Fred wants to save enough money each year so that he can purchase a sports car in January 2011. Fred receives a large bonus from his employer every December 31. He anticipates that the car will cost $54,000 on January 1, 2011. Which of the following will Fred need to calculate how much he must save each December 31?

Fred wants to save enough money each year so that he can purchase a sports car in January 2011. Fred receives a large bonus from his employer every December 31. He anticipates that the car will cost $54,000 on January 1, 2011. Which of the following will Fred need to calculate how much he must save each December 31? 

a. The anticipated interest rate and the present value of $1 table.
b. The anticipated interest rate and the future value of $1 table.
c. The anticipated interest rate and the present value table for annuities.
d. The anticipated interest rate and the future value table for annuities.

Answer: D

Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months?

Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months? 

a. $8,000
b. $2,000
c. $800
d. $200

Answer: B

The present value of annuity of $10,000 per year for 10 years discounted at 8% is what amount?

The present value of annuity of $10,000 per year for 10 years discounted at 8% is what amount? 

a. $5,002
b. $67,101
c. $53,349
d. $80,000

Answer: B

Which of the following transactions would usually cause accounts payable turnover to increase?

Which of the following transactions would usually cause accounts payable turnover to increase? 

a. Payment of cash to a supplier for merchandise previously purchased on credit.
b. Collection of cash from a customer.
c. Purchase of merchandise on credit.
d. None of the above.

Answer: A

A company is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000. How would this fact be reported in the financial statements to be issued at the end of the current month?

A company is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000. How would this fact be reported in the financial statements to be issued at the end of the current month? 

a. $ 2,000,000 in the current liability section.
b. $ 2,000,000 in the long-term liability section.
c. In a descriptive narrative in the footnote section.
d. None because disclosure is not required.

Answer: C

Company X has borrowed $100,000 from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)?

Company X has borrowed $100,000 from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)? 

a. $100,000 in the long-term liability section.
b. $100,000 plus the interest to be paid over the five-year period in the long-term liability section.
c. A portion of the $100,000 in the current liability section and the remainder of the principal in the long-term liability section.
d. A portion of the $100,000 plus interest in the current liability section and the remainder of the principal plus interest in the long-term liability section.

Answer: C

Which of the following best describes accrued liabilities?

Which of the following best describes accrued liabilities? 

a. Long-term liabilities.
b. Current amounts owed to suppliers of inventory.
c. Current liabilities to be recognized as revenue in a future period.
d. Current amounts owed to various parties excluding suppliers of inventory.

Answer: D

The university spirit organization needs to buy a car to travel to football games. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to a $1,000 down payment plus 20 monthly payments of $850. The local bank is currently charging an annual interest rate of 12% for car loans. Which is the better deal, and why?

The university spirit organization needs to buy a car to travel to football games. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to a $1,000 down payment plus 20 monthly payments of $850. The local bank is currently charging an annual interest rate of 12% for car loans. Which is the better deal, and why? 

a. The Leander offer is better because the total payments of $18,000 are less than the total payments of $19,000 to be made to the Lockhart dealership.
b. The Lockhart offer is better because the cost in terms of present value is less than the present value cost of the Leander offer.
c. The Lockhart offer is better because the monthly payments are less.
d. The Leander offer is better because the cash down payment is less.
e. The Leander offer is better because the cost in terms of present value is less than the present value cost of the Lockhart offer.

Answer: E

Your grandmother has agreed to send you $14,000 a year for 4 years to help finance your college education. What is the present value of this annuity at a discount rate of 10%?

Table A.4 - Present Value of Annuity of $1
Periods
8%/10%/12%/14%
1/0.9259/0.9091/0.8929/0.8772
2/1.7883/1.7355/1.6901/1.6467
3/2.5771/2.4869/2.4018/2.3216
4/3.3121/3.1699/3.0373/2.9137

Your grandmother has agreed to send you $14,000 a year for 4 years to help finance your college education. What is the present value of this annuity at a discount rate of 10%?

A) $34,816.60
B) $56,000.00
C) $55,600.00
D) $44,378.60

Answer: D

Compute the present value of $5,000 to be received one year from today if the interest rate is 10%, compounded annually.

Present Value of $1
Periods
8%/10%/12%/14%
1/0.9259/0.9091/0.8929/0.8772
2/0.8573/0.8264/0.7972/0.7695
3/0.7938/0.7513/0.7118/0.6750
4/0.7350/0.6830/0.6355/0.5921

Compute the present value of $5,000 to be received one year from today if the interest rate is 10%, compounded annually.

A) $4,545.50
B) $5,050.00
C) $4,500.00
D) $5,500.00

Answer: A

To qualify as a capital lease, the terms of the lease must meet:

To qualify as a capital lease, the terms of the lease must meet:

A) at least one of the criteria established by GAAP.
B) at least two of the criteria established by GAAP.
C) all of the criteria established by GAAP.
D) all but one of the criteria established by GAAP.

Answer: A

Review the following:

Review the following:

Probable: the chance that the future event or events will occur is high.
Reasonably possible: the chance that the future event or events will occur is more than remote but less than likely (probable).
Remote: the chance that the future event or event will occur is slight.
Which of the following rules about contingent liabilities is NOT true?


A) A contingent liability that can be estimated and is probable should be recorded.
B) A contingent liability that cannot be estimated and is probable should be recorded.
C) A contingent liability that cannot be estimated and is remote should not be recorded or disclosed.
D) A contingent liability that can be estimated and is only reasonably possible should be disclosed but not recorded.

Answer: B

Deferred revenues of $24,000 were received and properly recorded and entered in the ledger of the company. At the end of the accounting period, one-fourth of the deferred revenue had been earned, but unrecorded. The adjusting entry will require a:

Deferred revenues of $24,000 were received and properly recorded and entered in the ledger of the company. At the end of the accounting period, one-fourth of the deferred revenue had been earned, but unrecorded. The adjusting entry will require a:

A) a debit to Unearned Revenues and a credit to Revenues for $6,000.
B) a debit to Unearned Revenues and a credit to Cash for $6,000.
C) a debit to Unearned Revenues and a credit to Accounts Payable for $6,000.
D) a debit to Cash and credit to Revenues for $6,000.

Answer: A

On October 1, your company issued a mortgage note of $459,000 that requires monthly payments, excluding interest, of $3,000 at the end of each month, beginning October 31. On the December 31 balance sheet, the mortgage note will be reported as a:

On October 1, your company issued a mortgage note of $459,000 that requires monthly payments, excluding interest, of $3,000 at the end of each month, beginning October 31. On the December 31 balance sheet, the mortgage note will be reported as a:

A) current liability of $27,000 and a long-term liability of $423,000.
B) current liability of $36,000 and a long-term liability of $414,000.
C) current liability of $9,000 and a long-term liability of $441,000.
D) a long-term liability of $450,000.

Answer: B

Your company borrowed $50,000 on September 30 by issuing a 6-month short-term note payable that bears simple interest of 12%. On December 31, the end of the accounting period, the required adjusting entry related to the note will include a debit to Interest Expense and a credit to Interest Payable for the accrued amount of:

Your company borrowed $50,000 on September 30 by issuing a 6-month short-term note payable that bears simple interest of 12%. On December 31, the end of the accounting period, the required adjusting entry related to the note will include a debit to Interest Expense and a credit to Interest Payable for the accrued amount of:

A) $1,500
B) $6,000
C) $3,000
D) $2,000

Answer: A

The estimated time of accrued vacation time for employees is $63,500 for the period. The required adjusting entry will include a:

The estimated time of accrued vacation time for employees is $63,500 for the period. The required adjusting entry will include a:

A) debit to Compensation Expense and a credit to Cash for $63,500.
B) debit to Accrued Vacation Liability and a credit to Cash for $63,500.
C) debit to Compensation Expense and a credit to Accrued Vacation Liability for $63,500.
D) debit to Compensation Expense and a credit to Accounts Payable for $63,500.

Answer: C

Current assets are $400,000 of the total assets of $1,000,000. Current liabilities are $200,000 of the total liabilities of $700,000. What is the current ratio?

Current assets are $400,000 of the total assets of $1,000,000. Current liabilities are $200,000 of the total liabilities of $700,000. What is the current ratio?

A) 2.00
B) 2.50
C) 1.43
D) 1.75

Answer: A

A current liability is a short-term obligation that

A current liability is a short-term obligation that

A) will be paid within the current operating cycle.
B) will be paid within one year of the balance sheet date.
C) will be paid in the longer of periods (A) and (B).
D) does not affect liquidity.

Answer: C

The present value of a known future amount

The present value of a known future amount

a. will always be more than the future amount
b. will be equal to the future amoutn
c. will always be less than the future amount
d. may be greater than or less than the future amount, depending on the interest rate used
e. may be greater than or less than the future amount, depending on the amount of time in between.

Answer: C

An annuity is

An annuity is

a. a series of annual payments of the same amount.
b. any group of payments, equally spaced
c. any payments to a beneficiary from a fund set aside for that purpose
d. a series of consecutive equal payments, equally spaced, with the same implicit interest rate each period
e. annual payments of equal amounts at a fixed interest rate

Answer: D

Working capital is computed by

Working capital is computed by 

a. subtracting current assets from current liabilities
b. subtracting current liabilities from current assets
c. dividing current assets by current liabilities
d. dividing current liabilities by current assets
e. dividing current liabilities by noncurrent liabilities

Answer: B

A contingent liability that cannot be reasonably estimated

A contingent liability that cannot be reasonably estimated

a. may be recordded as a balance sheet item or disclosed in a footnote to the financial statements, at the discretion of management
b. may be disclosed in a footnote to the financial statements at the discretion of the management
c. need not be disclosed in the footnotes to the financial statements
d. must be reported as a liability on the balance sheet
e. requires disclosure in a footnote to the financial statements if it is at least reasonably possible

Answer: E

A contingent liability

A contingent liability 

a. is dependent on another company in order to occur
b. will result from a future event
c. cannot be estimated
d. is only remotely possbile.
e. is a potential liability that has arisen because of a past event or transaction.

Answer: E

In order to be recorded as a liability on the balance sheet, an item must be

In order to be recorded as a liability on the balance sheet, an item must be 

a. reasonably possible and subject to estimate
b. probable.
c. remote, but subject to estimate
d. probably, and subject to estimate
e. all of the above

Answer: D

Interest expense is computed by multiplying

Interest expense is computed by multiplying

a. the face value of the note by the annual percentage rate
b. the face value of the note by the annual interest rate by the number of days outstanding
c. the face value of the note by the annual interest rate by the time period for the loan (expressed as a portion of the year that the loan has been outstanding)
d. the face value of the note by the annual interest rate divided by 365
e. the face value of the note by the annual interest rate divided by 360

Answer: C

Deferred revenues represent a liability because:

Deferred revenues represent a liability because:

a. No cash has changed hands
b. collection is uncertain.
c. gooods and services have been paid for, but not yet provided to the customer.
d. the company is transferring them to another period for tax reasons
e. the customer may someday return items purchased for a refund.

Answer: C

Which of the following statements regarding the accounts payable turnover ratio is not correct?

Which of the following statements regarding the accounts payable turnover ratio is not correct? 

a. The accounts payable turnover ratio measures how quickly management is paying trade accounts.
b. A high ratio normally suggests that a company is not paying its suppliers in a timely manner.
c. A low ratio would raise questions concerning a company's liquidity.
d. The accounts payable turnover ratio is subject to manipulation.
e. All of the above statements are correct.

Answer: B

The current ratio is computed by:

The current ratio is computed by:

a. subtracting current assets from current liabilities.
b. subtracting current liabilities from current assets.
c. dividing current assets by current liabilities
d. dividing current liabilities by current assets.
e. dividing current liabilities by noncurrent liabilities

Answer: C

When a liability is first recorded, it is:

When a liability is first recorded, it is:

a. reported as a current liability
b. reported as a long-term liability
c. measured in terms of its current cash equivalent, which is the cash amount a creditor would accept to settle the liability immediately.
d. only recorded if it must be paid within the current operating cycle or one year, whichever is longer.
e. all of the above.

Answer: C

On January 2, 2006, a company buys new equipment and signs a note agreeing to pay $235,000 on December 31, 2007, The amount represents the cash equivalent price of the equipment plus interest for two years. Equipment should be debited and notes payable should be credited for $235,000.

On January 2, 2006, a company buys new equipment and signs a note agreeing to pay $235,000 on December 31, 2007, The amount represents the cash equivalent price of the equipment plus interest for two years. Equipment should be debited and notes payable should be credited for $235,000.

Answer: False - In conformity with the cost principle, the cost of the equipment is its current cash equivalent price, which is the present value of the future payment.

Since compound interest problems involve more complex interest calculations, the simple interest formula cannot be used to compute interest expense.

Since compound interest problems involve more complex interest calculations, the simple interest formula cannot be used to compute interest expense.

Answer: False - the simple interest formula is used for all interest calculations, simple or compound. The rate and time are adjusted in compound interest calculations for compounding more frequently than annually.

Companies generally use long-term debt to finance long-lived assets, matching the life of the asset to the term of the debt.

Companies generally use long-term debt to finance long-lived assets, matching the life of the asset to the term of the debt.

Answer: True

A contingent liability that is material in amount and has at least a remote possibility of occurrence must be disclosed in a footnote to the financial statements.

A contingent liability that is material in amount and has at least a remote possibility of occurrence must be disclosed in a footnote to the financial statements.

Answer: False - a contingent liability with only a remote possibility of occurrence does not need to be disclosed in the footnotes to the financial statements

Working capital is computed by subtracting liabilities from assets.

Working capital is computed by subtracting liabilities from assets.

Answer: False - working capital is computed by subtracting current liabilities from current assets

When all or part of a company's long-term debt is due within the next year, it is reported as a noncurrent liability on the balance sheet and disclosed in the footnotes to the financial statements.

When all or part of a company's long-term debt is due within the next year, it is reported as a noncurrent liability on the balance sheet and disclosed in the footnotes to the financial statements.

Answer: False - long-term debt, or a portion thereof, which is due within the next year, must be reported on the balance sheet as a current liability

A publisher who sells one-year, prepaid subscriptions to its monthly magazine does not need to defer revenue because the advance payments have already been received from customers.

A publisher who sells one-year, prepaid subscriptions to its monthly magazine does not need to defer revenue because the advance payments have already been received from customers.

Answer: False - When a company collects cash before the related revenue has been earned, the cash is called dferred revenues; in other words, this revenue should be deferred. The publisher does not earn and should not record any revneu upon receipt of the advance subscription payments from its customers. Instead, the publisher earns and records revenue each time the monthly magazines are delivered to its customers.

Trade accounts payable are generally incurred as a result of the purchase of goods and services in the normal course of business.

Trade accounts payable are generally incurred as a result of the purchase of goods and services in the normal course of business.

