BA 215 Practice Quiz (Chapter 11) (1)

Fixed cost per unit:__________.

- increases as production volume increases.
- is not affected by changes in the production volume.
- decreases as production volume decreases.
- decreases as production volume increases. - CORRECT ANSWER-- decreases as
production volume increases.

Explanation: The total amount of a fixed cost does not change when volume
changes. In contrast, fixed cost per unit is not fixed.

Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000
of rent expense per month for each shop. The managers of each shop are paid a
salary of $3,000 per month and all other employees are paid on an hourly basis.
Question: Relative to the total number of shops, the cost of rent is which kind of
cost?

- Fixed cost
- Mixed cost
- Opportunity cost
- Variable cost - CORRECT ANSWER-Variable Cost

Explanation: The total cost of rent increases proportionately with the number of
shops while cost per shop remains constant.

Companies A and B are in the same industry and are identical except for cost
structure. At a volume of 50,000 units, the companies have equal net incomes.
When sales at both companies increase to 60,000 units, Company A's net income
would be substantially higher than B's. Based on this information...

- Company B's cost structure has higher fixed costs than A's.
- Company A's cost structure has higher fixed costs than B's.
- Company A's cost structure has more variable costs than B's.
- At a volume of 50,000 units, Company A's magnitude of operating leverage was
lower than B's. - CORRECT ANSWER-- Company A's cost structure has more
variable costs than B's.

For the last two years BRC Company had net income as follows:
Year 1: Net Income$ 89,000
Year 2: Net Income $109,000

What was the percentage change in income from Year 1 to Year 2?

a. 18.35% increase

, b. 18.35% decrease
c. 22.47% decrease
d. 22.47% increase - CORRECT ANSWER-d. 22.47% increase

Select the incorrect statement regarding cost structures.

- The more variable cost, the higher the fluctuation in income as sales fluctuate.
- Highly leveraged companies will experience greater profits than companies less
leveraged when sales increase.
- When sales change, the amount of the corresponding change in income is affected
by the company's cost structure.
- Faced with significant uncertainty about future revenues, a low leverage cost
structure is preferable to a high leverage cost structure. - CORRECT ANSWER--
The more variable cost, the higher the fluctuation in income as sales fluctuate.

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

- contribution margin
- manufacturing margin
- gross margin
- gross profit - CORRECT ANSWER-- contribution margin

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

- Net income
- Variable cost
- Fixed cost
- Gross margin - CORRECT ANSWER-- Gross margin

The following income statement is provided for Ramirez Company for the current
year:

1. Sales revenue (2,600 units × $20.10 per unit)$ 52,260
2. Cost of goods sold (variable; 2,600 units × $8.10 per unit)(21,060)
3. Cost of goods sold (fixed)(4,100)
4. Gross margin 27,100
5. Administrative salaries (6,100)
6. Depreciation (4,100)
7. Supplies (2,600 units × $2.10 per unit)(5,460)
8. Net income$ 11,440

Question: What amount was the company's contribution margin?