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71. A shift from low-margin sales to high-margin sales a. may increase net income, even though there is a decline in total units sold. b. will always increase net income. c. will always decrease net income. d. will always decrease units sold. 72. A shift from high-margin sales to low-margin sales a. may decrease net income, even though there is an increase in total units sold. b. will always decrease net income. c. will always increase net income. d. will always increase units sold. 73. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: Standard Division Premium Division Total Sales $400,000 $600,000 $1,000,000 Variable costs 280,000 360,000 Contribution margin $120,000 $240,000 Total fixed costs $320,000 What is the weighted-average contribution margin ratio? a. 34% b. 35% c. 36% d. 50% 74. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: Standard Division Premium Division Total Sales $400,000 $600,000 $1,000,000 Variable costs 280,000 360,000 Contribution margin $120,000 $240,000 Total fixed costs $320,000 What is the break-even point in dollars? a. $115,200 b. $888,889 c. $914,286 d. $941,117 75. The sales mix percentages for Novotna’s Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are $1,110,000. What is Novotna’s break-even point in dollars? a. $388,500 b. $3,000,000 c. $3,171,428 d. $3,363,636 76. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 3,000 machine hours available to manufacture a product, income will be a. $6,000 more if Product A is made. b. $6,000 less if Product B is made. c. $6,000 less if Product A is made. d. the same if either product is made. 77. Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $120 and takes two machine hours to make and Fancy has a unit contribution margin of $150 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Brooks do? a. Make Fancy which creates $30 more profit per unit than Plain does. b. Make Plain which creates $10 more profit per machine hour than Fancy does. c. Make Plain because more units can be made and sold than Fancy. d. The same total profits exist regardless of which product is made. 78. What is the key factor in determining sales mix if a company has limited resources? a. Contribution margin per unit of limited resource b. The amount of fixed costs per unit c. Total contribution margin d. The cost of limited resources 79. Greg’s Breads can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Unit Muffins 0.2 $3 Coffee Cakes 0.3 $4 The company has oven capacity of 1,200 hours. How much will contribution margin be if it produces only the most profitable product? a. $12,000 b. $16,000 c. $18,000 d. $24,000 80. Curtis Corporation’s contribution margin is $20 per unit for Product A and $24 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product? A B a. $10.00 $6.00 b. $10.00 $6.66 c. $8.00 $6.00 d. $8.00 $6.66 81. Cost structure a. refers to the relative proportion of fixed versus variable costs that a company incurs. b. generally has little impact on profitability. c. cannot be significantly changed by companies. d. refers to the relative proportion of operating versus nonoperating costs that a company incurs. 82. Outsourcing production will a. reduce fixed costs and increase variable costs. b. reduce variable costs and increase fixed costs. c. have no effect on the relative proportion of fixed and variable costs. d. make the company more susceptible to economic swings. 83. Reducing reliance on human workers and instead investing heavily in computers and online technology will a. reduce fixed costs and increase variable costs. b. reduce variable costs and increase fixed costs. c. have no effect on the relative proportion of fixed and variable costs. d. make the company less susceptible to economic swings. 84. Cost structure refers to the relative proportion of a. selling expenses versus administrative expenses. b. selling and administrative expenses versus cost of goods sold. c. contribution margin versus sales. d. none of the above. 85. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s degree of operating leverage is a. 1.22. b. 1.47. c. 1.20. d. 6.00. Ans: d, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics 86. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s margin of safety ratio is a. .08. b. .17. c. .20. d. .83. 87. Which of the following statements is not true? a. Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales. b. Companies that have higher fixed costs relative to variable costs have higher operating leverage. c. When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly. d. When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease. 88. Miller Manufacturing’s degree of operating leverage is 1.5. Warren Corporation’s degree of operating leverage is 6. Warren’s earnings would go up (or down) by ________ as much as Miller’s with an equal increase (or decrease) in sales. a. 1/4 b. 4.5 times c. 4 times d. 7.5 times 89. The margin of safety ratio a. is computed as actual sales divided by break-even sales. b. indicates what percent decline in sales could be sustained before the company would operate at a loss. c. measures the ratio of fixed costs to variable costs. d. is used to determine the break-even point. 90. A cost structure which relies more heavily on fixed costs makes the company a. more sensitive to changes in sales revenue. b. less sensitive to changes in sales revenue. c. either more or less sensitive to changes in sales revenue, depending on other factors. d. have a lower break-even point. 91. A company with a higher contribution margin ratio is a. more sensitive to changes in sales revenue. b. less sensitive to changes in sales revenue. c. either more or less sensitive to changes in sales revenue, depending on other factors. d. likely to have a lower breakeven point. 92. The degree of operating leverage a. does notprovide a reliable measure of a company’s earnings volatility. b. cannot be used to compare companies. c. is computed by dividing total contribution margin by net income. d. measures how much of each sales dollar is available to cover fixed expenses. a93. Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using a. full costing. b. absorption costing. c. variable costing. d. product costing. a94. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using a. operations costing. b. absorption costing. c. variable costing. d. product costing. a95. Companies recognize fixed manufacturing overhead costs as period costs (expenses) when incurred when using a. full costing. b. absorption costing. c. product costing. d. variable costing. a96. Under absorption costing and variable costing, how are fixed manufacturing costs treated? Absorption Variable a. Product Cost Product Cost b. Product Cost Period Cost c. Period Cost Product Cost d. Period Cost Period Cost a97. Under absorption costing and variable costing, how are variable manufacturing costs treated? Absorption Variable a. Product Cost Product Cost b. Product Cost Period Cost c. Period Cost Product Cost d. Period Cost Period Cost a98. Under absorption costing and variable costing, how are direct labor costs treated? Absorption Variable a. Product Cost Product Cost b. Product Cost Period Cost c. Period Cost Product Cost d. Period Cost Period Cost a99. Fixed selling expenses are period costs a. under both absorption and variable costing. b. under neither absorption nor variable costing. c. under absorption costing, but not under variable costing. d. under variable costing, but not under absorption costing. a100. Which cost is not charged to the product under variable costing? a. Direct materials b. Direct labor c. Variable manufacturing overhead d. Fixed manufacturing overhead a101. Which cost is charged to the product under variable costing? a. Variable manufacturing overhead b. Fixed manufacturing overhead c. Variable administrative expenses d. Fixed administrative expenses a102. Variable costing a. is used for external reporting purposes. b. is required under GAAP. c. treats fixed manufacturing overhead as a period cost. d. is also known as full costing. a103. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is a. $8. b. $9. c. $13. d. $14. a104. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under variable costing is a. $8. b. $9. c. $13. d. $14. a105. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Cost of goods sold under absorption costing is a. $450,000. b. $540,000. c. $650,000. d. $520,000. a106. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Ending inventory under variable costing is a. $90,000. b. $130,000. c. $200,000. d. $450,000. a107. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Under absorption costing, what amount of fixed overhead is deferred to a future period? a. $10,000 b. $40,000 c. $50,000 d. $240,000 a108. Net income under absorption costing is gross profit less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses. a109. Net income under variable costing is contribution margin less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses. a110. The manufacturing cost per unit for absorption costing is a. usually, but not always, higher than manufacturing cost per unit for variable costing. b. usually, but not always, lower than manufacturing cost per unit for variable costing. c. always higher than manufacturing cost per unit for variable costing. d. always lower than manufacturing cost per unit for variable costing.

