Deck 5: Profit, Profitability, and Break-Even Analysis

Question 1

The higher the DFL

A)the less the cost of financing to the company.
B)the greater a company's operating income exceeds its earnings per share.
C)the greater a company's earnings per share exceeds its operating income.
D)none of the above.

Answer 1

the greater a company's earnings per share exceeds its operating income.

Question 2

Refer to Table 5- 1.At 600 units of production,the Steel Shelf company has monthly fixed costs of

A)$5,000.
B)$12,000.
C)$1,000.
D)$6,000.

Answer 2

$5,000.

Question 3

Break- even analysis is the process of determining before we begin earning a profit.

A)how much net profit will be made,or how many units will be produced
B)what price will be charged for a product,or how much net profit will be made
C)what price we will charged for a product,or how many units must be produced
D)how many units must be produced,or how much revenue must be obtained
E)how much revenue must be obtained,or how much net profit will be made

Answer 3

how many units must be produced,or how much revenue must be obtained

Question 4

Bankruptcy petitions are filed initially in

A)civil court.
B)municipal court.
C)US federal bankruptcy court.
D)state bankruptcy court.

Question 5

Refer to Table 5- 1.At 600 units of production,the Steel Shelf company will make a profit of

A)$5,000.
B)$12,000.
C)$6,000.
D)$1,000.

Question 6

Chapter 7 bankruptcy

A)is known as fresh start bankruptcy.
B)requires liquidation of all of the assets of a company.
C)requires payment to the creditor.
D)all of the above

Question 7

Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately.During the current year Sam had revenues of $150,000 and total expenses of $110,000.For Sam the opportunity cost of going into business was

A)$150,000.
B)$110,000.
C)$40,000.
D)zero because he had a profitable business.

Question 8

The earning power of a company can be defined as the product of 2 factors

A)total asset turnover and earnings per share.
B)net profit margin fixed asset turnover
C)fixed asset turnover and cash flow per share.
D)net profit margin and total asset turnover.

Question 9

Refer to Table 5- 2.What will Jane's Dress Emporium have to sell each month in order to break even?

A)$13,461.54
B)$15,000.00
C)$13,846.15
D)$25,000.00
E)$14,583.33

Question 10

Refer to Table 5- 1.At 600 units of production,the Steel Shelf company has total variable costs of

A)$12,000.
B)$1,000.
C)$6,000.
D)$5,000.

Question 11

Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately.During the current year Sam had revenues of $190,000 and total expenses of $110,000.Sam earned an

A)entrepreneurial profit of $80,000,and an accounting profit of $40,000.
B)entrepreneurial profit of $80,000.
C)accounting profit of $40,000.
D)accounting profit of $80,000 and an entrepreneurial profit of $40,000.
E)cannot tell with the information provided.

Question 12

Refer to Table 5- 1.At 600 units of production,the Steel Shelf company has total revenue of

A)$1,000.
B)$5,000.
C)$12,000.
D)$6,000.

Question 13

In order to determine the break- even point,we must identify several variables.At a minimum we must know

A)sales.
B)variable costs.
C)fixed costs.
D)all of the above.

Question 14

Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately.During the current year Sam had revenues of $150,000 and total expenses of $110,000.Sam earned an

A)accounting profit of $40,000.
B)entrepreneurial profit of $40,000,but had an accounting loss.
C)accounting profit of $40,000 and an entrepreneurial profit of $40,000.
D)entrepreneurial loss of $40,000.
E)Both A and D above are correct

Question 15

Which of the following holds true for the means test?

A)The debtor has to be able to pay $200 per month for 5 years.
B)If the debtor's income is greater than the states median income he will have to take a means test.
C)The means test has been around for years.
D)Everyone will have to pass a means test.

Question 16

You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation.Both of these corporations have $100 million in total assets.The Cog corporation had a net profit of $5 million and the Gear corporation had a net profit of $10 million.You read their annual reports and both companies had established a goal of having a net profit equal to 15% of total assets.

A)Gear is more effective than Cog.
B)Cog is more efficient than Gear.
C)Gear is more efficient than Cog.
D)Cog is more effective than Gear.
E)Cannot tell without more information.

Question 17

A firm is experiencing an increase in variable costs.What can the firm do to maintain its profitability?

A)Raise its price to increase its contribution margin.
B)Lower its price to gain a greater market share.
C)Increase its fixed costs to balance out its increased variable costs.
D)Decrease its fixed costs to breakeven sooner.

Question 18

In a conservative approach,a company will have

A)a narrow contribution margin.
B)high fixed costs.
C)low variable costs.
D)none of the above.

Question 19

The contribution margin in break- even analysis is derived by subtracting

A)variable cost per unit from fixed costs.
B)fixed costs from variable costs.
C)price from variable costs.
D)fixed costs from price.
E)variable cost per unit from price.

Question 20

Normally to compute break even,the manufacturing firm will use and the retail firm will use .

