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Exam 11: Cost Behavior, Operating Leverage, and Profitability Analysis

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Question 1

True/False

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If a profitable company has both fixed and variable costs, its operating leverage will always be greater than 1.

A) True
B) False

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True

Question 2

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The variable cost per unit increases in direct proportion to the activity base.

A) True
B) False

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Question 3

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Based on the following cost data, items labeled (a) and (b) in the table below are which of the following amounts, respectively?

Descriptions of cost behavior as fixed or variable pertain to a particular range of activity.

The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000. If sales decrease by 6%, net income is expected to decrease by what amount?

Which of the following costs typically include both fixed and variable components?

Mark Company, Inc. sells electronics. The company generated sales of $45,000. Contribution margin is $20,000 and net income is $4,000. Based on this information, the magnitude of operating leverage is:

As activity increases, the fixed cost per unit increases while the variable cost per unit remains constant.

Variable costs will become fixed outside the relevant range.

Within the relevant range, the fixed cost per unit can be expected to decrease with increases in volume.

Select the term from the list provided that best matches each of the following descriptions. A) A condition in which a percentage change in revenue will produce a proportionately larger percentage change in net income B) A cost that changes in total in direct proportion to changes in volume C) A factor that causes (or drives) changes in costs D) Costs composed of both fixed and variable components E) The difference between a company's sales revenue and its variable costs F) The way a cost changes relative to change in a measure of activity G) A cost that remains constant in total when volume changes H) A company's cost mix or relative proportion of variable and fixed costs to total costs -Operating leverage

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage?

The following information is provided for Southall Company: What is this company's contribution margin?

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles, the total cost per unit will:

Consider the following information: Based on the above information, select the correct statement.

The total variable cost increases in direct proportion to volume.

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

Select the correct statement regarding fixed costs.

The excess of revenue over variable costs is referred to as:

If the company's volume doubles, the company's total cost will: