activity based questions

Use the following to answer questions 31-32:

31. Line A is the:

A. fixed cost line.

B. variable cost line.

C. total cost line.

D. total revenue line.

E. profit line.

32. The triangular area between the horizontal axis and Line A, to the right of 4,000, represents:

A. fixed cost.

B. variable cost.

C. profit.

D. loss.

E. sales revenue.

33. A recent income statement of Oslo Corporation reported the following data:

Units sold	8,000
Sales revenue	$7,200,000
Variable costs	4,000,000
Fixed costs	1,600,000

If the company desired to earn a target net profit of $480,000, it would have to sell:

A. 1,200 units.

B. 2,800 units.

C. 4,000 units.

D. 5,200 units.

E. an amount other than those above.

34. Yellow, Inc., sells a single product for $10. Variable costs are $4 per unit and fixed costs total $120,000 at a volume level of 10,000 units. What dollar sales level would Yellow have to achieve to earn a target net profit of $240,000?

A. $400,000.

B. $500,000.

C. $600,000.

D. $750,000.

E. $900,000.

Use the following to answer questions 35-37:

Archie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units.

35. Archie:

A. will break-even by selling 8,000 units.

B. will break-even by selling 13,333 units.

C. will break-even by selling 20,000 units.

D. will break-even by selling 1,000,000 units.

E. cannot break-even because it loses money on every unit sold.

36. Each unit that the company sells will:

A. increase overall profitability by $20.

B. increase overall profitability by $30.

C. increase overall profitability by $50.

D. increase overall profitability by some other amount.

E. decrease overall profitability by $5.

37. In order to produce a target profit of $22,000, Archie's dollar sales must total:

A. $8,440.

B. $21,100.

C. $1,000,000.

D. $1,055,000.

E. an amount other than those above.

38. The difference between budgeted sales revenue and break-even sales revenue is the:

A. contribution margin.

B. contribution-margin ratio.

C. safety margin.

D. target net profit.

E. operating leverage.

39. Maxie's budget for the upcoming year revealed the following figures:

Sales revenue	$840,000
Contribution margin	504,000
Net income	54,000

If the company's break-even sales total $750,000, Maxie's safety margin would be:

A. $(90,000).

B. $90,000.

C. $246,000.

D. $336,000.

E. $696,000.

:

40. If a company desires to increase its safety margin, it should:

A. increase fixed costs.

B. decrease the contribution margin.

C. decrease selling prices, assuming the price change will have no effect on demand.

D. stimulate sales volume.

E. attempt to raise the break-even point.

41. Dana sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20%, the company will experience:

A. no change in profit because a 20% drop in sales price is balanced by a 20% increase in volume.

B. an $80,000 drop in profitability.

C. a $240,000 drop in profitability.

D. a $400,000 drop in profitability.

E. a change in profitability other than those above.

42. Grimes is studying the profitability of a change in operation and has gathered the following information:

	Current Operation	Anticipated Operation
Fixed costs	$38,000	$48,000
Selling price	$16	$22
Variable cost	$10	$12
Sales (units)	9,000	6,000

Should Grimes make the change?

A. Yes, the company will be better off by $6,000.

B. No, because sales will drop by 3,000 units.

C. No, because the company will be worse off by $4,000.

D. No, because the company will be worse off by $22,000.

E. It is impossible to judge because additional information is needed.

43. Gleason sells a single product at $14 per unit. The firm's most recent income statement revealed unit sales of 80,000, variable costs of $800,000, and fixed costs of $560,000. Management believes that a $3 drop in selling price will boost unit sales volume by 20%. Which of the following correctly depicts how these two changes will affect the company's break-even point?