71. A shift from low-margin sales to high-margin sales

a. may increase net income, even though there is a decline in total units sold.

b. will always increase net income.

c. will always decrease net income.

d. will always decrease units sold.

72. A shift from high-margin sales to low-margin sales

a. may decrease net income, even though there is an increase in total units sold.

b. will always decrease net income.

c. will always increase net income.

d. will always increase units sold.

73. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available:

Standard Division Premium Division Total

Sales $400,000 $600,000 $1,000,000

Variable costs 280,000 360,000

Contribution margin $120,000 $240,000

Total fixed costs $320,000

What is the weighted-average contribution margin ratio?

a. 34%

b. 35%

c. 36%

d. 50%

 

74. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available:

Standard Division Premium Division Total

Sales $400,000 $600,000 $1,000,000

Variable costs 280,000 360,000

Contribution margin $120,000 $240,000

Total fixed costs $320,000

What is the break-even point in dollars?

a. $115,200

b. $888,889

c. $914,286

d. $941,117

75. The sales mix percentages for Novotna’s Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are $1,110,000. What is Novotna’s break-even point in dollars?

a. $388,500

b. $3,000,000

c. $3,171,428

d. $3,363,636

76. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 3,000 machine hours available to manufacture a product, income will be

a. $6,000 more if Product A is made.

b. $6,000 less if Product B is made.

c. $6,000 less if Product A is made.

d. the same if either product is made.

77. Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $120 and takes two machine hours to make and Fancy has a unit contribution margin of $150 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Brooks do?

a. Make Fancy which creates $30 more profit per unit than Plain does.

b. Make Plain which creates $10 more profit per machine hour than Fancy does.

c. Make Plain because more units can be made and sold than Fancy.

d. The same total profits exist regardless of which product is made.

 

78. What is the key factor in determining sales mix if a company has limited resources?

a. Contribution margin per unit of limited resource

b. The amount of fixed costs per unit

c. Total contribution margin

d. The cost of limited resources

79. Greg’s Breads can produce and sell only one of the following two products:

Oven Contribution

Hours Required Margin Per Unit

Muffins 0.2 $3

Coffee Cakes 0.3 $4

The company has oven capacity of 1,200 hours. How much will contribution margin be if it produces only the most profitable product?

a. $12,000

b. $16,000

c. $18,000

d. $24,000

80. Curtis Corporation’s contribution margin is $20 per unit for Product A and $24 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?

A B

a. $10.00 $6.00

b. $10.00 $6.66

c. $8.00 $6.00

d. $8.00 $6.66

81. Cost structure

a. refers to the relative proportion of fixed versus variable costs that a company incurs.

b. generally has little impact on profitability.

c. cannot be significantly changed by companies.

d. refers to the relative proportion of operating versus nonoperating costs that a company incurs.

82. Outsourcing production will

a. reduce fixed costs and increase variable costs.

b. reduce variable costs and increase fixed costs.

c. have no effect on the relative proportion of fixed and variable costs.

d. make the company more susceptible to economic swings.

 

83. Reducing reliance on human workers and instead investing heavily in computers and online technology will

a. reduce fixed costs and increase variable costs.

b. reduce variable costs and increase fixed costs.

c. have no effect on the relative proportion of fixed and variable costs.

d. make the company less susceptible to economic swings.

84. Cost structure refers to the relative proportion of

a. selling expenses versus administrative expenses.

b. selling and administrative expenses versus cost of goods sold.

c. contribution margin versus sales.

d. none of the above.

85. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s degree of operating leverage is

a. 1.22.

b. 1.47.

c. 1.20.

d. 6.00.

Ans: d, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

86. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s margin of safety ratio is

a. .08.

b. .17.

c. .20.

d. .83.

87. Which of the following statements is not true?

a. Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales.

b. Companies that have higher fixed costs relative to variable costs have higher operating leverage.

c. When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.

d. When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

 

88. Miller Manufacturing’s degree of operating leverage is 1.5. Warren Corporation’s degree of operating leverage is 6. Warren’s earnings would go up (or down) by ________ as much as Miller’s with an equal increase (or decrease) in sales.

a. 1/4

b. 4.5 times

c. 4 times

d. 7.5 times

89. The margin of safety ratio

a. is computed as actual sales divided by break-even sales.

b. indicates what percent decline in sales could be sustained before the company would operate at a loss.

c. measures the ratio of fixed costs to variable costs.

d. is used to determine the break-even point.