A)discrete units;discrete units
B)sales dollars;sales dollars
C)discrete units;sales dollars
D)sales dollars;discrete units

Question 21

Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately.During the current year Sam had revenues of $150,000 and total expenses of $110,000.Sam earned an

A)accounting profit of $40,000.
B)accounting profit of $40,000 and an entrepreneurial profit of $40,000.
C)entrepreneurial profit of $40,000,but had an accounting loss
D)entrepreneurial profit of $40,000.
E)Both A and D above are correct

Question 22

In a leveraged approach,a company will have

A)high variable costs.
B)a wide contribution margin.
C)low fixed costs.
D)none of the above.

Question 23

Chapter 11 bankruptcy occurs when a business seeks court protection to hold off its creditors while a plan is developed to pay off its creditors.

Question 24

Obtaining the highest possible return with the minimum use of resources committed is the basic definition of

A)effectiveness.
B)efficiency.
C)effectiveness and efficiency.
D)none of the above.

Question 25

Profitability is the same as

A)meeting a goal.
B)profit.
C)return on investment.
D)effectiveness.
E)expectations of the owners.

Question 26

Accomplishing a specific task or reaching a goal is the basic definition of

A)effectiveness.
B)effectiveness and efficiency.
C)efficiency.
D)none of the above.

Question 27

The basic formula for calculating break even is

A)P/(FC- VC).
B)VC/(P- FC).
C)FC/(P- VC).
D)VC/(FC- P).
E)FC/(VC- P).

Question 28

Your company is effective if you establish a specific goal and accomplish that goal.

Question 29

Chapter 11 bankruptcy occurs when a business has to liquidate all of its assets in order to pay off its creditors.

Question 30

Joan purchases a government bond for $10,000 that pays 7% annual interest.Jim purchases $20,000 worth of corporate bonds that pay 10% annual interest.If Joan's goal is to earn $700 per year on her investment,and Jim's goal is to earn $2,000 per year on his investment,then

A)both Jim and Joan are effective.
B)Jim is more efficient than Joan.
C)Joan is more efficient than Jim.
D)both A and B above are correct.
E)both A and C above are correct.

Question 31

For a business using leverage,the owner of the business can always count on having to pay the same interest payments on debt.

Question 32

Retail firms that sell hundreds of items will normally calculate break even for every product they sell.

Question 33

If a corporation's DOL is 3 then

A)every 10% change in sales operating income will change by 30%.
B)for every 1% change in sales,operating income will change by 3%.
C)for every 5 % change in sales,operating income will change by 15%.
D)all of the above.

Question 34

You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation.Both of these corporations have $100 million in total assets.The Cog corporation had a net profit of $5 million and the Gear corporation had a net profit of $10 million.You read their annual reports and both companies had established a goal of having a net profit equal to 10% of total assets.

A)Gear is effective and more efficient Cog.
B)Cog is effective but less efficient than Gear.
C)Gear is effective but less efficient than Cog.
D)Cog is effective and more efficient than Gear.
E)Cannot tell without more information.

Question 35

Profit is an absolute number that appears on the bottom line of an income statement.

Question 36

If a company has no operating leverage its degree of financial leverage is equal to its degree of combined leverage.

Question 37

When a company sells fewer units of a product than are required to break even,the company is losing money.

Question 38

All of the costs that a firm must pay,even if there are no sales are

A)contribution costs.
B)variable costs.
C)fixed costs.
D)prices charged.
E)sales costs.

Question 39

Your company is efficient if you set a specific goal and accomplish that goal with the use of maximum resources.

Question 40

In a leveraged approach the breakeven point is higher than in a conservative approach.

Question 41

Florida is a state that has the Homestead exemption.

Question 42

The lower the DOL,the greater the change in operating income will be as a result of a slight change in sales.

Question 43

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

Question 44

Chapter 7 bankruptcy is when a company is forced to liquidate all of its assets in order to pay off its creditors.

Question 45

You are using financial leverage when you use your own money to finance your debt.

Question 46

Profitability is an absolute number that appears on the bottom line of an income statement.

Question 47

The degree of operating leverage can be explained by using the following 2 variables : sales and earnings per share.

Question 48

When you go into business,your goal should be to earn both an accounting and an entrepreneurial profit.

Question 49

Once a company sells more units of a product than are required to break even,the company will make a profit.

Question 50

The degree of financial leverage can be explained by using the following 2 variables: operating income and earnings per share.

Question 51

Leverage uses those fixed costs of finance only to magnify a company's return.

Question 52

The degree of combined leverage can be explained by using the following 2 variables: sales and earnings per share.

Question 53

Another term for entrepreneurial profit is accounting profit.

Question 54

President Bush signed the Bankruptcy Abuse Prevention and consumer protection Act on April 20,2005.

Question 55

When a corporation enters Chapter 7 bankruptcy,the stockholders don't have to worry,because after the business is sold they will receive their investment back.