	Drop in Sales Price	Increase in Sales Volume
A.	Increase	Increase
B.	Increase	Decrease
C.	Increase	No effect
D.	Decrease	Increase
E.	Decrease	Decrease

44. All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest:

A. selling price.

B. variable cost.

C. contribution margin.

D. fixed cost.

E. gross margin.

45. O'Dell sells three products: R, S, and T. Budgeted information for the upcoming accounting period follows.

Product	Sales Volume (Units)	Selling Price	Variable Cost
R	16,000	$14	$9
S	12,000	10	6
T	52,000	11	8

The company's weighted-average unit contribution margin is:

A. $3.00.

B. $3.55.

C. $4.00.

D. $19.35.

E. an amount other than those above.

46. Wells Corporation has the following sales mix for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to break-even?

A. 800.

B. 4,000.

C. 20,000.

D. An amount other than those above.

E. Cannot be determined based on the information presented.

Use the following to answer questions 47-50:

Lamar & Co., makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows:

	Plain	Fancy
Unit selling price	$20.00		$35.00
Variable cost per unit	12.00		24.50

Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.

47. The weighted-average unit contribution margin is:

A. $4.80.

B. $9.00.

C. $9.25.

D. $17.00.

E. an amount other than those above.

48. Assuming that the sales mix remains constant, the total number of units that the company must sell to break even is:

A. 2,432.

B. 2,647.

C. 4,737.

D. 5,000.

E. an amount other than those above.

49. Assuming that the sales mix remains constant, the number of units of Plain that the company must sell to break even is:

A. 2,000.

B. 3,000.

C. 3,375.

D. 5,000.

E. 5,625.

50. Assuming that the sales mix remains constant, the number of units of Fancy that the company must sell to break even is:

A. 2,000.

B. 3,000.

C. 3,375.

D. 5,000.

E. 5,625.

51. Which of the following underlying assumptions form(s) the basis for cost-volume-profit analysis?

A. Revenues and costs behave in a linear manner.

B. Costs can be categorized as variable, fixed, or semivariable.

C. Worker efficiency and productivity remain constant.

D. In multiproduct organizations, the sales mix remains constant.

E. All of the above are assumptions that underlie cost-volume-profit analysis.

52. Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?

A. Product prices will remain constant as volume varies within the relevant range.

B. Costs can be categorized as fixed, variable, or semivariable.

C. The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.

D. Total fixed costs remain constant as activity changes.

E. Unit variable cost remains constant as activity changes.

53. The assumptions on which cost-volume-profit analysis is based appear to be most valid for businesses:

A. over the short run.

B. over the long run.

C. over both the short run and the long run.

D. in periods of sustained profits.

E. in periods of increasing sales.

54. The contribution income statement differs from the traditional income statement in which of the following ways?

A. The traditional income statement separates costs into fixed and variable components.

B. The traditional income statement subtracts all variable costs from sales to obtain the contribution margin.

C. Cost-volume-profit relationships can be analyzed more easily from the contribution income statement.

D. The effect of sales volume changes on profit is readily apparent on the traditional income statement.

E. The contribution income statement separates costs into product and period categories.

55. Which of the following does not typically appear on a contribution income statement?

A. Net income.

B. Gross margin.

C. Contribution margin.

D. Total variable costs.

E. Total fixed costs.

56. Which of the following does not typically appear on an income statement prepared by using a traditional format?

A. Cost of goods sold.

B. Contribution margin.

C. Gross margin.

D. Selling expenses.

E. Administrative expenses.

57. The extent to which an organization uses fixed costs in its cost structure is measured by:

A. financial leverage.

B. operating leverage.

C. fixed cost leverage.

D. contribution leverage.

E. efficiency leverage.

58. A manager who wants to determine the percentage impact on net income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

A. contribution margin.

B. gross margin.

C. operating leverage factor.

D. safety margin.

E. contribution-margin ratio.

59. Which of the following calculations can be used to measure a company's degree of operating leverage?

A. Contribution margin ÷ sales.

B. Contribution margin ÷ net income.

C. Sales ÷ contribution margin.

D. Sales ÷ net income.

E. Sales ÷ fixed costs.

60. You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton. Which one of the following choices correctly depicts (1) the relative use of fixed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales?

	Relative Use of Fixed Costs as Opposed to Variable Costs	Percentage Change in Income Caused by a Change in Sales
A.	Greater for Becker	Greater for Becker
B.	Greater for Becker	Lower for Becker
C.	Greater for Becker	Equal for both
D.	Lower for Becker	Greater for Becker
E.	Lower for Becker	Lower for Becker