Deck 6: Reporting and Analyzing Inventory

Question 1

In CVP analysis, cost includes manufacturing costs but not selling and administrative expenses.

Answer 1

False

Question 2

If Buttercup, Inc.sells two products with a sales mix of 75% : 25%, and the respective contribution margins are $80 and $240, then weighted-average unit contribution margin is $120.

Answer 2

True

Question 3

A company with low operating leverage will experience a sharp increase in net income with a given increase in sales.

Answer 3

False

Question 4

If fixed costs are $100,000 and weighted-average unit contribution margin is $50, then the break-even point in units is 2,000 units.

Question 5

When a company is in its early stages of operation, its primary goal is to generate a target net income.

Question 6

Sales mix is not important to managers when different products have substantially different contribution margins.

Question 7

The degree of operating leverage provides a measure of a company's earnings volatility.

Question 8

Sales mix is a measure of the percentage increase in sales from period to period.

Question 9

If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.

Question 10

The weighted-average contribution margin of all the products is computed when determining the break-even sales for a multi-product firm.

Question 11

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

Question 12

The margin of safety tells a company how far sales can drop before it will be operating at a loss.

Question 13

When a company has limited resources, management must decide which products to make and sell in order to maximize net income.

Question 14

Operating leverage refers to the extent to which a company's net income reacts to a given change in fixed costs.

Question 15

The break-even point in dollars is variable costs divided by the weighted-average contribution margin ratio.

Question 16

According to the theory of constraints, a company must identify its constraints and find ways to reduce or eliminate them.

Question 17

Net income can be increased or decreased by changing the sales mix.

Question 18

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit.

Question 19

If Sprinkle Industries has a margin of safety ratio of .60, it could sustain a 60 percent decline in sales before it would be operating at a loss.

Question 20

The CVP income statement classifies costs as variable or fixed and computes a contribution margin.

Question 21

Moonwalker's CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $88,000.

-Contribution margin is

A)$400,000.
B)$240,000.
C)$160,000.
D)$72,000.

Question 22

For Pierce Company, sales is $500,000, variable expenses are $330,000, and fixed expenses are $140,000.Pierce's contribution margin ratio is

A)10%.
B)28%.
C)34%.
D)66%.

Question 23

In a CVP income statement, cost of goods sold is generally

A)completely a variable cost.
B)completely a fixed cost.
C)neither a variable cost nor a fixed cost.
D)partly a variable cost and partly a fixed cost.

Question 24

Hinge Manufacturing's cost of goods sold is $420,000 variable and $240,000 fixed.The company's selling and administrative expenses are $300,000 variable and $360,000 fixed.

-If the company's sales is $1,480,000, what is its contribution margin?

A)$160,000
B)$760,000
C)$820,000
D)$880,000

Question 25

Contribution margin is the amount of revenue remaining after deducting

A)cost of goods sold.
B)fixed costs.
C)variable costs.
D)contra-revenue.

Question 26

The CVP income statement classifies costs

A)as variable or fixed and computes contribution margin.
B)by function and computes a contribution margin.
C)as variable or fixed and computes gross margin.
D)by function and computes a gross margin.

Question 27

Cost-volume-profit analysis is the study of the effects of

A)changes in costs and volume on a company's profit.
B)cost, volume, and profit on the cash budget.
C)cost, volume, and profit on various ratios.
D)changes in costs and volume on a company's profitability ratios.

Question 28

The contribution margin ratio is

A)sales divided by contribution margin.
B)sales divided by fixed expenses.
C)sales divided by variable expenses.
D)contribution margin divided by sales.

Question 29

For Buffalo Co., at a sales level of 5,000 units, sales is $75,000, variable expenses total $50,000, and fixed expenses are $21,000.What is the contribution margin per unit?

A)$4.20
B)$5.00
C)$10.00
D)$15.00

Question 30

In 2012, Teller Company sold 3,000 units at $400 each.Variable expenses were $280 per unit, and fixed expenses were $180,000.The same selling price, variable expenses, and fixed expenses are expected for 2013.What is Teller's break-even point in sales dollars for 2013?

A)$600,000
B)$1,800,000
C)$1,200,000
D)$1,714,286

Question 31

For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $48.What is the break-even point?

A)$2,083,334 sales dollars
B)$625,000 sales dollars
C)20,834 units
D)6,250 units

Question 32

For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%.What is net income?

