Question 1

Generally,companies that spend heavily for advertising are willing to do so because they have low contribution-margin percentages.

Accepted Answer

Companies that spend heavily for advertising are generally those that have high contribution-margin percentages. This means that they are able to make a good profit on each sale and can afford to invest in advertising to increase their sales even further.

Question 2

Key Company has a targeted sales volume of 62,300 units.Total fixed costs are $31,200.The contribution margin per unit is $1.20.What is targeted net income?
A)$31,200
B)$37,440
C)$43,560
D)$74,760

Accepted Answer

First, calculate the total contribution margin:

Total contribution margin = contribution margin per unit x targeted sales volume
Total contribution margin = $1.20 x 62,300
Total contribution margin = $74,760

Next, calculate the targeted net income:

Targeted net income = Total contribution margin - Total fixed costs
Targeted net income = $74,760 - $31,200
Targeted net income = $43,560

Therefore, the correct answer is C.

Question 3

Goy Company has a break-even point of 88,000 units.The contribution margin per unit is $9.60.The desired pre-tax profit is $18,096.How many units must be sold to achieve the desired profit?
A)1,885 units
B)88,000 units
C)89,885 units
D)indeterminate

Accepted Answer

To calculate the desired units to achieve the pre-tax profit, we use the formula:

(desired profit + fixed costs) / contribution margin per unit

In this case, the fixed costs equal the break-even point, which is 88,000 units. So:

(desired profit + 88,000) / $9.60 = X

Where X is the desired units to achieve the pre-tax profit. Solving for X:

($18,096 + 88,000) / $9.60 = 9,488

Therefore, Goy Company must sell 89,885 units to achieve the desired pre-tax profit of $18,096.

Question 4

Berea Company expects to sell 19,000 units.Total fixed costs are $84,000 and the contribution margin per unit is $6.00.Berea's tax rate is 40%.What is the margin of safety in units?
A)3,000 units
B)5,000 units
C)7,500 units
D)14,000 units

Accepted Answer

The answer of Berea Company expects to sell 19,000 units.Total...

Question 5

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

Accepted Answer

A high contribution-margin percentage means that a larger portion of each dollar of sales revenue is contributing to covering fixed costs and generating profit. As sales exceed the break-even point, the firm with a high contribution-margin percentage will see a greater increase in profits compared to a firm with a lower contribution-margin percentage. Therefore, option A is the correct choice.

Question 6

An industry that has a high contribution-margin percentage is the airlines.

Accepted Answer

Airlines have a high contribution margin percentage because the cost of each seat is relatively low compared to the ticket price, allowing for a significant profit margin.

Question 7

A small margin of safety may indicate a risky situation.

Accepted Answer

A small margin of safety means that there is little room for error or unexpected events, increasing the likelihood of a risky situation.

Question 8

Hell Company has the following information available:  How many units must be sold to achieve the targeted net income?
A)10,000 units
B)27,000 units
C)45,000 units
D)80,000 units

Accepted Answer

The answer of Hell Company has the following information available:...

Question 9

Assume the following facts:  How many units must be sold to achieve the targeted net income?
A)513
B)629
C)963
D)1,155

Accepted Answer

The answer of Assume the following facts:  How many...

Question 10

The benefits of using a computer model in CVP analysis always exceed the costs.

Accepted Answer

The benefits of using a computer model in CVP analysis do not always exceed the costs, as it depends on the complexity of the model, the size of the business, and the specific needs of the analysis.

Question 11

What is the margin of safety?
A)planned unit sales minus break-even unit sales
B)actual unit sales minus planned unit sales
C)sales price minus fixed expenses
D)equals contribution margin

Accepted Answer

Margin of safety is the difference between actual or projected sales and the break-even point. It represents the amount by which actual or projected sales can decline before the business incurs a loss. Therefore, option A, planned unit sales minus break-even unit sales, is the correct answer.

Question 12

In highly leveraged companies,small changes in sales volume result in large changes in net income.

Accepted Answer

This is due to the high levels of fixed costs, such as interest payments, which remain the same regardless of changes in sales volume. As a result, even small changes in sales can have a significant impact on net income.

Question 13

The following information is available for Kismer Corporation:  If management has a targeted net income of $59,400,then sales revenue should be ________.
A)$239,721
B)$580,067
C)$671,220
D)$932,250

Accepted Answer

We need to use the contribution margin ratio to calculate the sales revenue needed to achieve the targeted net income.
Contribution margin ratio = (sales revenue - variable expenses) / sales revenue
The contribution margin ratio can be calculated using the information given as: 
Contribution margin ratio = 47,160 / 146,000 = 0.3233
Using the formula for calculating sales revenue, we get: 
Sales revenue = (fixed expenses + target net income) / Contribution margin ratio
Sales revenue = (251,040 + 59,400) / 0.3233 = $932,250
Therefore, the sales revenue needed to achieve the targeted net income of $59,400 is $932,250. The best choice is D.

Question 14

Operating leverage is the ratio of fixed costs to variable costs.

Accepted Answer

Operating leverage is a measure of the degree to which a company's profits are affected by changes in its sales volume. It is calculated as the ratio of fixed costs to variable costs. Therefore, the statement is true.

Question 15

Highly leveraged companies are less risky than companies with low leverage.

Accepted Answer

Highly leveraged companies have a higher amount of debt compared to equity, making them more susceptible to financial difficulties and bankruptcy. On the other hand, companies with lower leverage have a more conservative approach, making them less risky.

Question 16

________ 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 firm's profits are affected by changes in sales volume. A higher operating leverage indicates that a firm's profits are more sensitive to changes in sales volume, which can be either positive or negative depending on the circumstances.

Question 17

Highly leveraged companies have low fixed costs and high variable costs.

Accepted Answer

Highly leveraged companies typically have high fixed costs and low variable costs, as they use debt to finance their operations and therefore have fixed interest payments to make regardless of their level of production or sales. This means that their profitability is highly dependent on their ability to generate enough revenue to cover these fixed costs, which can create added risk for the company and its investors.

Question 18

Manufacturers of industrial equipment have high contribution-margin percentages.

Accepted Answer

The answer of Manufacturers of industrial equipment have high contribution-margin...

Question 19

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 more risk with highly leveraged companies.
D)All of these answers are correct.

Accepted Answer

Highly leveraged companies have high fixed costs and low variable costs, leading to larger changes in net income with sales volume changes, and they carry more risk.

Question 20

The following information is available for Kinsner Corporation:  If management has a targeted net income of $46,200,then the number of units that must be sold is ________.
A)2,036 units
B)2,336 units
C)5,700 units
D)6,540 units

Accepted Answer

The answer of The following information is available for Kinsner...

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

Generally,companies that spend heavily for advertising are willing to do so because they have low contribution-margin percentages.

Key Company has a targeted sales volume of 62,300 units.Total fixed costs are $31,200.The contribution margin per unit is $1.20.What is targeted net income?

Goy Company has a break-even point of 88,000 units.The contribution margin per unit is $9.60.The desired pre-tax profit is $18,096.How many units must be sold to achieve the desired profit?

Berea Company expects to sell 19,000 units.Total fixed costs are $84,000 and the contribution margin per unit is $6.00.Berea's tax rate is 40%.What is the margin of safety in units?

As sales exceed the break-even point,a firm with a high contribution-margin percentage ________.

An industry that has a high contribution-margin percentage is the airlines.

A small margin of safety may indicate a risky situation.

Hell Company has the following information available: How many units must be sold to achieve the targeted net income?

Assume the following facts: How many units must be sold to achieve the targeted net income?

The benefits of using a computer model in CVP analysis always exceed the costs.

What is the margin of safety?

In highly leveraged companies,small changes in sales volume result in large changes in net income.

The following information is available for Kismer Corporation: If management has a targeted net income of $59,400,then sales revenue should be ________.

Operating leverage is the ratio of fixed costs to variable costs.

Highly leveraged companies are less risky than companies with low leverage.

________ is the ratio of fixed costs to variable costs.

Highly leveraged companies have low fixed costs and high variable costs.

Manufacturers of industrial equipment have high contribution-margin percentages.

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

The following information is available for Kinsner Corporation: If management has a targeted net income of $46,200,then the number of units that must be sold is ________.