1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income.

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1 1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. B. Sales Fixed costs Variable costs Operating expenses = Net income. C. Sales Cost of goods sold Operating expenses =Net income. D. Sales Variable costs Fixed costs = Net income. 2. Croc Catcher calculates its contribution margin to be less than zero. Which statement is true? A. Its fixed costs are less than the variable cost per unit. B. Its profits are greater than its total costs. C. The company should sell more units. D. Its selling price is less than its variable costs. 3. Which one of the following describes the break-even point? A. It is the point where total sales equals total variable plus total fixed costs. B. It is the point where the contribution margin equals zero. C. It is the point where total variable costs equal total fixed costs. D. It is the point where total sales equals total fixed costs. 4. The following information is available for Chap Company. Sales $350,000 Cost of good sold $120,000 Total fixed expenses $60,000 Total variable expenses $100,000 Which amount would you find on Chap's CVP income statement? A. Contribution margin of $250,000. B. Contribution margin of $190,000. C. Gross profit of $230,000. D. Gross profit of $190,000.

2 5. Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income $268,000. How many units must it sell at $12 per unit to achieve its target net income? A. 51,429 units. B. 128,000 units. C. 76,571 units. D. 21,176 units. 6. Sales mix is: A. important to sales managers but not to accountants. B. easier to analyze on absorption costing income statements. C. a measure of the relative percentage of a company's variable costs to its fixed costs. D. a measure of the relative percentage in which a company's products are sold. 7. Net income will be: greater if more higher-contribution margin units are sold than lower-contribution A. margin units. B. greater if more lower-contribution margin units are sold than higher-contribution margin units. C. equal as long as total sales remain equal, regardless of which products are sold. D. unaffected by changes in the mix of products sold. 8. If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: A. $25. B. $5. C. $4.

3 D. No correct answer is given. 9. The degree of operating leverage: A. can be computed by dividing total contribution margin by net income. B. provides a measure of the company's earnings volatility. C. affects a company's break-even point. D. All of the above. 10. A high degree of operating leverage: indicates that a company has a larger percentage of variable costs relative to its A. fixed costs. B. is computed by dividing fixed costs by contribution margin. C. exposes a company to greater earnings volatility risk. D. exposes a company to less earnings volatility risk. 11. Fixed manufacturing overhead costs are recognized as: A. period costs under absorption costing. B. product costs under absorption costing. C. product costs under variable costing. D. part of ending inventory costs under both absorption and variable costing. 12. Net income computed under absorption costing will be: A. higher than net income under variable costing in all cases. B. equal to net income under variable costing in all cases. C. higher than net income under variable costing when units produced are greater than units sold.

4 higher than net income under variable costing when units produced are less than D. units sold. This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test. Grade the Test 0% (0 out of 12 correct) 1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. B. Sales Fixed costs Variable costs Operating expenses = Net income. C. Sales Cost of goods sold Operating expenses =Net income. D. Sales Variable costs Fixed costs = Net income. 2. Croc Catcher calculates its contribution margin to be less than zero. Which statement is true? A. Its fixed costs are less than the variable cost per unit. B. Its profits are greater than its total costs. C. The company should sell more units. D. Its selling price is less than its variable costs. 3. Which one of the following describes the break-even point? A. It is the point where total sales equals total variable plus total fixed costs. B. It is the point where the contribution margin equals zero. C. It is the point where total variable costs equal total fixed costs. D. It is the point where total sales equals total fixed costs.

5 4. The following information is available for Chap Company. Sales $350,000 Cost of good sold $120,000 Total fixed expenses $60,000 Total variable expenses $100,000 Which amount would you find on Chap's CVP income statement? A. Contribution margin of $250,000. B. Contribution margin of $190,000. C. Gross profit of $230,000. D. Gross profit of $190, Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income $268,000. How many units must it sell at $12 per unit to achieve its target net income? A. 51,429 units. B. 128,000 units. C. 76,571 units. D. 21,176 units. 6. Sales mix is: A. important to sales managers but not to accountants. B. easier to analyze on absorption costing income statements. C. a measure of the relative percentage of a company's variable costs to its fixed costs. D. a measure of the relative percentage in which a company's products are sold. 7. Net income will be: A. greater if more higher-contribution margin units are sold than lower-contribution margin units. B. greater if more lower-contribution margin units are sold than highercontribution margin units. C. equal as long as total sales remain equal, regardless of which products are sold. D. unaffected by changes in the mix of products sold.

6 8. If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: A. $25. B. $5. C. $4. D. No correct answer is given. 9. The degree of operating leverage: A. can be computed by dividing total contribution margin by net income. B. provides a measure of the company's earnings volatility. C. affects a company's break-even point. D. All of the above. 10. A high degree of operating leverage: A. indicates that a company has a larger percentage of variable costs relative to its fixed costs. B. is computed by dividing fixed costs by contribution margin. C. exposes a company to greater earnings volatility risk. D. exposes a company to less earnings volatility risk. 11. Fixed manufacturing overhead costs are recognized as: A. period costs under absorption costing. B. product costs under absorption costing. C. product costs under variable costing. D. part of ending inventory costs under both absorption and variable costing. 12. Net income computed under absorption costing will be: A. higher than net income under variable costing in all cases. B. equal to net income under variable costing in all cases. C. higher than net income under variable costing when units produced are greater than units sold. D. higher than net income under variable costing when units produced are less

7 than units sold. Retake Test 1. The format of a CVP Income statement is Sales Cost of goods sold Operating expenses = Net Income. 2. Contribution margin ratio is contribution margin divided by sales. 3. Margin of Safety measures how far sales can drop before a company will be operating at a loss. 4. Sales mix is important for companies that sell only one product. 5. In general, a company should try to sell more low contribution margin products. 6. The formula for computing the break-even point in sales dollars for a company with multiple

8 products or multiple divisions is fixed costs divided by weighted average contribution margin ratio. 7. Determining the sales mix with limited resources requires determining the products with the highest contribution margin. 8. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs. 9. Operating leverage refers to the extent to which a company's net income reacts to a given change in sales. 10. Variable costing treats fixed manufacturing overhead as product costs. 11. is the amount of revenue that remains after deducting variable costs in a CVP income statement. A. Net income. B. Contribution margin.

9 C. Fixed income. D. Gross income. 12. Given the following information, what is the contribution margin ratio? Sales $900,000 Variable expenses 400,000 Fixed Expenses 300,000 Net Income 200,000 A. 44% B. 22% C. 33% D. 56% 13. In general, a company should sell more units of products with A. a higher contribution margin. B. a lower contribution margin. C. a higher selling price. D. None of the above is correct 14. If a company makes two products R1 and R2 what is the formula for the weighted-average unit contribution margin? A. (Unit Contribution Margin of R1) + (Unit Contribution Margin of R2) B. (Unit Contribution Margin Ratio of R1) + (Unit Contribution Margin Ratio of R2) C. (Unit Contribution Margin of R1 x Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 x Sales Mix Percentage of R2). D. The correct formula is not listed above. 15. If a company has limited resources:

10 A. there is no effect on sales mix. B. the sales mix is determined by computing contribution margin per unit of limited resource. C. contribution margin per unit is used in determining product mix.. D. it will sell more of the product with the highest contribution margin. 16. Cost structure is: A. the relative proportion of fixed versus variable costs that a company incurs. B. the quantity of fixed costs a company incurs. C. the same as sales mix.. D. the same as contribution margin. 17. A company with high operating leverage: A. has a greater proportion of variable costs to fixed costs.. B. has an equal proportion of fixed and variable costs. C. is less sensitive to changes in sales. D. has a greater proportion of fixed costs to variable costs The degree of operating leverage is computed by dividing A. fixed costs by contribution margin per unit. B. variable costs by contribution margin per unit. C. contribution margin by net income. D. variable costs by contribution margin ratio. 19. If Company A has a higher proportion of fixed costs relative to variable costs than Company B:

11 A. Company A has a higher break-even point than Company B. B. Company A is more sensitive to changes in sales than Company B. C. Company A has greater risk compared to Company B. D. All of the above are true. 20. The margin of safety ratio is: A. higher for a company with lower operating leverage. B. lower for a company with lower operating leverage. C. is not affected by operating leverage. D. is increased by a greater proportion of variable to fixed costs. 21. If Johnson Company expects to sell VCR's at $100 a unit with variable costs of $60 per unit and DVD's at $200 per unit with variable costs of $120 per unit, what is the weighted average contribution margin if the sales mix is 4 DVD's for 1 VCR: A. $120 B. $160 C. $ 72 D. $ Tolls Company has 2 Divisions: Computers and Appliances. Given the following data, what is the break-even point in dollars? Total fixed costs $500,000 Sales-mix percentage.40 for Computers.60 for Appliances. Contribution margin ratio.45 for Computers.35 for Appliances. Delete blank line A. $1,219,512 B. $1,282,051

12 C. $1,250,000 D. The correct answer is not given. 23. Williams Company sells Mountain Bikes and Racing Bikes. The Mountain Bikes sell for $300 and have variable costs of $125. The Racing Bikes sell for $450 and have variable costs of $275. Williams Company has limited machine hours for production. If Mountain Bikes take 2 machine hours and racing bikes take 2.5 machine hours which product should be emphasized if capacity (machine hours) is increased and sufficient demand exists for each product. A. Racing Bikes. B. Mountain Bikes. C. Neither. The capacity should be divided equally. D. Not enough information is given. 24. Absorption costing treats which of the following items as product costs: A. Fixed Manufacturing overhead. B. Variable manufacturing overhead. C. Marketing and Administrative Costs. D. Both a and b. 25. If Smith Company produces 100,000 units and sells 95,000 units, which costing method will produce a higher net income for the year? A. Variable costing. B. Absorption costing. C. Fixed costing. D. Neither method.

13 This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test. Grade the Test 0% (0 out of 25 correct) 1. The format of a CVP Income statement is Sales Cost of goods sold Operating expenses = Net Income. 2. Contribution margin ratio is contribution margin divided by sales. 3. Margin of Safety measures how far sales can drop before a company will be operating at a loss. 4. Sales mix is important for companies that sell only one product. 5. In general, a company should try to sell more low contribution margin products. 6. The formula for computing the break-even point in sales dollars for a company with multiple products or multiple divisions is fixed costs divided by weighted average

14 contribution margin ratio. 7. Determining the sales mix with limited resources requires determining the products with the highest contribution margin. 8. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs. 9. Operating leverage refers to the extent to which a company's net income reacts to a given change in sales. 10. Variable costing treats fixed manufacturing overhead as product costs. 11. is the amount of revenue that remains after deducting variable costs in a CVP income statement. A. Net income. B. Contribution margin. C. Fixed income. D. Gross income. 12. Given the following information, what is the contribution margin ratio?

15 Sales $900,000 Variable expenses 400,000 Fixed Expenses 300,000 Net Income 200,000 A. 44% B. 22% C. 33% D. 56% 13. In general, a company should sell more units of products with A. a higher contribution margin. B. a lower contribution margin. C. a higher selling price. D. None of the above is correct 14. If a company makes two products R1 and R2 what is the formula for the weightedaverage unit contribution margin? A. (Unit Contribution Margin of R1) + (Unit Contribution Margin of R2) B. (Unit Contribution Margin Ratio of R1) + (Unit Contribution Margin Ratio of R2) C. (Unit Contribution Margin of R1 x Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 x Sales Mix Percentage of R2). D. The correct formula is not listed above. 15. If a company has limited resources: A. there is no effect on sales mix. B. the sales mix is determined by computing contribution margin per unit of limited resource. C. contribution margin per unit is used in determining product mix.. D. it will sell more of the product with the highest contribution margin. 16. Cost structure is: A. the relative proportion of fixed versus variable costs that a company incurs.

16 B. the quantity of fixed costs a company incurs. C. the same as sales mix.. D. the same as contribution margin. 17. A company with high operating leverage: A. has a greater proportion of variable costs to fixed costs.. B. has an equal proportion of fixed and variable costs. C. is less sensitive to changes in sales. D. has a greater proportion of fixed costs to variable costs The degree of operating leverage is computed by dividing A. fixed costs by contribution margin per unit. B. variable costs by contribution margin per unit. C. contribution margin by net income. D. variable costs by contribution margin ratio. 19. If Company A has a higher proportion of fixed costs relative to variable costs than Company B: A. Company A has a higher break-even point than Company B. B. Company A is more sensitive to changes in sales than Company B. C. Company A has greater risk compared to Company B. D. All of the above are true. 20. The margin of safety ratio is: A. higher for a company with lower operating leverage. B. lower for a company with lower operating leverage. C. is not affected by operating leverage. D. is increased by a greater proportion of variable to fixed costs. 21. If Johnson Company expects to sell VCR's at $100 a unit with variable costs of $60 per unit and DVD's at $200 per unit with variable costs of $120 per unit, what is the

17 weighted average contribution margin if the sales mix is 4 DVD's for 1 VCR: A. $120 B. $160 C. $ 72 D. $ Tolls Company has 2 Divisions: Computers and Appliances. Given the following data, what is the break-even point in dollars? Total fixed costs $500,000 Sales-mix percentage.40 for Computers.60 for Appliances. Contribution margin ratio.45 for Computers.35 for Appliances. Delete blank line A. $1,219,512 B. $1,282,051 C. $1,250,000 D. The correct answer is not given. 23. Williams Company sells Mountain Bikes and Racing Bikes. The Mountain Bikes sell for $300 and have variable costs of $125. The Racing Bikes sell for $450 and have variable costs of $275. Williams Company has limited machine hours for production. If Mountain Bikes take 2 machine hours and racing bikes take 2.5 machine hours which product should be emphasized if capacity (machine hours) is increased and sufficient demand exists for each product. A. Racing Bikes. B. Mountain Bikes. C. Neither. The capacity should be divided equally. D. Not enough information is given. 24. Absorption costing treats which of the following items as product costs: A. Fixed Manufacturing overhead. B. Variable manufacturing overhead. C. Marketing and Administrative Costs. D. Both a and b.

18 25. If Smith Company produces 100,000 units and sells 95,000 units, which costing method will produce a higher net income for the year? A. Variable costing. B. Absorption costing. C. Fixed costing. D. Neither method. Retake Test

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