Deck 12: Tools for Evaluating Operating Decisions

Question 1

The last step in the decision-making process is -------------------------------.

Answer 1

evaluation

Question 2

------------------------------- analysis is a tool for examining the relationship between costs and the volume of business generated by a firm.

Answer 2

Breakeven

Question 3

Total costs that are constant regardless of the volume sold during the period are called -------------------------------.

Answer 3

fixed costs

Question 4

The cost of goods sold would be an example of a -------------------------------.

Question 5

Determining whether a cost is fixed or variable depends on the length of the -------------------------------

Question 6

The fourth step in the decision-making process is

A) Analysis
B) Action
C) Evaluation
D) None of the above

Question 7

An example of a fixed cost is

A) Depreciation
B) Cost of goods sold
C) Commissions
D) Delivery charges

Question 8

An example of a variable cost is

A) Commissions
B) Interest on term debt
C) Rent
D) None of the above

Question 9

An example of a semi-variable cost is

A) Depreciation
B) Delivery charges
C) Maintenance and repair
D) Insurance

Question 10

Assumption(s) made when calculating breakeven is (are)

A) Fixed costs are constant
B) Efficiency is unchanged
C) Selling price is unchanged
D) All of the above

Question 11

If fixed costs are $500,000, the selling price is $10/unit and variable cost is $6/unit, then breakeven in dollars is

A) $5,000,000
B) $125,000
C) $1,250000
D) None of the above

Question 12

If fixed costs are $500,000, the selling price is $10/unit, variable cost is $6/unit and the firm wants to make $100,000 in profit, the breakeven in units is

A) 25,000
B) 100,000
C) 150,000
D) None of the above

Question 13

As sales increase, total fixed costs remain the same, but average fixed costs per unit of sales

A) Increase
B) Decrease
C) Decrease up to a point and increase
D) Remain the same

Question 14

As sales increase, total variable costs increase, but variable costs per unit

A) Increase
B) Decrease
C) Decrease up to a point and then increase
D) Remain constant

Question 15

If fixed costs are $500,000, selling price is $10/unit, variable cost is $4/unit, and the firm wants a 10 percent ROE on $1,000,000 in equity, then the breakeven in units will be

A) 25,000
B) 150,000
C) 100,000
D) None of the above

Question 16

To do nothing is always a default decision.

Question 17

Often the toughest part of decision-making is evaluation.

Question 18

Bad debt expense would be an example of a fixed cost.

Question 19

One special problem in cost classification is lumpiness.

Question 20

The second step in volume-cost analysis procedure is to summarize fixed and variable costs.

Question 21

If the selling price is increased and all other components of the breakeven calculation remain constant, the breakeven point will decrease.

Question 22

CTO stands for contribution to ownership.

Question 23

In the very long run, all costs become variable.

Question 24

If a firm can sell a product, but in order to sell that product the selling price will be less than its variable costs, then the sale should be made because at least the fixed costs will be covered.

Question 25

If an additional piece of equipment is purchased for $100,000 and it is depreciated over five years with a $0 salvage value using straight line depreciation, the selling price per unit is $10 and the variable costs per unit is $5, then the amount of additional units that need to be sold to pay for the new piece of equipment would be 4,000 units.