Business Exam #3

LO11-2 Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed costs are projected to be $60,000. If the estimated number of students decreases by 10%, net income will

decrease by 25%.

LO10-1 Managerial accounting focuses on the needs of external users while financial accounting focuses on the needs of internal users. This statement is

false.

LO10-1 The Financial Accounting Standards Board (FASB) establishes standards for the preparation of financial accounting reports while the Securities and Exchange Commission (SEC) establishes standards for the preparation of managerial accounting reports. This statement is

false.

LO15-6 The return on investment (ROI) is measured by dividing the amount of operating income by the amount of the return. This statement is

false.

LO11-1 The graph below depicts Dove Company's monthly warehouse rental cost. Based on the graph, the rental cost is a

fixed cost.

LO11-4 Operating leverage is caused by

fixed cost.

LO11-1 At a production and sales level of 3,000 units, Bastion Company incurred $60,000 of fixed cost and $36,000 of variable cost. When 4,000 units of product are produced and sold the company's cost per unit is:

$27.

LO11-3 The following information was drawn from the accounting records of Dark Night, Inc. Based on this information Dark Night's contribution margin is: Sales Revenue (250 @ $600 per unit)

$70,000.

LO15-6 Return on investment is equal to

(operating income ÷ sales) x (sales ÷ operating assets).

LO11-1 At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of customers at a particular hot dog stand, the depreciation cost is

fixed.

LO15-6 Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Based on this information Western Division's margin is Western sales $150,000 Eastern sales $300,000

higher than Eastern's Margin.

LO15-6 Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Based on this information Western Division's turnover is Western sales $150,000 Eastern sales $300,000

lower than Eastern's turnover.

LO11-4 As compared to companies with low operating leverage, companies with high operating leverage have

more opportunity and more risk.

LO11-5 Green Manufacturing Company produces a product that has a variable cost of $30 per unit. Fixed costs amount to $240,000. The selling price of the product is $36. The contribution margin per unit is:

none of the above.

LO11-5 The break-even point is the point at which

revenue is equal to the total of fixed plus variable cost.

LO11-3 Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information

the company's gross margin is $100,000, while its contribution margin is $60,000.

LO11-3 Assume that a company incurs a mixture of fixed and variable product costs, and that all of its operating expenses are fixed. Finally, assume that the company earns a profit by making and selling 1,000 units of product. Under these conditions

the contribution margin will be greater than the gross margin.

LO11-6 With respect to a company that is currently earning a profit,

the higher the margin of safety the less likely a company is to incur a loss.

LO11-3 The amount of net income determined for an accounting period will be the same regardless of whether the income statement is prepared under a contribution margin format used in managerial accounting or the product costing format use in financial accounting. This statement is

true.

LO15-6 An ROI of 15% means that a company received fifteen cents for every dollar it invested. This statement is

true.

LO11-3 The contribution margin is determined by subtracting

variable product and variable period costs from sales.

LO11-1 At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of hot dog carts, the depreciation cost is

variable.

LO11-4 The following information was drawn from the records of Calico Company Based on this information the magnitude of operating leverage is approximately (round to nearest hundredth): Sales Revenue (250 @ $600 per unit)

1.15.

LO11-5 Boland Company sells a product that is priced at $20 per unit. The per unit contribution margin is equal to 25 percent of the sales price. If fixed costs amount to $55,000 and the company has a desired profit of $20,000, the number of units that must be sold to earn the desired profit is

15,000 units.

LO11-4 Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information a 10% increase in revenue will produce a

15.0 % change in net income.

LO11-2 Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed costs are projected to be $60,000. If the estimated number of students increase by 10%, net income will increase by:

25%.

LO11-5 Green Manufacturing Company produces a product that has a variable cost of $30 per unit. Fixed costs amount to $240,000. The selling price of the product is $36. How many units of product must Green produce and sell to break even?

40,000 units

LO11-4 At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If number of units sold increase by 15%, profits will increase by:

42%

LO11-6 Unistar Computers makes and sells a unique computer that is designed for a specific market. Cost information relating to that product is shown below: Unistar expects to make and sell 300 computers. Based on this information, the margin of safety expressed in units is: Sales Price $1,500 per unit

60 units.

LO11-5 Green Manufacturing Company produces a product that has a variable cost of $30 per unit. Fixed costs amount to $240,000. The selling price of the product is $36. How many units of product would Green be required to sell in order to earn a desired profit of $180,000?

70,000 units

LO11-6 Derek's Drum Depot (DDD) wants to add a new line of drumsticks to its product line. The following data apply to the new drumsticks line. The margin of safety for DDD is: Budgeted sales 30,000 sets per year

83%

LO11-2 Which of the following statements is true?

A company that has only variable cost cannot benefit from operating leverage.

LO11-2 Which of the following statements is true?

A fixed cost structure has more risk of volatile changes in net income than a company with a variable cost structure.

LO10-1 Which of the following are characteristics of managerial accounting information?

All of the answers describe characteristics of managerial accounting information.

LO11-6 Which of the following formulas is used to determine the margin of safety?

All of the formulas will yield a measure of the margin of safety.

LO15-6 Which of the following statements is true?

All of the statements is true.

LO11-1 Select the true statement:

As volume decreases fixed cost per unit increases.

LO11-1 Based on the behavior shown in the following table, which of the following is a variable cost? a. 500

Both total materials cost and total labor costs are variable costs.

LO11-4 The magnitude of operating leverage can be determined by which of the following formulas?

Contribution margin ÷ Net income

LO11-2 Elegant Dogs and Dazzling Dogs are competing canine grooming salons. Each company currently serves 4,500 customers per year. Both companies charge $35 to groom a dog. Elegant Dogs pays its dog groomers fixed salaries. Salary expense totals $45,000 per year. Dazzling Dogs pays its groomers $10 per dog groomed. Elegant Dogs lures 2,000 customers from Dazzling Dogs. Which of the following is true?

Elegant Dogs' profits will increase by more than Dazzling Dogs' profits will decrease.

LO10-1 Which of the following branches of accounting focuses more on historical data?

Financial accounting.

LO11-2 Fran Company is currently operating profitably. The company has a fixed cost structure. Based on this information which of the following statements is true?

If volume increases by 20%, profitability will increase by more than 20%.

LO10-1 Which of the following statements is true?

Managerial accounting reports are less regulated than financial accounting reports.

LO15-6 Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Based on this information Western Sales $150,000 Eastern Sales $300,000

None of the answers is correct.

LO11-6 The margin of safety is a measure of the distance between budgeted sales and the break-even point. It can be measured in dollars, in units or as a percentage.

These statements are true.

LO15-6 Which of the following types of business is most likely to have a low margin and high turnover?

a discount retail company like Walmart