Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The following income statement is provided for Ramirez Company for the current year: $\begin{array}{|l|r|}
\hline \text { Sales revenue }(2,500 \text { units } x \$ 40 \text { per unit })& \$ \quad 100,000\
\hline \text { Cost of goods sold (varable; } 2,500 \text { units x } \$ 16 \text { per unit) } & (40,000) \
\hline \text { Cost of goods sold (fixed) } & (8,000) \
\hline \text { Gross margin } & 52,000 \
\hline \text { Administrative salaries } & (12,000) \
\hline \text { Depreciation } & (8,000) \
\hline\text { Supplies }(2,500 \text { units x } \$ 4 \text { per unit) } & (10,000) \
\hline \text { Net income } &\$ \quad 22,000\
\hline
\end{array}$ What amount was the company's contribution margin?

Accepted Answer

A)  $50,000 
B)  $22,000 
C)  $52,000 
D)  $60,000

Question 3

In the graph below,which depicts the relationship between units produced and unit cost,the dotted line depicts which type of cost per unit?

Accepted Answer

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

Question 4

Cannon Company operates a clothing store that reported the following operating results for the current year: $$\begin{array} { | l | c | } 
\hline  \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad { \text { Income Statement } } \
\hline \text { Sales revenue } & \$ 2,000,000 \
\hline \text { Cost of goods sold } & ( 1,200,000 ) \
\hline \text { Gross margin } & \$ 800,000 \
\hline \text { Employee commissions and bonuses ( } \$ \% \text { of sales } ) & ( 100,000 ) \
\hline \text { Depreciation expense } & ( 150,000 ) \
\hline \text { Salaries expense } & ( 260,000 ) \
\hline \text { Shipping and delivery expense ( } 2 \% \text { of sales) } & ( 40,000 ) \
\hline \text { Advertising expense } & ( 80,000 ) \
\hline \text { Net income } & \$ 170,000 \
\hline
\end{array}$$ Required: Prepare an income statement for Cannon Company using the contribution margin format.

Accepted Answer

The answer of Cannon Company operates a clothing store that...

Question 5

If a company had a mixed cost s

Accepted Answer

A) True 
 B)False

Question 6

In order to prepare a contribution format income statement,costs must be separated into:

Accepted Answer

A)  manufacturing and selling,general,and administrative costs. 
B)  cost of goods sold and operating expenses. 
C)  variable and fixed costs. 
D)  mixed,variable and fixed costs.

Question 7

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

Accepted Answer

The answer of What advantages does the regression method of...

Question 8

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

Question 9

Based on the following operating data,the operating leverage is: $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ \quad 500,000 \
\hline \text { Variable costs } & 280,000 \
\hline \text { Contribution margin } & 220,000 \
\hline \text { Fired costs } & 180,000 \
\hline \text { Income from operations } & \$ 40,000 \
\hline
\end{array}$$

Accepted Answer

A)  0.18 
B)  5.50 
C)  1.22 
D)  12.5

Question 10

Mark Company,Inc.sells electronics.The company generated sales of $45,000.Contribution margin is $20,000 and net income is $4,000.Based on this information,the magnitude of operating leverage is:

Accepted Answer

A)  2.25 
B)  11.25 
C)  5.00 
D)  6.25

Question 11

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.

Question 12

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?

Accepted Answer

A)  4.5% 
B)  14.5% 
C)  45% 
D)  10%

Question 13

Companies A and B are in the same industry and are identical except for cost s

Accepted Answer

A)  Company A's cost structure has more variable costs than B's. 
B)  Company A's cost structure has higher fixed costs than B's. 
C)  Company B's cost structure has higher fixed costs than A's. 
D)  At a volume of 50,000 units,Company A's magnitude of operating leverage was lower than B's.

Question 14

Assume that Microsoft and Sony both plan to introduce a new hand-held video game.Microsoft plans to use a heavily automated production process to produce its product while Sony plans to use a labor-intensive production process.The following revenue and cost relationships are provided: $\begin{array}{c}
\begin{array}{|l|}
\hline\
\hline \text {Selling price per unit}\
\hline \text {Variable costs per unit}\
\hline \text {Direct materials}\
\hline \text {Direct labor}\
\hline \text {Overhead}\
\hline \text {Selling and administrative}\
\hline \text {Annual fixed costs}\
\hline \text {Overhead}\
\hline \text {Selling and administrative}\
\hline
\end{array}
\begin{array}{l|}
\hline \text {Micros oft Game}\
\hline150\
\hline\
\hline\$ 27.00 \ 
\hline 7.50 \ 
\hline 7.50 \ 
\hline 3.00 \
 \hline\
\hline\$ 600,000 \
 \hline 135,000 \
 \hline 
\end{array}
\begin{array}{l|}
\hline \text {Sony Game}\
\hline150\
\hline\
\hline\$ 27.00 \ 
\hline 30.00 \ 
\hline 30.00 \ 
\hline 3.00 \
 \hline\
\hline\$ 240,000 \
 \hline 135,000 \
 \hline
\end{array}
\end{array}$
 Required:
(a)Compute the contribution margin per unit for each company.
(b)Prepare a contribution income statement for each company assuming each company sells 8,000 units.
(c)Compute each firm's net income if the number of units sold increases by 10%.
(d)Which firm will have more stable profits when sales change? Why?

Accepted Answer

The answer of Assume that Microsoft and Sony both plan...

Question 15

In regression analysis,an r-square value of one indicates that there is a perfect fit between the independent and dependent variables.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: $$\begin{array} { | c | c | c | c | } 
\hline \text { Jan-March } & \text { April-June } & \text { July-Sep } & \text { Oct-Dec } \
\hline 110 & 140 & 150 & 100 \
\hline
\end{array}$$

Accepted Answer

A)  $12,500 
B)  $24,500 
C)  $16,500 
D)  $19,500

Question 18

The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000.If sales decrease by 6%,net income is expected to decrease by what amount?

Accepted Answer

A)  $2,160 
B)  $7,560 
C)  $3,420 
D)  $1,260

Question 19

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

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

In the graph below,which depicts the relationship between units produced and unit cost,the dotted line depicts which type of cost per unit?

If a company had a mixed cost s

In order to prepare a contribution format income statement,costs must be separated into:

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

Mark Company,Inc.sells electronics.The company generated sales of $45,000.Contribution margin is $20,000 and net income is $4,000.Based on this information,the magnitude of operating leverage is:

Select the correct statement regarding fixed costs.

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?

Companies A and B are in the same industry and are identical except for cost s

In regression analysis,an r-square value of one indicates that there is a perfect fit between the independent and dependent variables.

The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000.If sales decrease by 6%,net income is expected to decrease by what amount?

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

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