ACCT2102 Practice Quiz Ch. 5

Escareno Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (8400 units).......$764,400 Variable expenses......445,200 Contribution Margin=319,200 Fixed Expenses...........250,900 Net Operating Income=$68,300 If the company sells 8,200 units, its total contribution margin should be closest to: a. $311,600 b. $301,000 c. $319,200 d. $66,674

$311,600

Tee Times, Inc., produces and sells the finest quality golf clubs in all of Bulloch County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets: Revenues (400 sets sold) $240,000 Variable costs 160,000 Fixed costs 40,000 How many sets of clubs must be sold for Tee Times, Inc., to reach their breakeven point? a. 400 b. 250 c. 200 d. 150

200

Which of the following statements is correct with regard to a CVP graph? a. A CVP graph shows the maximum possible profit. b. A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. c. A CVP graph assumes that total expense varies in direct proportion to unit sales. d. A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line

If both the fixed and variable expenses associated with a product decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively? a. Decrease...........Increase b. Increase...........Decrease c. Decrease...........Decrease d. Increase...........Increase

Decrease...........Increase

At the break-even point: a. sales would be equal to contribution margin. b. contribution margin would be equal to net operating income. c. sales would be equal to fixed expenses. d. contribution margin would be equal to fixed expenses.

contribution margin would be equal to fixed expenses

contribution margin can be defined as: a. the amount of sales revenue necessary to cover variable expenses. b. sales revenue minus fixed expenses. c. the amount of sales revenue necessary to cover fixed and variable expenses. d. sales revenue minus variable expenses.

sales revenue - variable expenses

Tee Times, Inc., produces and sells the finest quality golf clubs in all of Bulloch County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets: Revenues (400 sets sold) $240,000 Variable costs 160,000 Fixed costs 40,000 How many sets of clubs must be sold to earn a target operating income of $90,000? a. 700 b. 650 c. 500 d. 400

650

The margin of safety can be calculated by: a. Sales - (Fixed expenses/Contribution margin ratio). b. Sales - (Fixed expenses/Variable expense per unit). c. Sales - (Fixed expenses + Variable expenses). d. Sales - Net operating income.

Sales - (Fixed expenses/Contribution margin ratio)

Which of the following is true regarding the contribution margin ratio of a single product company? a. As fixed expenses decrease, the contribution margin ratio increases. b. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. c. The contribution margin ratio will decline as unit sales decline. d. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit

Cobble Corporation produces and sells a single product. Data concerning that product appear below: Selling Expense...... Per Unit=$160 %of sales=100% Variable Expenses..Per Unit=$48 %of sales=30% Contribution Margin====== $112 ========70% Fixed expenses are $499,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $33,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change? a. increase of $56,100 b. increase of $99,300 c. decrease of $8,900 d. decrease of $56,100

decrease of $8,900