90. A cost structure which relies more heavily on fixed costs makes the company

a. more sensitive to changes in sales revenue.

b. less sensitive to changes in sales revenue.

c. either more or less sensitive to changes in sales revenue, depending on other factors.

d. have a lower break-even point.

91. A company with a higher contribution margin ratio is

a. more sensitive to changes in sales revenue.

b. less sensitive to changes in sales revenue.

c. either more or less sensitive to changes in sales revenue, depending on other factors.

d. likely to have a lower breakeven point.

92. The degree of operating leverage

a. does notprovide a reliable measure of a company’s earnings volatility.

b. cannot be used to compare companies.

c. is computed by dividing total contribution margin by net income.

d. measures how much of each sales dollar is available to cover fixed expenses.

a93. Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using

a. full costing.

b. absorption costing.

c. variable costing.

d. product costing.

 

a94. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using

a. operations costing.

b. absorption costing.

c. variable costing.

d. product costing.

a95. Companies recognize fixed manufacturing overhead costs as period costs (expenses) when incurred when using

a. full costing.

b. absorption costing.

c. product costing.

d. variable costing.

a96. Under absorption costing and variable costing, how are fixed manufacturing costs treated?

Absorption Variable

a. Product Cost Product Cost

b. Product Cost Period Cost

c. Period Cost Product Cost

d. Period Cost Period Cost

a97. Under absorption costing and variable costing, how are variable manufacturing costs treated?

Absorption Variable

a. Product Cost Product Cost

b. Product Cost Period Cost

c. Period Cost Product Cost

d. Period Cost Period Cost

a98. Under absorption costing and variable costing, how are direct labor costs treated?

Absorption Variable

a. Product Cost Product Cost

b. Product Cost Period Cost

c. Period Cost Product Cost

d. Period Cost Period Cost

a99. Fixed selling expenses are period costs

a. under both absorption and variable costing.

b. under neither absorption nor variable costing.

c. under absorption costing, but not under variable costing.

d. under variable costing, but not under absorption costing.

 

a100. Which cost is not charged to the product under variable costing?

a. Direct materials

b. Direct labor

c. Variable manufacturing overhead

d. Fixed manufacturing overhead

a101. Which cost is charged to the product under variable costing?

a. Variable manufacturing overhead

b. Fixed manufacturing overhead

c. Variable administrative expenses

d. Fixed administrative expenses

a102. Variable costing

a. is used for external reporting purposes.

b. is required under GAAP.

c. treats fixed manufacturing overhead as a period cost.

d. is also known as full costing.

a103. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is

a. $8.

b. $9.

c. $13.

d. $14.

a104. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under variable costing is

a. $8.

b. $9.

c. $13.

d. $14.

 

a105. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Cost of goods sold under absorption costing is

a. $450,000.

b. $540,000.

c. $650,000.

d. $520,000.

a106. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Ending inventory under variable costing is

a. $90,000.

b. $130,000.

c. $200,000.

d. $450,000.

a107. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Under absorption costing, what amount of fixed overhead is deferred to a future period?

a. $10,000

b. $40,000

c. $50,000

d. $240,000

a108. Net income under absorption costing is gross profit less

a. cost of goods sold.

b. fixed manufacturing overhead and fixed selling and administrative expenses.

c. fixed manufacturing overhead and variable manufacturing overhead.

d. variable selling and administrative expenses and fixed selling and administrative expenses.

a109. Net income under variable costing is contribution margin less

a. cost of goods sold.

b. fixed manufacturing overhead and fixed selling and administrative expenses.

c. fixed manufacturing overhead and variable manufacturing overhead.

d. variable selling and administrative expenses and fixed selling and administrative expenses.

 

a110. The manufacturing cost per unit for absorption costing is

a. usually, but not always, higher than manufacturing cost per unit for variable costing.

b. usually, but not always, lower than manufacturing cost per unit for variable costing.

c. always higher than manufacturing cost per unit for variable costing.

d. always lower than manufacturing cost per unit for variable costing.

 

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