A)$90,000
B)$162,000
C)$378,000
D)$540,000

Question 33

Hinge Manufacturing's cost of goods sold is $420,000 variable and $240,000 fixed.The company's selling and administrative expenses are $300,000 variable and $360,000 fixed.

-If the company's sales is $1,480,000, what is its net income?

A)$160,000
B)$760,000
C)$820,000
D)$880,000

Question 34

In 2012, Teller Company sold 3,000 units at $400 each.Variable expenses were $280 per unit, and fixed expenses were $180,000.The same selling price, variable expenses, and fixed expenses are expected for 2013.What is Teller's break-even point in units for 2013?

A)1,500
B)3,375
C)4,500
D)7,500

Question 35

Moonwalker's CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $88,000.

-Net income is

A)$400,000.
B)$160,000.
C)$152,000.
D)$72,000.

Question 36

Woolford's CVP income statement included sales of 4,000 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25,000.Fixed expenses are

A)$55,000.
B)$80,000.
C)$120,000.
D)$200,000.

Question 37

For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%.What are the total variable expenses?

A)$288,000
B)$540,000
C)$960,000
D)$1,500,000

Question 38

If contribution margin is $120,000, sales is $300,000, and net income is $40,000, then variable and fixed expenses are

Question 39

In 2013, Teller Company sold 3,000 units at $400 each.Variable expenses were $280 per unit, and fixed expenses were $160,000.What was Teller's 2013 net income?

A)$200,000
B)$360,000
C)$840,000
D)$1,200,000

Question 40

In a CVP income statement, a selling expense is generally

A)completely a variable cost.
B)completely a fixed cost.
C)neither a variable cost nor a fixed cost.
D)partly a variable cost and partly a fixed cost.

Question 41

Warner Manufacturing reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 75,000 units.Warner's margin of safety ratio is

A)25%.
B)33%.
C)75%.
D)125%.

Question 42

Ramirez Corporation sells two types of computer chips.The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus).Q-Chip has variable costs per unit of $60 and a selling price of $100.Q-Chip Plus has variable costs per unit of $70 and a selling price of $130.The weighted-average unit contribution margin for Ramirez is

A)$46.
B)$50.
C)$54.
D)$100.

Question 43

Capitol Manufacturing sells 3,000 units of Product A annually, and 7,000 units of Product B annually.The sales mix for Product A is

A)30%.
B)43%.
C)70%.
D)Cannot determine from information given.

Question 44

In 2012, Carow sold 3,000 units at $500 each.Variable expenses were $250 per unit, and fixed expenses were $250,000.The same selling price is expected for 2013.Carow is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%.What is Carow's break-even point in units for 2013?

A)1,000
B)1,200
C)1,250
D)1,500

Question 45

For Wickham Co., sales is $2,000,000, fixed expenses are $600,000, and the contribution margin ratio is 36%.What is required sales in dollars to earn a target net income of $400,000?

A)$1,111,111
B)$1,666,666
C)$2,777,778
D)$5,555,556

Question 46

In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000.Variable expenses were $300 per unit, and fixed expenses were $150,000.The same selling price is expected for 2013.Raleigh's variable cost per unit will rise by 10% in 2013 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000.How many units must Raleigh sell in 2013 to maintain the same income level as 2012?

A)794
B)971
C)1,176
D)1,088

Question 47

In 2012, Hagar Corp.sold 3,000 units at $500 each.Variable expenses were $350 per unit, and fixed expenses were $455,000.The same variable expenses per unit and fixed expenses are expected for 2013.If Hagar cuts selling price by 4%, what is Hagar's break-even point in units for 2013?

A)3,033
B)3,159
C)3,360
D)3,500

Question 48

In a sales mix situation, at any level of units sold, net income will be higher if

A)more higher contribution margin units are sold than lower contribution margin units.
B)more lower contribution margin units are sold than higher contribution margin units.
C)more fixed expenses are incurred.
D)weighted-average unit contribution margin decreases.

Question 49

Sales mix is

A)the relative percentage in which a company sells its multiple products.
B)the trend of sales over recent periods.
C)the mix of variable and fixed expenses in relation to sales.
D)a measure of leverage used by the company.

Question 50

For Wilder Corporation, sales is $1,200,000 (6,000 units), fixed expenses are $360,000, and the contribution margin per unit is $80.What is the margin of safety in dollars?

A)$60,000
B)$300,000
C)$540,000
D)$840,000

Question 51

The margin of safety ratio is

A)expected sales divided by break-even sales.
B)expected sales less break-even sales.
C)margin of safety in dollars divided by expected sales.
D)margin of safety in dollars divided by break-even sales.

Question 52

Margin of safety in dollars is

A)expected sales divided by break-even sales.
B)expected sales less break-even sales.
C)actual sales less expected sales.
D)expected sales less actual sales.

Question 53

Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme.Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme.Fixed expenses are $1,800,000.How many Standards would Roosevelt sell at the break-even point?

A)18,000
B)27,000
C)30,000
D)45,000

Question 54

The required sales in units to achieve a target net income is

A)(sales + target net income) divided by contribution margin per unit.
B)(sales + target net income) divided by contribution margin ratio.
C)(fixed cost + target net income) divided by contribution margin per unit.
D)(fixed cost + target net income) divided by contribution margin ratio.

Question 55

Ramirez Corporation sells two types of computer chips.The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus).Q-Chip has variable costs per unit of $60 and a selling price of $100.Q-Chip Plus has variable costs per unit of $70 and a selling price of $130.Ramirez's fixed costs are $540,000.How many units of Q-Chip would be sold at the break-even point?

A)3,000
B)3,522
C)5,000
D)7,000

Question 56

Swanson Company has two divisions; Sporting Goods and Sports Gear.The sales mix is 65% for Sporting Goods and 35% for Sports Gear.Swanson incurs $4,440,000 in fixed costs.The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.

-The break-even point in dollars is

A)$1,642,800.
B)$10,325,582.
C)$11,100,000.
D)$12,000,000.

Question 57

Swanson Company has two divisions; Sporting Goods and Sports Gear.The sales mix is 65% for Sporting Goods and 35% for Sports Gear.Swanson incurs $4,440,000 in fixed costs.The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.

-What will be the total contribution margin at the break-even point?

A)$3,820,466
B)$4,440,000
C)$4,480,000
D)$5,160,000

Question 58

Swanson Company has two divisions; Sporting Goods and Sports Gear.The sales mix is 65% for Sporting Goods and 35% for Sports Gear.Swanson incurs $4,440,000 in fixed costs.The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.

-The weighted-average contribution margin ratio is

A)37%.
B)40%.
C)43%.
D)50%.

Question 59

Swanson Company has two divisions; Sporting Goods and Sports Gear.The sales mix is 65% for Sporting Goods and 35% for Sports Gear.Swanson incurs $4,440,000 in fixed costs.The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.

-What will sales be for the Sporting Goods Division at the break-even point?

A)$3,600,000
B)$4,200,000
C)$6,711,628
D)$7,800,000

Question 60

Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme.Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme.Fixed expenses are $1,800,000.At the expected sales level, Roosevelt's net income will be

A)$(200,000).
B)$ - 0 -.
C)$2,200,000.
D)$4,000,000.

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

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.

Question 65

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: $\begin{array}{lrr}&\text { Standard Division}&\text { Premium Division }&\text {Total }\\\text { Sales } & \$ 400,000 & \$ 600,000&\$1,000,000 \\\text { Variable costs } & 280,000 & 360,000 \\\text { Contribution margin }&\$120,000&\$240,000\\\text { Total fixed costs }&&&\$320,000\end{array}$

-What is the break-even point in dollars?

A)$115,200
B)$888,889
C)$914,286
D)$941,117

Question 66

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?

Question 67

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

Question 68

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.

Question 69

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

Question 70

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

Question 71

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: $\begin{array}{lrr}&\text { Standard Division}&\text { Premium Division }&\text {Total }\\\text { Sales } & \$ 400,000 & \$ 600,000&\$1,000,000 \\\text { Variable costs } & 280,000 & 360,000 \\\text { Contribution margin }&\$120,000&\$240,000\\\text { Total fixed costs }&&&\$320,000\end{array}$

- What is the weighted-average contribution margin ratio?

A)34%
B)35%
C)36%
D)50%

Question 72

Greg's Breads can produce and sell only one of the following two products: $\begin{array}{lll}&\text { Oven } & \text { Contribution } \\&\text { Hours Required } & \text { Margin Per Unit }\\\text { Muffins } & 0.2 & \$ 3 \\\text { Coffee Cakes } & 0.3 & \$ 4\end{array}$ 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

Question 73

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.

Question 74

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.

Question 75

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.

Question 76

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.

Question 77

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.

Question 78

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.

Question 79

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.

Question 80

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.