Question 1

_____ is the ratio of fixed costs to variable costs.
A)Contribution margin
B)Break-even point
C)Operating leverage
D)The margin of safety

Accepted Answer

Operating leverage is the ratio of fixed costs to variable costs. It measures the degree to which a company uses fixed costs in its operations. A company with high operating leverage will have a higher proportion of fixed costs in its cost structure and will therefore have a higher break-even point.

Question 2

If total fixed costs are $84,000, contribution margin per unit is $6.20, and targeted after?tax net income is $18,000 with a 40% tax rate, then the number of units that must be sold is _____.
A)14,223 units
B)17,853 units
C)18,387 units
D)21,504 units

Accepted Answer

First, we need to calculate the total contribution margin needed to cover the fixed costs and achieve the targeted after-tax net income:

Targeted after-tax net income = $18,000
Tax rate = 40%
Pre-tax net income needed = $30,000 ($18,000/0.6)
Total contribution margin needed = $114,000 ($84,000 + $30,000)

Next, we can calculate the number of units that must be sold:

Contribution margin per unit = $6.20
Sales (in units) needed = $114,000 ÷ $6.20 = 18,387 units

Therefore, answer choice C (18,387 units) is the correct answer.

Question 3

Hell Fire Company, a producer of salsa, has the following information: $$\begin{array} { l r } 
\text { Income tax rate } & 30 \% \
\text { Selling price per unit } & \$ 5.00 \
\text { Variable cost per unit } & \$ 3.50 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$$ _____ must be sold to obtain a targeted income before taxes of $30,000.
A)10,000 units
B)27,000 units
C)45,000 units
D)80,000 units

Accepted Answer

The answer of Hell Fire Company, a producer of salsa,...

Question 4

If the contribution?margin ratio is 0.30, targeted net income is $76,800, and targeted sales volume in dollars is $480,000, then total fixed costs are _____.
A)$23,000
B)$44,160
C)$67,200
D)$144,000

Accepted Answer

Contribution margin = Sales - Variable costs
Contribution margin ratio = Contribution margin / Sales

Given:
Contribution margin ratio = 0.30
Targeted net income = $76,800
Targeted sales volume = $480,000

We can use the contribution margin ratio to find the contribution margin:

Contribution margin ratio = Contribution margin / Sales
0.30 = Contribution margin / $480,000
Contribution margin = $144,000

We can use the contribution margin to find the total fixed costs needed to reach the targeted net income:

Targeted net income = Contribution margin - Total fixed costs
$76,800 = $144,000 - Total fixed costs
Total fixed costs = $67,200

Therefore, the total fixed costs are $67,200. The correct answer is C.

Question 5

_____ is the relative proportions or combinations of quantities of products that comprise total sales.
A)Sales mix
B)Gross margin
C)Contribution-margin ratio
D)Variable-cost ratio

Accepted Answer

Sales mix refers to the proportion of different products or services sold by a company. It is important to analyze sales mix in order to optimize profitability and make informed decisions about product pricing and development.

Question 6

If targeted sales volume in units is 62,300, total fixed costs are $31,200, and contribution margin per unit is $1.20, then the targeted net income is _____.
A)$31,200
B)$43,560
C)$37,440
D)$74,760

Accepted Answer

Targeted Net Income = (Targeted Sales Volume × Contribution Margin per Unit) - Total Fixed Costs

Targeted Net Income = (62,300 units × $1.20) - $31,200
Targeted Net Income = $74,760 - $31,200
Targeted Net Income = $43,560

Therefore, the answer is B) $43,560.

Question 7

Muy Mal Company, a producer of salsa, has the following information: $$\begin{array} { l r } 
\text { Income tax rate } & 30 \% \
\text { Selling price per unit } & \$ 5.00 \
\text { Variable cost per unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 90,000.00
\end{array}$$ _____ must be sold to obtain a targeted after-tax income of $14,000.
A)45,000 units
B)52,000 units
C)55,000 units
D)60,000 units

Accepted Answer

To find the number of units needed to achieve a targeted after-tax income, first calculate the before-tax income: $14,000 / (1 - 0.30) = $20,000. Then, use the formula: (Fixed Costs + Before-Tax Income) / (Selling Price - Variable Cost) = (90,000 + 20,000) / (5 - 3) = 55,000 units.

Question 8

Assume the following cost information for Janice Company: $\begin{array}{lr}
\text { Selling price per unit } & \$ 144 \
\text { Variable costs per unit } & \$ 80 \
\text { Total fixed costs } & \$ 80,000 \
\text { Tax rate } & 40 \%
\end{array}$ If fixed costs increased by 10% and management wanted to maintain the original break-even point, then the selling price per unit would have to be increased to _____.
A)$158.40
B)$208.00
C)$150.40
D)$155.20

Accepted Answer

The answer of Assume the following cost information for Janice...

