Cost Accounting Ch 9

A managerial preference for a very low degree of operating leverage might indicate that a. a decrease in sales volume is expected. b. the firm is very unprofitable. c. the firm has very high fixed costs. d. an increase in sales volume is expected.

a decrease in sales volume is expected

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only a. relevant fixed costs. b. fixed and mixed costs. c. a relevant range of volume. d. relevant variable costs.

a relevant range of volume

CVP analysis relies on the assumptions that costs are either strictly fixed or strictly variable. Consistent with these assumptions, as volume decreases total a. costs remain constant. b. fixed costs decrease. c. costs decrease. d. variable costs remain constant.

costs decrease

Given the following notation, what is the break-even sales level in units? SP = selling price per unit, FC = total fixed cost, VC = variable cost per unit a. FC/(VC/SP) b. SP/(FC/VC) c. FC/(SP - VC) d. VC/(SP - FC)

FC/(SP - VC)

To compute the break-even point in units, which of the following formulas is used? a. (FC+VC)/CM ratio b. FC/CM per unit c. FC/CM ratio d. CM/CM ratio

FC/CM per unit

With respect to fixed costs, CVP analysis assumes total fixed costs a. remain constant from one period to the next. b. vary directly with volume. c. per unit remain constant as volume changes. d. remain constant across changes in volume.

remain constant across changes in volume

On a break-even chart, the break-even point is located at the point where the total a. fixed cost line intersects the total variable cost line. b. revenue line crosses the total contribution margin line. c. revenue line crosses the total fixed cost line. d. revenue line crosses the total cost line.

revenue line crosses the total cost line

If a firm's net income does not change as its volume changes, the firm('s) a. sales price must equal $0. b. must be in the service industry. c. must have no fixed costs. d. sales price must equal its variable costs.

sales price must equal its variable costs

After the level of volume exceeds the break-even point a. total fixed costs per unit will remain constant. b. the total contribution margin will turn from negative to positive. c. the total contribution margin exceeds the total fixed costs. d. the contribution margin ratio increases.

the total contribution margin exceeds the total fixed costs

The contribution margin ratio always increases when the a. break-even point increases. b. variable costs as a percentage of net sales decrease. c. variable costs as a percentage of net sales increase. d. break-even point decreases.

variable costs as a percentage of net sales decrease

The margin of safety would be negative if a company('s) a. degree of operating leverage is greater than 100. b. present fixed costs were less than its contribution margin. c. variable costs exceeded its fixed costs. d. was presently operating at a volume that is below the break-even point.

was presently operating at a volume that is below the break-even point

Which of the following will decrease the break-even point? Decrease in fixed cost Increase in direct labor cost Increase in selling price a. yes no yes b. no yes no c. yes yes yes d. yes no no

yes no yes

Below is an income statement for Parker Company: Sales $400,000 Variable costs (125,000) Contribution margin $275,000 Fixed costs (200,000) Profit before taxes $ 75,000 Refer to Parker Company. Based on the cost and revenue structure on the income statement, what was Parker's break-even point in dollars? a. $300,000 b. $290,909 c. $325,000 d. $200,000

$290,909

Information concerning Lynch Corporation's Product A follows: Sales $400,000 Variable costs 300,000 Fixed costs 50,000 Assuming that Lynch increased sales of Product A by 25 percent, what should the profit from Product A be? a. $ 50,000 b. $ 62,500 c. $ 75,000 d. $170,000

$75,000

Below is an income statement for Parker Company: Sales $400,000 Variable costs (125,000) Contribution margin $275,000 Fixed costs (200,000) Profit before taxes $ 75,000 Refer to Parker Company. What was Parker's margin of safety? a. $75,000 b. $200,000 c. $109,091 d. $100,000

109091

The following information relates to financial projections of Stewart Company: Projected sales 60,000 units Projected variable costs $2.00 per unit Projected fixed costs $50,000 per year Projected unit sales price $7.00 Refer to Stewart Company. How many units would Stewart Company need to sell to earn a profit before taxes of $10,000? a. 10,000 b. 8,571 c. 25,714 d. 12,000

12,000

Refer to Jean Simmons Company. If the unit sales price for Jean Simmons's sole product was $10, how many units would it have needed to sell to produce a profit of $40,000? a. 27,500 b. 29,000 c. 28,000 d. can't be determined from the information given

28,000

Refer to Parker Company. What is Parker's degree of operating leverage? a. 2.67 b. 5.33 c. 3.67 d. 1.45

3.67

Tisdale Company reported the following results from sales of 5,000 units of Product A for June: Sales $200,000 Variable costs (120,000) Fixed costs (60,000) Operating income $ 20,000 Assume that Tisdale increases the selling price of Product A by 10 percent in July. How many units of Product A would have to be sold in July to generate an operating income of $20,000? a. 4,300 b. 4,545 c. 4,000 d. 5,000

4,545

Which of the following factors is involved in studying cost-volume-profit relationships? a. variable costs b. fixed costs c. product mix d. all of the above

all of the above

In CVP analysis, linear functions are assumed for a. contribution margin per unit. b. fixed cost per unit. c. total costs per unit. d. all of the above.

contribution margin per unit

CVP analysis requires costs to be categorized as a. either fixed or variable. b. product or period. c. direct or indirect. d. standard or actual.

either fixed or variable

At the break-even point, fixed costs are always a. more than the contribution margin. b. less than the contribution margin. c. more than the variable cost. d. equal to the contribution margin.

equal to the contribution margin

Management is considering replacing an existing sales commission compensation plan with a fixed salary plan. If the change is adopted, the company's a. operating leverage must increase. b. break-even point must increase. c. margin of safety must decrease. d. profit must increase.

operating leverage must increase

In a CVP graph, the area between the total cost line and the total revenue line represents total a. contribution margin. b. fixed costs. c. profit. d. variable costs.

profit