# Acct test 2

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### 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 minus variable expenses.

### 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? Contribution margin ratio Break-even point A) Decrease Increase B) Increase Decrease C) Decrease Decrease D) Increase Increase

B) increase and decrease

### 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.

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

### If a company is operating at the break-even point: A) its contribution margin will be equal to its variable expenses. B) its margin of safety will be equal to zero. C) its fixed expenses will be equal to its variable expenses. D) its selling price will be equal to its variable expense per unit.

B) its margin of safety will be equal to zero.

### At the break-even point: A) sales would be equal to contribution margin. B) contribution margin would be equal to fixed expenses. C) contribution margin would be equal to net operating income. D) sales would be equal to fixed expenses.

B) contribution margin would be equal to fixed expenses.

### The break-even point would be increased by: A) a decrease in total fixed expenses. B) a decrease in the ratio of variable expenses to sales. C) an increase in the contribution margin ratio. D) none of these.

D) none of these.

### Which of the following strategies could be used to reduce the break-even point? Fixed expenses Contribution margin A) Increase Increase B) Decrease Decrease C) Decrease Increase D) Increase Decrease

C) decrease and increase

### Break-even analysis assumes that: A) Total revenue is constant. B) Unit variable expense is constant. C) Unit fixed expense is constant. D) Selling prices must fall in order to generate more revenue.

B) Unit variable expense is constant.

### Target profit analysis is used to answer which of the following questions? A) What sales volume is needed to cover all expenses? B) What sales volume is needed to cover fixed expenses? C) What sales volume is needed to earn a specific amount of net operating income? D) What sales volume is needed to avoid a loss?

C) What sales volume is needed to earn a specific amount of net operating income?

### 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.

A) Sales − (Fixed expenses/Contribution margin ratio).

### If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: A) unit contribution margin. B) revenue. C) variable expense. D) net operating income.

D) net operating income.

### Which of the following is the correct calculation for the degree of operating leverage? A) net operating income divided by total expenses. B) net operating income divided by total contribution margin. C) total contribution margin divided by net operating income. D) variable expense divided by total contribution margin.

C) total contribution margin divided by net operating income.

### Which of the following is an assumption underlying standard CVP analysis? A) In multiproduct companies, the sales mix is constant. B) In manufacturing companies, inventories always change. C) The price of a product or service is expected to change as volume changes. D) Fixed expenses will change as volume increases.

A) In multiproduct companies, the sales mix is constant.

D) \$225,000

B) \$311,600

D) \$15,400

B) \$59,800

B) \$32,000

### Dodero Company produces a single product which sells for \$100 per unit. Fixed expenses total \$12,000 per month, and variable expenses are \$60 per unit. The company's sales average 500 units per month. Which of the following statements is correct? A) The company's break-even point is \$12,000 per month. B) The fixed expenses remain constant at \$24 per unit for any activity level within the relevant range. C) The company's contribution margin ratio is 40%. D) Responses A, B, and C are all correct.

C) The company's contribution margin ratio is 40%.

D) 4

D) \$4,560

A) \$23,740

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### A is a fixed cost; B is a variable cost. During the current year the level of activity has decreased but is still within the relevant range. We would expect that: A) The cost per unit of A has remained unchanged. B) The cost per unit of B has decreased. C) The cost per unit of A has decreased. D) The cost per unit of B has remained unchanged.

D) The cost per unit of B has remained unchanged.

### Which costs will change with an increase in activity within the relevant range? A) Unit fixed cost and total fixed cost B) Unit variable cost and total variable cost C) Unit fixed cost and total variable cost D) Unit fixed cost and unit variable cost

C) Unit fixed cost and total variable cost

### Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts receivable is an example of a: A) fixed cost B) step-variable cost C) mixed cost D) curvilinear cost

B) step-variable cost

D) variable cost

### For an automobile manufacturer, the cost of a driver's side air bag purchased from a supplier and installed in every automobile would best be described as a: A) fixed cost. B) mixed cost. C) step-variable cost. D) variable cost.

D) variable cost.

A) total cost

### In the standard cost formula Y = a + bX, what does the "a" represent? A) total cost B) total fixed cost C) total variable cost D) variable cost per unit

B) total fixed cost

### Which of the following would usually be considered a discretionary fixed cost for a soft drink bottling company? A) the cost of advertising its products B) the cost of fire insurance on its factory building C) depreciation on its manufacturing equipment D) both a and b above

A) the cost of advertising its products

C) \$4,000

### Clerical costs in the billing department of Craig Company are a mixture of variable and fixed components. Records indicate that average unit processing costs are \$0.50 per account processed at an activity level of 32,000 accounts. When only 22,000 accounts are processed, the total cost of processing is \$12,500. Assuming that this activity is within the relevant range, at a budgeted level of 25,000 accounts: A) processing costs are expected to total \$8,750. B) fixed processing costs are expected to be \$10,400. C) the variable processing costs are expected to be \$0.35 per account processed. D) processing costs are expected to total \$14,975.

C) the variable processing costs are expected to be \$0.35 per account processed.

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