Chapter 11 RHIM - practice test

Activities that cause costs to change are called _____. a. activity bases b. cost pools c. incremental activities d. unit activities

a. activity bases

Which of the following is a characteristic of fixed costs? a. Fixed cost per unit changes inversely to changes in the activity base. b. Total fixed costs change in direct proportion to changes in the activity base. c. Total fixed costs change inversely to changes in the activity base. d. Fixed cost per unit remains the same irrespective of changes in the activity base.

a. fixed cost per unit changes inversely to changes in the activity base.

The difference between contribution margin and operating income is _____. a.fixed costs b.variable costs c.break-even sales d.the margin of safety

a. fixed costs

How do changes in fixed costs affect the break-even point? a. A decrease in per-unit fixed costs increases the break-even point. b. An increase in total fixed costs increases the break-even point. c. Any change in fixed costs does not affect the break-even point. d. An increase in total fixed costs decreases the break-even point.

b. An increase in total fixed costs increases the break-even point.

The margin of safety is computed by: a. deducting variable costs from current sales. b. deducting breakeven sales from current sales. c. deducting target profit from current sales. d. deducting budgeted sales from current sales.

b. deducting breakeven sales from current sales.

The relationship of a company's contribution margin to operating income is measured by _____. a. margin of operations b. operating leverage c. the break-even point d. the operating income ratio

b. operating leverage

The _____ plots only the difference between total sales and total costs. a. break-even graph b. profit-volume graph c. total cost function graph d. gross profit graph

b. profit-volume graph

Which of the following statements is true of the margin of safety? a.If the margin of safety is high, even a small decline in sales revenue may result in an operating loss. b.It indicates the decrease in fixed costs necessary to achieve the target profit. c.If the margin of safety is low, even a small decline in sales revenue may result in an operating loss. d.It indicates the operating loss that would result due to an increase in variable cost.

c. If the margin of safety is low, even a small decline in sales revenue may result in an operating loss.

Which of the following is true of a cost-volume-profit graph? a. Operating profits will be earned when the sales levels are on the break-even point. b. Operating profits will be earned when the sales levels are to the left of the break-even point. c. Operating losses will be incurred when the sales levels are to the left of the break-even point. d. The break-even point is the intersection point of the total sales and fixed cost lines.

c. Operating losses will be incurred when the sales levels are to the left of the break-even point.

_____ is the excess of sales over variable costs. a. Incremental margin b. Net profit c. Contribution margin d. Gross profit

c. contribution margin

An increase in the unit selling price _____. a. increases the contribution margin and increases the break-even point b. decreases the contribution margin and decreases the break-even point c. increases the contribution margin and decreases the break-even point d. decreases the contribution margin and increases the break-even point

c. increases the contribution margin and decreases the break-even point

The _____ indicates a possible decrease in sales that may occur before an operating loss occurs. a. break-even point b. contribution margin c. margin of safety d. degree of operating leverage

c. margin of safety

___ are costs that vary in proportion to changes in the activity base. a. fixed costs b. total costs c. variable costs d. semi-variable costs

c. variable costs

Which of the following statements is true about the effect of changes in unit variable cost on the break-even point? a. A change in the unit selling price does not affect the break-even point. b. A decrease in the unit variable cost decreases the contribution margin and decreases the break-even point. c. A decrease in the unit variable cost increases the contribution margin and increases the break-even point. d. An increase in the unit variable cost decreases the contribution margin and increases the break-even point.

d. An increase in the unit variable cost decreases the contribution margin and increases the break-even point.

Which of the following statements is true of operating leverage? a. Companies with high operating leverage generate less revenue. b. Companies with low fixed costs will normally have a high operating leverage. c. Companies with low contribution margin have a high operating leverage. d. Companies with high fixed costs will normally have a high operating leverage.

d. Companies with high fixed costs will normally have a high operating leverage.

Any additional contribution margin after covering fixed costs increases _____. a. unrealized income b. gross income c. opportunity income d. operating income

d. operating income