Chapter 20 End of Chapter MC

Mackey Corporation has fixed costs of $150,000 and variable costs of $9 per unit. If sales price per unit is $12, what is break-even sales in dollars? (a)$200,000. (b)$450,000. (c)$480,000. (d)$600,000

$600,000

Stevens Company has a degree of operating leverage of 3.5 at a sales level of $1,200,000 and net income of $200,000. If Stevens' sales fall by 10%, Stevens can be expected to experience a: (a)decrease in net income of $70,000. (b)decrease in contribution margin of $7,000. (c)decrease in operating leverage of 35%. (d)decrease in net income of $175,000.

(a) decrease in net income of $70,000

Net income will be: (a)greater if more higher-contribution margin units are sold than lower-contribution margin units. (b)greater if more lower-contribution margin units are sold than higher-contribution margin units. (c)equal as long as total sales remain equal, regardless of which products are sold. (d)unaffected by changes in the mix of products sold.

(a) greater if more higher-contribution margin units are sold than lower- contribution margin units

The following information is available for Chap Company. Sales $350,000 Cost of goods sold $120,000 Total fixed expenses $60,000 Total variable expenses $100,000 Which amount would you find on Chap's CVP income statement? (a)Contribution margin of $250,000. (b)Contribution margin of $190,000. (c)Gross profit of $230,000. (d)Gross profit of $190,000.

(a)Contribution margin of $250,000

Which one of the following describes the break-even point? (a)It is the point where total sales equal total variable plus total fixed costs. (b)It is the point where the contribution margin equals zero. (c)It is the point where total variable costs equal total fixed costs. (d)It is the point where total sales equal total fixed costs.

(a)It is the point where total sales equal total variable plus total fixed costs.

If the unit contribution margin is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: (a)$25. (b)$5. (c)$4. (d)None of the above are correct.

(b) $5

Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income of $268,000. How many units must it sell at $12 per unit to achieve its target net income? (a)51,429 units. (b)128,000 units. (c)76,571 units. (d)21,176 units.

(b) 128,000 units

Fixed manufacturing overhead costs are recognized as: (a)period costs under absorption costing. (b)product costs under absorption costing. (c)product costs under variable costing. (d)part of ending inventory costs under both absorption and variable costing.

(b) product costs under absorption costing

Net income computed under absorption costing will be: (a)higher than net income computed under variable costing in all cases. (b)equal to net income computed under variable costing in all cases. (c)higher than net income computed under variable costing when units produced are greater than units sold. (d)higher than net income computed under variable costing when units produced are less than units sold.

(c) higher than net income computed under variable costing when units produced are greater than units sold

A high degree of operating leverage: (a)indicates that a company has a larger percentage of variable costs relative to its fixed costs. (b)is computed by dividing fixed costs by contribution margin. (c)exposes a company to greater earnings volatility risk. (d)exposes a company to less earnings volatility risk.

(c)exposes a company to greater earnings volatility risk.

Which one of the following is the format of a CVP Income Statement? (a) Sales - Variable Costs = Fixed Costs + Net Income (b) Sales - Fixed Costs - Variable Costs - Operating Expenses = Net Income (c) Sales - Cost of Goods Sold - Operating Expense = Net Income (d) Sales - Variable Costs - Fixed Costs = Net Income

(d) Sales - Variable Costs - Fixed Costs = Net Income

Sales mix is: (a)important to sales managers but not to accountants. (b)easier to analyze on absorption costing income statements. (c)a measure of the relative percentage of a company's variable costs to its fixed costs. (d)a measure of the relative percentage in which a company's products are sold.

(d) a measure of the relative percentage in which a company's products are sold

The degree of operating leverage: (a)can be computed by dividing total contribution margin by net income. (b)provides a measure of the company's earnings volatility. (c)affects a company's break-even point. (d)All of the answer choices are correct.

(d)All of the answer choices are correct

Croc Catchers calculates its contribution margin to be less than zero. Which statement is true? (a)Its fixed costs are less than the variable costs per unit. (b)Its profits are greater than its total costs. (c)The company should sell more units. (d)Its selling price is less than its variable costs.

(d)Its selling price is less than its variable costs.

MEM manufactures two products. Product X has a contribution margin of $26 and requires 4 hours of machine time. Product Y has a contribution margin of $14 and requires 2 hours of machine time. Assuming that machine time is limited to 3,000 hours, how should it allocate the machine time to maximize its income? (a)Use 1,500 hours to produce X and 1,500 hours to produce Y. (b)Use 2,250 hours to produce X and 750 hours to produce Y. (c)Use 3,000 hours to produce only X. (d)Use 3,000 hours to produce only Y.

(d)Use 3,000 hours to produce only Y.

When a company has a limited resource, it should apply additional capacity of that resource to providing more units of the product or service that has: (a)the highest contribution margin. (b)the highest selling price. (c)the highest gross profit. (d)the highest unit contribution margin of that limited resource.

(d)the highest unit contribution margin of that limited resource