Answer: True

A company with a high current ratio does not have liquidity problems.

A company with a high current ratio does not have liquidity problems.

Answer: False - Normally, a high current ratio suggests good liquidity; however, a company with a high current ratio might still have liquidity problems if significant funds are tied up in assets that will not be easily converted into cash (such as a slow-moving inventory)

Current liabilities are likely to be satisfied with current assets.

Current liabilities are likely to be satisfied with current assets.

Answer: True

Fjeld Corporation produces and sells two products. In the most recent month, Product C66G had sales of $20,000 and variable expenses of $7,200. Product U11T had sales of $19,000 and variable expenses of $8,400. And the fixed expenses of the entire company were $21,740. If the sales mix were to shift toward Product C66G with total dollar sales remaining constant, the overall break-even point for the entire company:

Fjeld Corporation produces and sells two products. In the most recent month, Product C66G had sales of $20,000 and variable expenses of $7,200. Product U11T had sales of $19,000 and variable expenses of $8,400. And the fixed expenses of the entire company were $21,740. If the sales mix were to shift toward Product C66G with total dollar sales remaining constant, the overall break-even point for the entire company:

A. would increase.
B. would not change.
C. would decrease.
D. could increase or decrease.

Answer: C

Mounts Corporation produces and sells two products. In the most recent month, Product I05L had sales of $32,000 and variable expenses of $10,880. Product P42T had sales of $45,000 and variable expenses of $18,380. And the fixed expenses of the entire company were $46,070. The break-even point for the entire company is closest to

Mounts Corporation produces and sells two products. In the most recent month, Product I05L had sales of $32,000 and variable expenses of $10,880. Product P42T had sales of $45,000 and variable expenses of $18,380. And the fixed expenses of the entire company were $46,070. The break-even point for the entire company is closest to:

A. $30,930
B. $75,330
C. $74,306
D. $46,070

Answer: C

Balbuena Corporation produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $15,630. If the sales mix were to shift toward Product K87W with total sales dollars remaining constant, the overall break-even point for the entire company:

Balbuena Corporation produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $15,630. If the sales mix were to shift toward Product K87W with total sales dollars remaining constant, the overall break-even point for the entire company:

A. would not change.
B. would increase.
C. would decrease.
D. could increase or decrease

Answer: C

Rickers Inc. produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $38,940. The break-even point for the entire company is closest to:

Rickers Inc. produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $38,940. The break-even point for the entire company is closest to:

A. $80,590
B. $76,353
C. $38,940
D. $46,060

Answer: B

The following monthly data are available for the W.K. Kent Company: The break-even sales for the month for the company are closest to:

The following monthly data are available for the W.K. Kent Company: The break-even sales for the month for the company are closest to:

A. $170,089
B. $189,200
C. $139,164
D. $127,567

Answer: B

Tanigawa Inc. has an operating leverage of 8.7. If the company's sales increase by 8%, its net operating income should increase by about:

Tanigawa Inc. has an operating leverage of 8.7. If the company's sales increase by 8%, its net operating income should increase by about:

A. 69.6%
B. 8.7%
C. 108.8%
D. 8.0%

Answer: A

Sperberg Corporation's operating leverage is 3.7. If the company's sales increase by 12%, its net operating income should increase by about:

Sperberg Corporation's operating leverage is 3.7. If the company's sales increase by 12%, its net operating income should increase by about:

A. 44.4%
B. 3.7%
C. 12.0%
D. 30.8%

Answer: A

Lagasca Corporation's contribution format income statement for December appears below: The degree of operating leverage is closest to:

Lagasca Corporation's contribution format income statement for December appears below:
The degree of operating leverage is closest to:

A. 10.56
B. 0.21
C. 4.69
D. 0.09

Answer: C

The January contribution format income statement of Brotherton Corporation appears below: The degree of operating leverage is closest to:

The January contribution format income statement of Brotherton Corporation appears below:
The degree of operating leverage is closest to:

A. 6.26
B. 0.27
C. 0.16
D. 3.64

Answer: D

At a sales level of $90,000, Blue Company's contribution margin is $24,000. If the degree of operating leverage is 6 at a $90,000 sales level, net operating income must equal:

At a sales level of $90,000, Blue Company's contribution margin is $24,000. If the degree of operating leverage is 6 at a $90,000 sales level, net operating income must equal:

A. $15,000
B. $11,000
C. $4,000
D. $20,000

Answer: C

Kendall Company has sales of 1,000 units at $60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are $30,000, the degree of operating leverage is:

Kendall Company has sales of 1,000 units at $60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are $30,000, the degree of operating leverage is:

A. 1.50
B. 5.00
C. 1.67
D. 3.50

Answer: D

Victorin Corporation has provided the following data concerning its only product: The margin of safety as a percentage of sales is closest to:

Victorin Corporation has provided the following data concerning its only product:
The margin of safety as a percentage of sales is closest to:

A. 19%
B. 77%
C. 23%
D. 81%

Answer: A

Sturrock Corporation has provided the following data concerning its only product: What is the margin of safety in dollars?

Sturrock Corporation has provided the following data concerning its only product: What is the margin of safety in dollars?

A. $5,122,000
B. $4,558,580
C. $3,414,667
D. $563,420

Answer: D

Puchalla Corporation sells a product for $230 per unit. The product's current sales are 13,400 units and its break-even sales are 10,720 units. The margin of safety as a percentage of sales is closest to:

Puchalla Corporation sells a product for $230 per unit. The product's current sales are 13,400 units and its break-even sales are 10,720 units. The margin of safety as a percentage of sales is closest to:

A. 20%
B. 25%
C. 80%
D. 75%

Answer: A

Olis Corporation sells a product for $130 per unit. The product's current sales are 28,900 units and its break-even sales are 25,721 units. What is the margin of safety in dollars?

Olis Corporation sells a product for $130 per unit. The product's current sales are 28,900 units and its break-even sales are 25,721 units. What is the margin of safety in dollars?

A. $413,270
B. $3,343,730
C. $2,504,667
D. $3,757,000

Answer: A

The following information pertains to Clove Co.: Clove's margin of safety is:

The following information pertains to Clove Co.: Clove's margin of safety is:

A. $300,000
B. $400,000
C. $500,000
D. $800,000

Answer: A

Zumpano Inc. produces and sells a single product. The selling price of the product is $170.00 per unit and its variable cost is $73.10 per unit. The fixed expense is $125,001 per month. The break-even in monthly dollar sales is closest to:

Zumpano Inc. produces and sells a single product. The selling price of the product is $170.00 per unit and its variable cost is $73.10 per unit. The fixed expense is $125,001 per month. The break-even in monthly dollar sales is closest to:

A. $211,667
B. $125,001
C. $290,700
D. $219,300

Answer: D

Data concerning Carlo Corporation's single product appear below: The break-even in monthly dollar sales is closest to:

Data concerning Carlo Corporation's single product appear below:
The break-even in monthly dollar sales is closest to:

A. $896,744
B. $466,900
C. $1,556,333
D. $667,000

Answer: D

Shiraki Corporation produces and sells a single product. Data concerning that product appear below: The break-even in monthly dollar sales is closest to:

Shiraki Corporation produces and sells a single product. Data concerning that product appear below:
The break-even in monthly dollar sales is closest to:

A. $650,000
B. $687,722
C. $396,500
D. $1,016,667

Answer: A

Moncrief Inc. produces and sells a single product. The selling price of the product is $170.00 per unit and its variable cost is $62.90 per unit. The fixed expense is $300,951 per month. The break-even in monthly unit sales is closest to:

Moncrief Inc. produces and sells a single product. The selling price of the product is $170.00 per unit and its variable cost is $62.90 per unit. The fixed expense is $300,951 per month. The break-even in monthly unit sales is closest to:

A. 4,785 units
B. 2,810 units
C. 3,122 units
D. 1,770 units

Answer: B

Data concerning Odum Corporation's single product appear below: The break-even in monthly unit sales is closest to:

Data concerning Odum Corporation's single product appear below:
The break-even in monthly unit sales is closest to:

A. 1,413 units
B. 1, 110 units
C. 622 units
D. 1,048 units

Answer: B

Rave Corporation produces and sells a single product. Data concerning that product appea below: The break-even in monthly unit sales is closest to:

Rave Corporation produces and sells a single product. Data concerning that product appea below:
The break-even in monthly unit sales is closest to:

A. 2,844 units
B. 3,620 units
C. 3,210 units
D. 1,701 units

Answer: C

The following is last month's contribution format income statement: What is the company's break-even in sales dollars?

The following is last month's contribution format income statement:
What is the company's break-even in sales dollars?

A. $1,200,000
B. $0
C. $1,800,000
D. $1,600,000

Answer: A

Rider Company sells a single product. The product has a selling price of $40 per unit and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's breakeven point in terms of total dollar sales is:

Rider Company sells a single product. The product has a selling price of $40 per unit and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's breakeven point in terms of total dollar sales is:

A. $100,000
B. $80,000
C. $60,000
D. $48,000

Answer: D

The following data pertain to last month's operations: The break-even point in dollars is:

The following data pertain to last month's operations: The break-even point in dollars is:

A. $300,000
B. $240,000
C. $200,000
D. $160,000

Answer: B

Smith Company sells a single product at a selling price of $30 per unit. Variable expenses are $12 per unit and fixed expenses are $41,400. Smith's break-even point is:

Smith Company sells a single product at a selling price of $30 per unit. Variable expenses are $12 per unit and fixed expenses are $41,400. Smith's break-even point is:

A. 1,380 units
B. 2,300 units
C. 3,450 units
D. 6,900 units

Answer: B

Last year, Farrer Corporation had sales of $1,500,000, variable expenses of $900,000, and fixed expenses of $400,000. What would be the dollar sales at the break-even point?

Last year, Farrer Corporation had sales of $1,500,000, variable expenses of $900,000, and fixed expenses of $400,000. What would be the dollar sales at the break-even point?

A. $1,300,000
B. $1,000,000
C. $1,380,000
D. $1,200,000

Answer: B

The following monthly data are available for the Eager Company and its only product: The margin of safety for the company for March was:

The following monthly data are available for the Eager Company and its only product: The margin of safety for the company for March was:

A. $315,000
B. $225,000
C. $135,000
D. $495,000

Answer: B

The following is last month's contribution format income statement: What is the company's margin of safety percentage to the nearest whole percent?

The following is last month's contribution format income statement: What is the company's margin of safety percentage to the nearest whole percent?

A. 42%
B. 40%
C. 17%
D. 20%

Answer: B

The contribution margin ratio of Lime Corporation's only product is 75%. The company's monthly fixed expense is $688,500 and the company's monthly target profit is $20,000. The dollar sales to attain that target profit is closest to:

The contribution margin ratio of Lime Corporation's only product is 75%. The company's monthly fixed expense is $688,500 and the company's monthly target profit is $20,000. The dollar sales to attain that target profit is closest to:

A. $531,375
B. $944,667
C. $918,000
D. $516,375

Answer: B

Hassick Corporation produces and sells a single product whose contribution margin ratio is 63%. The company's monthly fixed expense is $460,530 and the company's monthly target profit is $19,000. Thedollar sales to attain that target profit is closest to:

Hassick Corporation produces and sells a single product whose contribution margin ratio is 63%. The company's monthly fixed expense is $460,530 and the company's monthly target profit is $19,000. Thedollar sales to attain that target profit is closest to:

A. $290,134
B. $302,104
C. $761,159
D. $731,000

Answer: C

Lone International Corporation's only product sells for $230.00 per unit and its variable expense is $80.50. The company's monthly fixed expense is $822,250 per month. The unit sales to attain the company's monthly target profit of $33,000 is closest to:

Lone International Corporation's only product sells for $230.00 per unit and its variable expense is $80.50. The company's monthly fixed expense is $822,250 per month. The unit sales to attain the company's monthly target profit of $33,000 is closest to:

A. 3,718 units
B. 6,688 units
C. 10,624 units
D. 5,721units

Answer: D

Data concerning Hewell Enterprises Corporation's single product appear below: The unit sales to attain the company's monthly target profit of $14,000 is closest to:

Data concerning Hewell Enterprises Corporation's single product appear below: The unit sales to attain the company's monthly target profit of $14,000 is closest to:

A. 4,408 units
B. 8,186 units
C. 5,153 units
D. 2,865 units

Answer: A

Perona Corporation produces and sells a single product. Data concerning that product appear below: The unit sales to attain the company's monthly target profit of $9,000 is closest to:

Perona Corporation produces and sells a single product. Data concerning that product appear below: The unit sales to attain the company's monthly target profit of $9,000 is closest to:

A. 5,601 units
B. 4,400 units
C. 2,464 units
D. 4,155 units

Answer: B

Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000 and the contribution margin ratio was 40%. If fixed expenses increase by $10,000 next year, what amount of sales will be necessary in order for the company to earn a profit of $80,000?

Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000 and the contribution margin ratio was 40%. If fixed expenses increase by $10,000 next year, what amount of sales will be necessary in order for the company to earn a profit of $80,000?

A. $600,000
B. $570,000
C. $562,500
D. $625,000

Answer: B

A product sells for $20 per unit and has a contribution margin ratio of 40 percent. Fixed expenses total $240,000 annually. How many units of the product must be sold to yield a profit of $60,000?

A product sells for $20 per unit and has a contribution margin ratio of 40 percent. Fixed expenses total $240,000 annually. How many units of the product must be sold to yield a profit of $60,000?

A. 37,500 units
B. 40,000 units
C. 65,000 units
D. 30,000 units

Answer: A

A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same profit as was earned last year?

A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same profit as was earned last year?

A. 23,000 units
B. 43,000 units
C. 30,000 units
D. 13,000 units

Answer: B

Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000?

Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000?

A. 50,000 units
B. 120,000 units
C. 60,000 units
D. 100,000 units

Answer: B

Mowrer Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $567,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $84,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 600 units. What should be the overall effect on the company's monthly net operating income of this change?

Mowrer Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $567,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $84,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 600 units. What should be the overall effect on the company's monthly net operating income of this change?

A. Increase of $77,400
B. Increase of $21,600
C. Increase of $669,600
D. Decrease of $146,400

Answer: B

Data concerning Knipp Corporation's single product appear below:

Data concerning Knipp Corporation's single product appear below:

Fixed expenses are $587,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept a decrease in their salaries of $57,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change?

A. Increase of $55,400
B. Increase of $745,800
C. Increase of $9,800
D. Iecrease of $104,200

Answer: C

Montgomery Corporation produces and sells a single product. Data concerning that product appear below:

Montgomery Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $239,000 per month. The company is currently selling 3,000 units per month. The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $12,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change?


A. Increase of $102,000
B. Decrease of $30,000
C. Decrease of $6,000
D. Increase of $30,000

Answer: C

Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change?

Data concerning Moscowitz Corporation's single product appear below:

Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change?

A. Decrease of $128,900
B. Increase of $426,500
C. Increase of $8,900
D. Increase of $128,900

Answer: C

Ribb Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $913,000 per month. The company is currently selling 9,000 units per month. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

Ribb Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $913,000 per month. The company is currently selling 9,000 units per month. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

A. Decrease of $3,200
B. Increase of $50,800
C. Decrease of $50,800
D. Increase of $3,200

Answer: A

Data concerning Lancaster Corporation's single product appear below: Fixed expenses are $105,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

Data concerning Lancaster Corporation's single product appear below: Fixed expenses are $105,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

A. Decrease of $38,400
B. Decrease of $5,600
C. Increase of $5,600
D. Increase of $38,400

Answer: B

Weinreich Corporation produces and sells a single product. Data concerning that product appear below: The company is currently selling 2,000 units per month. Fixed expenses are $131,000 per month. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Weinreich Corporation produces and sells a single product. Data concerning that product appear below: The company is currently selling 2,000 units per month. Fixed expenses are $131,000 per month. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

A. Increase of $2,700
B. Increase of $15,300
C. Decrease of $18,000
D. Decrease of $2,700

Answer: D

Data concerning Runnells Corporation's single product appear below: The company is currently selling 6,000 units per month. Fixed expenses are $424,000 per month. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Data concerning Runnells Corporation's single product appear below: The company is currently selling 6,000 units per month. Fixed expenses are $424,000 per month. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

A. Increase of $8,000
B. Increase of $1,000
C. Decrease of $7,000
D. Decrease of $1,000

Answer: B

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net operating income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would:

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net operating income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would:

A. increase by $45,000
B. increase by $37,500
C. increase by $7,500
D. increase by $28,500

Answer: D

Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by:

Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by:

A. $28,800
B. $64,000
C. $8,800
D. $31,200

Answer: D

Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by $2 per unit. How many units must be sold in the current year to earn the same profit as was earned last year?

Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by $2 per unit. How many units must be sold in the current year to earn the same profit as was earned last year?

A. 15,000 units
B. 12,000 units
C. 16,500 units
D. 12,960 units

Answer: A

Danneman Corporation's fixed monthly expenses are $13,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $41,000?

Danneman Corporation's fixed monthly expenses are $13,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $41,000?

A. $9,960
B. $5,040
C. $22,960
D. $28,00o

Answer: A

Balonek Inc.'s contribution margin ratio is 57% and its fixed monthly expenses are $41,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $112,000?

Balonek Inc.'s contribution margin ratio is 57% and its fixed monthly expenses are $41,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $112,000?

A. $63,840
B. $7,160
C. $71,000
D. $22,840

Answer: D

Knoke Corporation's contribution margin ratio is 29% and its fixed monthly expenses are $17,000. If the company's sales for a month are $98,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

Knoke Corporation's contribution margin ratio is 29% and its fixed monthly expenses are $17,000. If the company's sales for a month are $98,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

A. $81,000
B. $11,420
C. $52,580
D. $28,420

Answer: B

Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?

Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?

A. $16,000 increase
B. $5,000 increase
C. $24,000 increase
D. $11,000 decrease

Answer: A

Darth Company sells three products. Sales and contribution margin ratios for the three products follow: Given these data, the contribution margin ratio for the company as a whole would be:

Darth Company sells three products. Sales and contribution margin ratios for the three products follow: Given these data, the contribution margin ratio for the company as a whole would be:

A. 25%
B. 75%
C. 33.3%
D. it is impossible to determine from the data given.

Answer: A

Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be (rounded):

Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be (rounded):

A. 5.00
B. 3.18
C. 2.91
D. 3.91

Answer: D

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal:

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal:

A. $1,500
B. $2,700
C. $2,160
D. $1,875

Answer: D

South Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed expenses total $9,600, the break-even point will be:

South Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed expenses total $9,600, the break-even point will be:

A. $24,000
B. $14,400
C. $9,600
D. $16,000

Answer: A

Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses are $4.50 per unit. Based on this information, the break-even point in units is:

Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses are $4.50 per unit. Based on this information, the break-even point in units is:

A. 50,000 units
B. 37,500 units
C. 33,333 units
D. 100,000 units

Answer: A

The Herald Company manufactures and sells a single product which sells for $50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are $25,000. If Herald desires a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be (rounded):

The Herald Company manufactures and sells a single product which sells for $50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are $25,000. If Herald desires a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be (rounded):

A. 2,500 units
B. 5,000 units
C. 1,666 units
D. 1,000 units

Answer: B

Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, the amount of sales in units will have to be (rounded):

Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, the amount of sales in units will have to be (rounded):

A. 1,486 units
B. 3,467 units
C. 1,040 units
D. 2,600 units

Answer: D

The contribution margin ratio is 30% for the Honeyville Company and the break-even point in sales is $150,000. If the company's target net operating income is $60,000, sales would have to be:

The contribution margin ratio is 30% for the Honeyville Company and the break-even point in sales is $150,000. If the company's target net operating income is $60,000, sales would have to be:

A. $200,000
B. $350,000
C. $250,000
D. $210,000

Answer: B

The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $200,000. To obtain a target net operating income of $60,000, sales would have to be:

The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $200,000. To obtain a target net operating income of $60,000, sales would have to be:

A. $260,000
B. $440,000
C. $280,000
D. $240,000

Answer: B

Gaudy Inc. produces and sells a single product. The company has provided its contribution format income statement for May.

Gaudy Inc. produces and sells a single product. The company has provided its contribution format income statement for May.

If the company sells 4,300 units, its net operating income should be closest to:




A. $7,700
B. $25,513
C. $26,700
D. $19,500

Answer: D

Sensabaugh Inc., a company that produces and sells a single product, has provided its contribution format income statement for January.

Sensabaugh Inc., a company that produces and sells a single product, has provided its contribution format income statement for January.

If the company sells 1,600 units, its total contribution margin should be closest to:


A. $22,200
B. $28,800
C. $4,800
D. $32,400

Answer: B

Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July. If the company sells 6,900 units, its net operating income should be closest to:

Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July. If the company sells 6,900 units, its net operating income should be closest to:

A. $35,979
B. $34,500
C. $36,500
D. $32,000

Answer: B

Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product.

Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product.

If the company sells 3,100 units, its total contribution margin should be closest to:


A. $27,045
B. $181,000
C. $162,400
D. $173,600

Answer: D

The following information relates to Clyde Corporation which produced and sold 50,000 units last month.

The following information relates to Clyde Corporation which produced and sold 50,000 units last month.

There were no beginning or ending inventories. Production and sales next month are expected to be 40,000 units. The company's unit contribution margin next month should be:


A. $16.63
B. $3.10
C. $7.98
D. $13.30

Answer: D

Menlove Company had the following income statement for the most recent year:

Menlove Company had the following income statement for the most recent year:

Given this data, the unit contribution margin was:


A. $2 per unit
B. $15 per unit
C. $6 per unit
D. $4 per unit

Answer: C

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:



A. $450,000
B. $385,000
C. $405,000
D. $560,000

Answer: C

A company has provided the following data: If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will:

A company has provided the following data: If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will:

A. decrease by $31,875.
B. decrease by $15,000.
C. increase by $20,625.
D. decrease by $3,125.

Answer: A

All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs?

All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs?

A. Option A
B. Option B
C. Option C
D. Option D

Answer: C

The degree of operating leverage can be calculated as:

The degree of operating leverage can be calculated as:

A. contribution margin divided by sales.
B. gross margin divided by net operating income.
C. net operating income divided by sales.
D. contribution margin divided by net operating income.

Answer: D

The amount by which a company's sales can decline before losses are incurred is called the:

The amount by which a company's sales can decline before losses are incurred is called the:

A. contribution margin.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin ratio.

Answer: C

The margin of safety percentage is computed as:

The margin of safety percentage is computed as:

A. Break-even sales ÷ Total sales.
B. Total sales - Break-even sales.
C. (Total sales - Break-even sales) ÷ Break-even sales.
D. (Total sales - Break-even sales) ÷ Total sales.

Answer: D

The break-even point in unit sales increases when variable expenses:

The break-even point in unit sales increases when variable expenses:

A. increase and the selling price remains unchanged.
B. decrease and the selling price remains unchanged.
C. decrease and the selling price increases.
D. remain unchanged and the selling price increases.

Answer: A

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

A. Q ÷ (P-V).
B. F ÷ (P-V).
C. V ÷ (P-V).
D. F ÷ [Q(P-V)].

Answer: B

Break-even analysis assumes that:

Break-even analysis assumes that:

A. total costs are constant.
B. the average fixed expense per unit is constant.
C. the average variable expense per unit is constant.
D. variable expenses are nonlinear.

Answer: C

The break-even point in unit sales is found by dividing total fixed expenses by:

The break-even point in unit sales is found by dividing total fixed expenses by:

A. the contribution margin ratio.
B. the variable expenses per unit.
C. the sales price per unit.
D. the contribution margin per unit.

Answer: D

Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?

Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D

Answer: B

Which of the following formulas is used to calculate the contribution margin ratio?

Which of the following formulas is used to calculate the contribution margin ratio?

A. (Sales - Fixed expenses) ÷ Sales
B. (Sales - Cost of goods sold) ÷ Sales
C. (Sales - Variable expenses) ÷ Sales
D. (Sales - Total expenses) ÷ Sales

Answer: C

East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D

Answer: C

With regard to the CVP graph, which of the following statements is not correct?

With regard to the CVP graph, which of the following statements is not correct?

A. The CVP graph assumes that volume is the only factor affecting total cost.
B. The CVP graph assumes that selling prices do not change.
C. The CVP graph assumes that variable costs go down as volume goes up.
D. The CVP graph assumes that fixed expenses are constant in total within the relevant range.

Answer: C

The difference between total sales in dollars and total variable expenses is called:

The difference between total sales in dollars and total variable expenses is called:

A. net operating income.
B. net profit.
C. the gross margin.
D. the contribution margin.

Answer: D