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Exam 2: Cost Behavior, operating Leverage, and Profitability Analysis

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Question 31

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Select from the following the incorrect statement regarding contribution margin.

A) Sales − Fixed costs = Contribution margin
B) Net income + Total fixed costs = Contribution margin
C) At the breakeven point (where the company has neither profit nor loss) , Total fixed costs = Total contribution margin
D) Total sales revenue times the contribution margin percentage = Total contribution margin

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Question 32

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How does total variable cost respond when volume increases?

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Total variable cost would incr...

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Question 33

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The excess of revenue over variable costs is referred to as:

What is an activity base,and how does the activity base relate to a variable cost?

When selecting the high and low observations under the high-low method of analyzing mixed costs,the selection should be based on the dependent variable (cost).

Carson Corporation's sales increase from $500,000 to $600,000 in the current year.What is the percentage change in sales?

Fixed cost per unit:

The following income statement is provided for Grant,Inc. $\begin{array} { l r } \text { Sales revenue (1,500@\$30per unit) } & \$ 45,000 \\\text { Variable costs } ( 1,500 @ \$ 14 \text { per unit) } & 21,000 \\\text { Fixed costs } & \underline{ 16,000} \\\text { Net incorne }& \underline{\$ 8,000 }\\\end{array}$ What is this company's magnitude of operating leverage?

Select the correct statement from the following.

Select the incorrect statement regarding the use of average unit costs.

If managers of a company do not understand the behavior of its costs,they are likely to make poor decisions about the company's operations.

If a company had a pure fixed cost structure,what would be the relationship between a given dollar increase in sales and net income?

What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: $\begin{array} { | c | c | c | c | } \hline \text { Jan-March } & \text { April-June } & \text { July-Sep } & \text { Oct-Dec } \\\hline 110 & 140 & 150 & 100 \\\hline\end{array}$

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units,the company's total costs will be:

In regression analysis,an r-square value of one indicates that there is a perfect fit between the independent and dependent variables.

The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000.If sales increase by 5%,what is net income expected to be?

Select the correct statement regarding fixed costs.

The following income statements are provided for Li Company's last two years of operation: $\begin{array}{lrr}&\text { Year 1}&\text { Year 2}\\\text { Number of units produced and sold } & 3,500 & 3,000 \\\text { Sales revenue } & \$ 101,500& \$ 87,000 \\\text { Cost of goods sold } & 68,000& 60,000 \\\text { Gross margin } & 33,500& 27,000 \\\text { General, selling, and administrative expenses } & 13,000& 12,00 0 \\\text { Net income } & \$ 20,500 & \$ 15,000\end{array}$ Assuming that cost behavior did not change over the two-year period,what is the annual amount of the company's fixed manufacturing overhead?

Operating leverage exists when:

Larry's Lawn Care incurs significant gasoline costs.This cost would be classified as a variable cost if the total gasoline cost: