Chapter 11 Quiz

For the last two years BRC Company had net income as follows: Year 1 Year 2 Net Income $86,000 $106,000 What was the percentage change in income from Year 1 to Year 2? 18.87% increase 18.87% decrease 23.26% increase 23.26% decrease

% change = (Alternative measure − Base measure) ÷ Base measure% change = ($106,000 − $86,000) ÷ $86,000 = 23.26%

Which of the following items would not be found on a contribution format income statement? Fixed cost Variable cost Gross margin Net income

Gross margin

Wu Company incurred $68,200 of fixed cost and $80,600 of variable cost when 2,600 units of product were made and sold. If the company's volume doubles (within relevant range), the total cost per unit will: stay the same. decrease. double as well. increase but will not double.

decrease.

Fixed cost per unit: decreases as production volume decreases. is not affected by changes in the production volume. decreases as production volume increases. increases as production volume increases.

decreases as production volume increases.

A cost that contains both fixed and variable elements is referred to as a: mixed cost. hybrid cost. relevant cost. nonvariable cost.

mixed cost.

Craft, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the: differential range. median range. relevant range. leverage range.

relevant range.

Operating leverage exists when: a company utilizes debt to finance its assets. management buys enough of the company's shares of stock to take control of the corporation. the organization makes purchases on credit instead of paying cash. small percentage changes in revenue produce large percentage changes in profit.

small percentage changes in revenue produce large percentage changes in profit.

The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's: operating leverage. contribution margin. cost structure. cost averaging.

cost structure.

Select the correct statement regarding fixed costs. There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. Fixed cost per unit is not fixed. Total fixed cost remains constant when volume changes. All of these are correct statements.

All of these are correct statements.

The following information is provided for Southall Company: Sales revenue $307,000 Variable manufacturing costs 104,000 Fixed manufacturing costs 56,000 Variable selling and administrative costs 49,000 Fixed selling and administrative costs 44,000 What is this company's contribution margin? $54,000 $147,000 $98,000 $154,000

Contribution margin = Revenues − Variable expensesContribution margin = $307,000 − ($104,000 + $49,000) = $154,000

M and M, Inc. produces a product that has a variable cost of $2.50 per unit. The company's fixed costs are $32,500. The product is sold for $5 per unit and the company desires to earn a target profit of $10,000. What is the amount of sales that will be necessary to earn the desired profit? (Do not round intermediate calculations.) $215,000 $65,000 $107,500 $85,000

Contribution margin per unit = (Selling price per unit - Variable costs per unit)Contribution margin per unit = ($5 per unit - $2.50 per unit) = 2.50 per unit Break-even point in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit Break-even point in units = ($32,500 + $10,000) ÷ 2.50 per unit = 17,000 units Break-even point in dollars = Break-even point in units × Selling price per unit Break-even point in dollars = 17,000 units × $5 = $85,000

Burke Company has a break-even of $600,000 in total sales. Assuming the company sells its product for $40 per unit, what is its margin of safety in units if sales total $1,000,000? 10,000 units 25,000 units 15,000 units 4,000 units

Margin of safety = (Budgeted sales − Break-even sales)Margin of safety = ($1,000,000 − $600,000 = $400,000)Margin of safety in units = Margin of safety in dollars ÷ Selling price per unit Margin of safety in units = $400,000 ÷ $40 per unit = 10,000 units

Zeus, Inc. produces a product that has a variable cost of $7 per unit. The company's fixed costs are $45,000. The product sells for $15 a unit and the company desires to earn a $21,000 profit. What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.) 8,250 units 4,175 units 5,625 units 6,125 units

Sales volume in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit Sales volume in units = ($45,000 + $21,000) ÷ ($15 per unit − $7 per unit) = 8,250 units

Pierce Company's break-even point is 32,000 units. Its product sells for $28 and has a $18 variable cost per unit. What is the company's total fixed cost amount? $896,000 $320,000 $576,000 Fixed costs cannot be computed with the information provided.

Sales − Variable costs − Fixed costs = Profit($28 per unit × 32,000 units) − ($18 per unit × 32,000 units) − Fixed costs = $0 Fixed costs = $896,000 − $576,000 = $320,000

The excess of revenue over variable costs is referred to as: gross profit gross margin contribution margin manufacturing margin

contribution margin

Select the correct statement regarding fixed costs. Because they do not change, fixed costs should be ignored in decision making. The fixed cost per unit decreases when volume increases. The fixed cost per unit increases when volume increases. The fixed cost per unit does not change when volume decreases.

The fixed cost per unit decreases when volume increases.

Martin Company currently produces and sells 43,000 units of product at a selling price of $13. The product has variable costs of $5 per unit and fixed costs of $53,000. The company currently earns a total contribution margin of: $318,000 $212,000 $344,000 $265,000

Total contribution margin = [Selling price per unit − Variable costs per unit] × Units soldTotal contribution margin = ($13 per unit − $5 per unit) × 43,000 units = $344,000

Pickard Company pays its sales staff a base salary of $5,100 a month plus a $2.90 commission for each product sold. If a salesperson sells 590 units of product in January, the employee would be paid: $6,811. $5,100. $1,711. $3,389.

Total cost = Fixed cost + Variable costTotal cost = $5,100 + (590 units × $2.90 per unit) = $6,811

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? Fixed cost Variable cost Mixed cost Relevant cost

Variable cost

Solomon Trophies makes and sells trophies it distributes to little league ballplayers. The company normally produces and sells between 7,000 and 13,000 trophies per year. The following cost data apply to various activity levels: Required Complete the preceding table by filling in the missing amounts for the levels of activity shown in the first row of the table. (Round "Cost per unit" answers to 2 decimal places.) Number of Trophies 7,000 9,000 11,000 13,000 Total costs incurred Fixed $54,000 $54,000 $54,000 $54,000 Variable 42,000 54,000 66,000 78,000 Total costs $96,000 $108,000 $120,000 $132,000 Cost per unit Fixed $7.71 $6.00 $4.91 $4.15 Variable 6.00 6.00 6.00 6.00 Total cost per trophy$13.71 $12.00 $10.91 $10.15

Yes

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: a variable cost. a mixed cost. a fixed cost. none of these

a fixed cost.

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 cost of the salespersons' commissions is an example of: a fixed cost. a variable cost. a mixed cost. none of these

a variable cost.

In order to prepare a contribution format income statement, costs must be separated into: manufacturing and selling, general, and administrative costs. cost of goods sold and operating expenses. variable and fixed costs. mixed, variable and fixed costs

variable and fixed costs.