)  $22 
B)  $23 
C)  $15 
D)  $13 
A)  $22 
B)  $23 
C)  $15 
D)  $13

Question 12

Select the incorrect statement regarding cost structures.

Accepted Answer

A)  Highly leveraged companies will experience greater profits than companies less leveraged when sales increase. 
B)  The more variable cost, the higher the fluctuation in income as sales fluctuate. 
C)  When sales change, the amount of the corresponding change in income is affected by the company's cost structure. 
D)  Faced with significant uncertainty about future revenues, a low leverage cost structure is preferable to a high leverage cost structure. 
A)  Highly leveraged companies will experience greater profits than companies less leveraged when sales increase. 
B)  The more variable cost, the higher the fluctuation in income as sales fluctuate. 
C)  When sales change, the amount of the corresponding change in income is affected by the company's cost structure. 
D)  Faced with significant uncertainty about future revenues, a low leverage cost structure is preferable to a high leverage cost structure.

Question 13

The following income statements are provided for Li Company's last two years of operation:   Assuming that cost behavior did not change over the two year period, what is the company's annual fixed general, selling, and administrative cost?

Accepted Answer

A)  $6,500 
B)  $6,000 
C)  $3,000 
D)  $2,500 
A)  $6,500 
B)  $6,000 
C)  $3,000 
D)  $2,500

Question 14

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?

Accepted Answer

A)  $150,000 
B)  $200,000 
C)  $62,500 
D)  $100,000 
A)  $150,000 
B)  $200,000 
C)  $62,500 
D)  $100,000

Question 15

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?

Accepted Answer

A)  3,125 units 
B)  18,750 units 
C)  15,625 units 
D)  12,500 units 
A)  3,125 units 
B)  18,750 units 
C)  15,625 units 
D)  12,500 units

Question 16

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Length of Time } } \
\hline & \text { TODAY } & \text { ONE YEAR } & \text { FIVE YEARS } \
\hline \text { Total cost of lessons } & \$ 600 & \$ 110,000 & \$ 508,000 \
\hline \text { Number of lessons } & 50 & 10,000 & 55,000 \
\hline
\end{array}$$ Select the incorrect statement from the following.

Accepted Answer

A)  The average cost per lesson over the five-year period was $9.24. 
B)  Based on the most current information, the cost per lesson was $12.00. 
C)  The average cost based on the total five-year period is probably the most appropriate cost for pricing purposes. 
D)  The selection of the most appropriate time span for calculating the average cost often requires considerable judgment. 
A)  The average cost per lesson over the five-year period was $9.24. 
B)  Based on the most current information, the cost per lesson was $12.00. 
C)  The average cost based on the total five-year period is probably the most appropriate cost for pricing purposes. 
D)  The selection of the most appropriate time span for calculating the average cost often requires considerable judgment.

Question 17

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following equations can be used to compute a firm's magnitude of operating leverage?

Accepted Answer

A)  Net income/sales 
B)  Fixed costs/contribution margin 
C)  Contribution margin/net income 
D)  Net income/contribution margin 
A)  Net income/sales 
B)  Fixed costs/contribution margin 
C)  Contribution margin/net income 
D)  Net income/contribution margin

Question 19

What is meant by the phrase, "cost structure?"

Accepted Answer

"Cost structure" refers to the amount of

Question 20

Fixed cost per unit:

Accepted Answer

A)  decreases as production volume decreases. 
B)  is not affected by changes in the production volume. 
C)  decreases as production volume increases. 
D)  increases as production volume increases. 
A)  decreases as production volume decreases. 
B)  is not affected by changes in the production volume. 
C)  decreases as production volume increases. 
D)  increases as production volume increases.

The margin of safety ratio can be defined as the:

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage?

Variable costs will become fixed outside the relevant range.

If a company shifts its cost structure by decreasing fixed costs and increasing variable costs, it will lower both the level of risk and its potential for profits.

At the break-even point:

What advantages does the regression method of cost estimation offer, compared to the high-low and scatter graph methods of estimating mixed costs?

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

The excess of a product's selling price over its variable costs is referred to as:

Select the correct statement regarding fixed costs.

Select the incorrect statement regarding cost structures.

The following income statements are provided for Li Company's last two years of operation: Assuming that cost behavior did not change over the two year period, what is the company's annual fixed general, selling, and administrative cost?

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: Length of Time TODAY ONE YEAR FIVE YEARS Total cost of lessons \ 600 \ 110,000 \ 508,000 Number of lessons 50 10,000 55,000 Select the incorrect statement from the following.

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Which of the following equations can be used to compute a firm's magnitude of operating leverage?

What is meant by the phrase, "cost structure?"

Fixed cost per unit:

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

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

The margin of safety ratio can be defined as the:

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage?

Variable costs will become fixed outside the relevant range.

If a company shifts its cost structure by decreasing fixed costs and increasing variable costs, it will lower both the level of risk and its potential for profits.

At the break-even point:

What advantages does the regression method of cost estimation offer, compared to the high-low and scatter graph methods of estimating mixed costs?

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

The excess of a product's selling price over its variable costs is referred to as:

Select the correct statement regarding fixed costs.

Select the incorrect statement regarding cost structures.

The following income statements are provided for Li Company's last two years of operation: Assuming that cost behavior did not change over the two year period, what is the company's annual fixed general, selling, and administrative cost?

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: Length of Time TODAY ONE YEAR FIVE YEARS Total cost of lessons \ 600 \ 110,000 \ 508,000 Number of lessons 50 10,000 55,000 Select the incorrect statement from the following.

Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables.

Which of the following equations can be used to compute a firm's magnitude of operating leverage?

What is meant by the phrase, "cost structure?"

Fixed cost per unit:

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters