Test 2 Topics

f a firm has fixed costs of $60,000, a sales price of $7.00 per unit, and a break-even point of 25,000 units, the variable cost per unit is _________blank. Multiple Choice $5.00 $4.60 $5.40 $4.00

4.60

Which of the following questions does break-even analysis attempt to address? How much do changes in volume affect costs and profits? At what point does the firm have zero profit? What is the most efficient level of fixed assets to employ? All of the options are correct

All of the options are correct

If a firm sells 40,000 units and the contribution margin on the firm's single product is $4.00 per unit and fixed costs are $60,000, what will the firm's operating profit be at this level of sales volume? 100,000 30,000 15,000 145,000

Contribution margin ($4 × 40,000)$ 160,000Fixed costs$ 60,000Operating profit$ 100,000

At the break-even point, a firm's profits are Greater than zero Less than zero Equal to zero Not enough information is given to determine

Equal to zero

Which of the following represents variable costs? Utilities Factory Labor Repairs and Maintenance Executive Salaries

Factory Labor

As the contribution margin rises, the break-even point goes down True or False

False

The break-even point can be calculated as Variable Cost/CMP Total Costs/CMP Variable Cost x CMP Fixed Cost/CMP

Fixed Cost/CMP

The concept of operating leverage involves the use of _____ to magnify returns at high levels of operation. Fixed Costs Variable Costs Marginal Costs Semi-variable Costs

Fixed Costs

In break-even analysis, the contribution margin is defined as

Sales Price - Variable Cost

Contribution Margin is equal to fixed cost minus variable costs True or False

True

Financial leverage emphasizes the impact of using debt in the business True or False?

True

Operating Leverage emphasizes the impact of using fixed assets in the business True or False?

True

Operating leverage is the use of fixed costs to magnify returns at high levels of operation True or False?

True

When a business decides to go with a heavy commitment to fixed costs in the manufacturing process, they are employing operating leverage True or False?

True

When a business decides to use debt in financing their firm, they are engaging in financial leverage. True or False

True

If fixed costs rise The break even point rise the degree of operating level increases total profit declines all of the options are true

all of the options are true