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Exam 2: Cost Behavior, operating Leverage, and Profitability Analysis

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Question 81

Multiple Choice

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Which of the following items would not be found on a contribution format income statement?

A) Fixed cost
B) Variable cost
C) Gross margin
D) Net income

E) B) and C)
F) None of the above

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Question 82

Multiple Choice

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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?

A) $2,160
B) $7,560
C) $3,420
D) $1,260

E) B) and C)
F) C) and D)

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Question 83

Multiple Choice

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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 increases to 5,000 units,the total cost per unit will be:

Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold.If a salesperson sells 800 units of product in January,the employee would be paid:

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

Yankee Tours provide seven-day guided tours along the New England coast.The company pays its guides a total of $100,000 per year.The average cost of supplies,lodging,and food per customer is $500.The company expects a total of 500 customers during the period January through June,and a total of 1,500 customers from July through December.Yankee wants to earn $100 income per customer.For promotional reasons the company desires to charge the same price throughout the year.Based on this information,what is the correct price per customer? (Round your answer to the nearest dollar.)

Select the term from the list provided that best matches each of the following descriptions.The first is done for you.

Select the incorrect statement regarding fixed and variable costs.

Maryland Novelties Company produces and sells souvenir products.Monthly income statements for two activity levels are provided below: $\begin{array}{lrr}\text { Unit volumes } & 20,000 \text { units } & 30,000 \text { units } \\\text { Revenue } & \$ 150,000 & \$ 225,000 \\\text { Less cost of goods sold } & 60,000 & 90,000\\\text { Gross margin } & \$ 90,000 & \$ 135,000 \\\text { Less operating expenses } & & \\\text { Salaries and commissions } & 20,000 & 25,000\\\text { Advertising expenses } & 30,000& 30,000 \\\text { Administrative expenses } & 12,500 & 12,500 \\\text { Total operating expenses } & 62,500& 67,500 \\\text { Net income } & \$ 27,500 & \$ 67,500\end{array}$ Required: 1)Identify the mixed expense(s). 2)Use the high-low method to separate the mixed costs into variable and fixed components. 3)Prepare a contribution margin income statement at the 20,000-unit level.

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

The results below represent what form of cost behavior? $\begin{array}{lrr}&\text { Year } 1 & \text { Year } 2\\\text { Units } & 4,500 & 4,800 \\\text { Total Cost } & \$ 11,250& \$ 12,000\end{array}$

How does variable cost per unit behave when volume decreases?

The manager of Kenton Company stated that 45% of its total costs were fixed.The manager was describing the company's: