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In the percent-of-sales method, an increase in dividends A. will increase required new funds. B. will decrease required new funds. C. has no effect on required new funds. D. more information is needed. If a firm has a break-even point of 40,000 units and the contribution margin on the firm’s single product is $4.00 per unit and fixed costs are $60,000, what will the firm’s operating profit be at sales of 40,000 units? A. $100,000 B. $30,000 C. $15,000 D. $145,000 The finance department should work independently without the input of other departments because there may be significant biases when creating proformas. A. True B. False The percent-of-sales method would be more accurate under a steady sales assumption than cyclical sales. A. True B. False The contribution margin is equal to price per unit minus total costs per unit. A. True B. False Operating leverage emphasizes the impact of using fixed assets in the business. A. True B. False Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet? A. decrease in inventory. B. increase in retained earnings. C. decrease in accounts payable. D. decrease in accounts receivable If the price per unit decreases because of competition but the cost structure remains the same A. the breakeven point rises. B. the degree of combined leverage declines. C. the degree of financial leverage declines. D. All of these The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage. A. True B. False An increase in sales and/or profits means there is also an increase in cash on the balance sheet. A. True B. False Operating leverage determines how income from operations is to be divided between debt holders and stockholders. A. True B. False A lower price for the firm’s product will reduce the firm’s breakeven point. A. True B. False The percent-of-sales method for financial forecasting assumes that balance sheet accounts maintain a constant relationship to sales. A. True B. False Linear break-even analysis assumes that costs are linear functions of volume. A. True B. False The percent-of-sales forecast is likely to be most accurate when used with cyclical companies. A. True B. False When the cost of raw materials is increasing, FIFO accounting A. yields higher ending inventory values than LIFO. B. produces higher unit sales than using LIFO. C. yields higher cost of goods sold than LIFO. D. All of these. Sales projections and the ability to accurately predict the future have a large impact on cash flow targets. A. True B. False A high DOL means: A. there are high labor costs. B. there is high debt. C. there is a large amount of equity. D. there are high fixed costs. The percent-of-sales method of financial forecasting A. is more detailed than a cash budget approach. B. requires more time than a cash budget approach. C. assumes that balance sheet accounts maintain a constant relationship to sales. D. provides a month-to-month breakdown of data. As the contribution margin rises, the breakeven point goes down. A. True B. False A firm utilizing FIFO inventory accounting would, in calculating gross profits, assume that A. all sales were from current production. B. all sales were from beginning inventory. C. sales were from beginning inventory until it was depleted, and then use sales from current production. D. all sales were for cash. Which of the following is not true about leverage? A. operating leverage influences the top half of the income statement, determining EBIT. B. financial leverage deals with the bottom half of the income statement, determining EPS C. combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT. D. none of these

In the percent-of-sales method, an increase in dividends

 

A. will increase required new funds.

 

B. will decrease required new funds.

 

C. has no effect on required new funds.

 

D. more information is needed.

 

If a firm has a break-even point of 40,000 units and the contribution margin on the firm’s single product is $4.00 per unit and fixed costs are $60,000, what will the firm’s operating profit be at sales of 40,000 units?

 

A. $100,000

 

B. $30,000

 

C. $15,000

 

D. $145,000

 

The finance department should work independently without the input of other departments because there may be significant biases when creating proformas.

 

A. True

 

B. False

 

The percent-of-sales method would be more accurate under a steady sales assumption than cyclical sales.

 

A. True

 

B. False

 

The contribution margin is equal to price per unit minus total costs per unit.

 

A. True

 

B. False

 

Operating leverage emphasizes the impact of using fixed assets in the business.

 

A. True

 

B. False

 

Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet?

 

A. decrease in inventory.

 

B. increase in retained earnings.

 

C. decrease in accounts payable.

 

D. decrease in accounts receivable

 

If the price per unit decreases because of competition but the cost structure remains the same

 

A. the breakeven point rises.

 

B. the degree of combined leverage declines.

 

C. the degree of financial leverage declines.

 

D. All of these

 

The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage.

 

A. True

 

B. False

 

An increase in sales and/or profits means there is also an increase in cash on the balance sheet.

 

A. True

 

B. False

 

Operating leverage determines how income from operations is to be divided between debt holders and stockholders.

 

A. True

 

B. False

 

A lower price for the firm’s product will reduce the firm’s breakeven point.

 

A. True

 

B. False

 

The percent-of-sales method for financial forecasting assumes that balance sheet accounts maintain a constant relationship to sales.

 

A. True

 

B. False

 

Linear break-even analysis assumes that costs are linear functions of volume.

 

A. True

 

B. False

 

The percent-of-sales forecast is likely to be most accurate when used with cyclical companies.

 

A. True

 

B. False

 

When the cost of raw materials is increasing, FIFO accounting

 

A. yields higher ending inventory values than LIFO.

 

B. produces higher unit sales than using LIFO.

 

C. yields higher cost of goods sold than LIFO.

 

D. All of these.

 

Sales projections and the ability to accurately predict the future have a large impact on cash flow targets.

 

A. True

 

B. False

 

A high DOL means:

 

A. there are high labor costs.

 

B. there is high debt.

 

C. there is a large amount of equity.

 

D. there are high fixed costs.

 

The percent-of-sales method of financial forecasting

 

A. is more detailed than a cash budget approach.

 

B. requires more time than a cash budget approach.

 

C. assumes that balance sheet accounts maintain a constant relationship to sales.

 

D. provides a month-to-month breakdown of data.

 

As the contribution margin rises, the breakeven point goes down.

 

A. True

 

B. False

 

A firm utilizing FIFO inventory accounting would, in calculating gross profits, assume that

 

A. all sales were from current production.

 

B. all sales were from beginning inventory.

 

C. sales were from beginning inventory until it was depleted, and then use sales from current production.

 

D. all sales were for cash.

 

Which of the following is not true about leverage?

 

A. operating leverage influences the top half of the income statement, determining EBIT.

 

B. financial leverage deals with the bottom half of the income statement, determining EPS

 

C. combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT.

 

D. none of these

 

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