Question 9

As sales exceed the break?even point, a high contribution?margin percentage _____.
A)increases profits faster than does a low contribution?margin percentage
B)increases profits at the same rate as a low contribution?margin percentage
C)decreases profits at the same rate as a low contribution?margin percentage
D)increases profits slower than does a low contribution?margin percentage

Accepted Answer

A high contribution-margin percentage means that a larger portion of each sale is available to cover fixed costs and contribute towards profits. Therefore, as sales exceed the break-even point, a high contribution-margin percentage will result in faster profit growth compared to a low contribution-margin percentage.

Question 10

_____ is the excess of sales over the cost of goods sold.
A)Gross margin
B)Contribution-margin ratio
C)Variable-cost ratio
D)The sales mix

Accepted Answer

Gross margin is the excess of sales over the cost of goods sold. It represents the profit that a company makes on its products or services. Option B is incorrect as contribution-margin ratio is the ratio of a product's contribution margin to its sales revenue. Option C is incorrect as variable-cost ratio is the proportion of variable costs to sales revenue. Option D is incorrect as sales mix refers to the proportion of each product sold within a company's product line.

Question 11

The _____ is the change in total results under a new condition, in comparison with some given or known condition.
A)incremental effect
B)detrimental effect
C)conditional effect
D)comparability effect

Accepted Answer

The definition fits the concept of incremental effect, where the change in results is measured in comparison to a given or known condition. Option B) is incorrect as the term "detrimental" has negative connotations and does not fit the neutral definition provided. Option C) and D) are also incorrect as they do not describe the concept described in the question.

Question 12

If targeted after?tax net income is $67,500 with a 40% tax rate, contribution margin per unit is $2.00, and total fixed costs are $370,000, then the number of units that must be sold is _____.
A)160,833 units
B)167,250 units
C)218,750 units
D)241,250 units

Accepted Answer

The answer of If targeted after?tax net income is $67,500...

Question 13

Assuming a constant mix of 3 units of Zip for every 1 unit of Zap, a selling price of $21.60 for Zip and $28.80 for Zap, variable costs per unit of $14.40 for Zip and $16.80 for Zap, and total fixed costs of $53,760, the break?even point in units would be _____.
A)4,800 units of Zip and 1,600 units of Zap
B)1,200 units of Zip and 400 units of Zap
C)1,600 units of Zip and 4,800 units of Zap
D)40,320 units of Zip and 13,440 units of Zap

Accepted Answer

To find the break-even point, calculate the contribution margin per unit for the mix and divide the total fixed costs by this margin. The contribution margin for Zip is $7.20 ($21.60 - $14.40) and for Zap is $12.00 ($28.80 - $16.80). For the mix, the contribution margin is (3 * $7.20 + 1 * $12.00) = $33.60. The break-even point in terms of the mix is $53,760 / $33.60 = 1,600 mixes. This corresponds to 4,800 units of Zip and 1,600 units of Zap.

Question 14

If the proportions in a sales mix change, the _____.
A)contribution margin per unit increases
B)break-even point will remain the same
C)cost-volume-profit relationship also changes
D)net income will not be altered

Accepted Answer

If the proportions in a sales mix change, the contribution margin per unit may or may not increase, depending on if the products with higher contribution margins are sold more. The break-even point will not remain the same, as it depends on the sales mix and contribution margin of each product. The cost-volume-profit relationship also changes as the sales mix affects the overall sales revenue, variable expenses, and contribution margin ratio. Finally, net income may be altered depending on the effect of the sales mix change on sales revenue and expenses.

Question 15

If total fixed costs are $350,000, contribution margin per unit is $7.50, the tax rate is 30%, and the number of units to be sold is 100,000, then the after?tax net income will be _____.
A)$280,000
B)$350,000
C)$400,000
D)$877,500

Accepted Answer

To calculate the after-tax net income, first, find the total contribution margin by multiplying the contribution margin per unit by the number of units sold: $7.50 * 100,000 = $750,000. Then, subtract the total fixed costs from the total contribution margin to get the pre-tax income: $750,000 - $350,000 = $400,000. Finally, calculate the after-tax net income by subtracting the taxes (30% of $400,000) from the pre-tax income: $400,000 - ($400,000 * 0.30) = $400,000 - $120,000 = $280,000.

Question 16

Given a break?even point of 88,000 units and a contribution margin per unit of $9.60, the total number of units that must be sold to reach a net pre-tax profit of $18,096 is _____.
A)89,885 units
B)88,000 units
C)1,885 units
D)indeterminable

Accepted Answer

First, we need to calculate the total contribution margin necessary to reach the desired net pre-tax profit:

Net pre-tax profit = (sales - variable costs) - fixed costs 
$18,096 = (P - $9.60)88,000 - fixed costs

Solving for fixed costs, we get:

Fixed costs = (P - $9.60)88,000 - $18,096

We do not know the selling price (P), but we can find it by using the break-even equation:

88,000P = 88,000($9.60) + fixed costs 
88,000P = $844,800 + [(P - $9.60)88,000 - $18,096] 
88,000P = $826,704 + 88,000P - $844,800 
P = $10.26

Now we can substitute P back into the equation for fixed costs:

Fixed costs = ($10.26 - $9.60)88,000 - $18,096 
Fixed costs = $58,080

Finally, we can find the total units needed to reach the desired profit:

Net pre-tax profit = (P - $9.60)Q - $58,080 
$18,096 = ($10.26 - $9.60)Q - $58,080 
Q = 89,885

Therefore, the answer is A (89,885 units).

Question 17

Which of the following statements about highly leveraged companies is true?
A)Fixed costs are high and variable costs are low.
B)Large changes in sales volume result in larger changes in net income.
C)There is a higher possibility of net income or net loss and, therefore, more risk than in a highly leveraged firm.
D)All of these answers are correct.

Accepted Answer

All the statements correctly describe characteristics of highly leveraged companies: high fixed costs and low variable costs, larger changes in net income due to sales volume changes, and higher risk of net income or net loss.

Question 18

If the sales price per unit is $180, variable cost per unit is $100, targeted net income is $52,800, and total fixed costs are $39,600, the number of units that must be sold is _____.
A)513
B)629
C)963
D)1,155

Accepted Answer

The answer of If the sales price per unit is...

Question 19

_____ is all variable costs divided by sales.
A)Gross margin
B)Contribution-margin ratio
C)Variable-cost ratio
D)The sales mix

Accepted Answer

The variable-cost ratio is calculated by dividing all variable costs by sales. This ratio helps a business owner to analyze how much of their sales revenue is being consumed by variable costs (costs that vary with the level of sales, such as direct materials, direct labor, and variable overhead). By knowing this ratio, a business owner can determine their break-even point and can make informed decisions about pricing, cost management, and other strategic decisions.

Question 20

Assume the following cost information for Katherine Company: $\begin{array}{lr}
\text { Selling price per unit } & \$ 144 \
\text { Variable costs per unit } & \$ 95 \
\text { Total fixed costs } & \$ 80,000 \
\text { Tax rate } & 40 \%
\end{array}$ The break-even point in units is _____.
A)500 units
B)556 units
C)1,000 units
D)1,633 units

Accepted Answer

The break-even point is the point at which total revenue equals total costs. To calculate the break-even point, we can use the following formula:Break-even point = Total fixed costs / (Selling price per unit - Variable costs per unit)Plugging in the given values, we get:Break-even point = 80,000 / (144 - 95) = 1,633 unitsTherefore, the break-even point is 1,633 units.

Quiz 2: Introduction to Cost Behavior and Cost-Volume Relationships

_____ is the ratio of fixed costs to variable costs.

If total fixed costs are $84,000, contribution margin per unit is $6.20, and targeted after?tax net income is $18,000 with a 40% tax rate, then the number of units that must be sold is _____.

If the contribution?margin ratio is 0.30, targeted net income is $76,800, and targeted sales volume in dollars is $480,000, then total fixed costs are _____.

_____ is the relative proportions or combinations of quantities of products that comprise total sales.

If targeted sales volume in units is 62,300, total fixed costs are $31,200, and contribution margin per unit is $1.20, then the targeted net income is _____.

As sales exceed the break?even point, a high contribution?margin percentage _____.

_____ is the excess of sales over the cost of goods sold.

The _____ is the change in total results under a new condition, in comparison with some given or known condition.

If targeted after?tax net income is $67,500 with a 40% tax rate, contribution margin per unit is $2.00, and total fixed costs are $370,000, then the number of units that must be sold is _____.

Assuming a constant mix of 3 units of Zip for every 1 unit of Zap, a selling price of $21.60 for Zip and $28.80 for Zap, variable costs per unit of $14.40 for Zip and $16.80 for Zap, and total fixed costs of $53,760, the break?even point in units would be _____.

If the proportions in a sales mix change, the _____.

If total fixed costs are $350,000, contribution margin per unit is $7.50, the tax rate is 30%, and the number of units to be sold is 100,000, then the after?tax net income will be _____.

Given a break?even point of 88,000 units and a contribution margin per unit of $9.60, the total number of units that must be sold to reach a net pre-tax profit of $18,096 is _____.

Which of the following statements about highly leveraged companies is true?

If the sales price per unit is $180, variable cost per unit is $100, targeted net income is $52,800, and total fixed costs are $39,600, the number of units that must be sold is _____.

_____ is all variable costs divided by sales.

Assume the following cost information for Katherine Company: $\begin{array}{lr}\text { Selling price per unit } & \$ 144 \\\text { Variable costs per unit } & \$ 95 \\\text { Total fixed costs } & \$ 80,000 \\\text { Tax rate } & 40 \%\end{array}$ The break-even point in units is _____.