If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?

• Question 1

  1 out of 1 points

  	If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?
  	Selected Answer: c.  2.0 Answers: a.  7.5 b.  0.0 c.  2.0 d.  1.3 Response Feedback: Rationale: Operating Leverage = Contribution Margin / Income from Operations = (($400,000 – ($400,000 × 80%)) / $40,000 = 2 ​

• Question 2

  1 out of 1 points

  	Lee Industry sales are $525,000, variable costs are 53% of sales, and operating income is $19,000. What is the contribution margin ratio?
  	Selected Answer: c.  47% Answers: a.  9.5% b.  53% c.  47% d.  26.5% Response Feedback: Rationale: Contribution margin ratio = 100% – Variable costs as a percentage of sales Contribution margin ratio = 100% – 53% = 47% ​

• Question 3

  1 out of 1 points

  	If variable costs per unit decreased because of a decrease in utility rates, the break-even point would
  	Selected Answer: a.  decrease Answers: a.  decrease b.  remain the same c.  increase or decrease, depending upon the percentage increase in utility rates d.  increase

• Question 4

  1 out of 1 points

  	If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was
  	Selected Answer: c.  $3,000,000 Answers: a.  $12,000,000 b.  $1,000,000 c.  $3,000,000 d.  $5,000,000 Response Feedback: Rationale: Margin of Safety = (Sales – Sales at Break-Even Point) / Sales 0.25 = ($4,000,000 – Sales at Break-Even Point ) / $4,000,000 Sales at Break-Even Point = $3,000,000 ​

• Question 5

  1 out of 1 points

  	When units manufactured exceed units sold:
  	Selected Answer: c.  variable costing income is less than absorption costing income Answers: a.  variable costing income equals absorption costing income b.  variable costing income is greater than absorption costing income c.  variable costing income is less than absorption costing income d.  variable costing income is greater by the number of units produced multiplied by the variable cost ratio.

• Question 6

  1 out of 1 points

  	Which of the following describes the behavior of a variable cost per unit?
  	Selected Answer: d.  remains constant with changes in the activity level Answers: a.  varies in increasing proportion with changes in the activity level b.  varies in direct proportion with the activity level c.  varies in decreasing proportion with changes in the activity level d.  remains constant with changes in the activity level

• Question 7

  1 out of 1 points

  	Bryce Co. sales are $914,000, variable costs are $498,130, and operating income is $196,000. What is the contribution margin ratio?
  	Selected Answer: b.  45.5% Answers: a.  52.2% b.  45.5% c.  54.5% d.  28.4% Response Feedback: Rationale: Contribution Margin Ratio = (Sales – Variable Costs ) / Sales = ($914,000 – $498,130) / $914,000 = 45.5% ​

• Question 8

  1 out of 1 points

  	Costs that remain constant in total dollar amount as the level of activity changes are called
  	Selected Answer: a.  fixed costs Answers: a.  fixed costs b.  product costs c.  mixed costs d.  variable costs

• Question 9

  1 out of 1 points

  	Which of the following conditions would cause the break-even point to increase?
  	Selected Answer: c.  unit variable cost increases Answers: a.  unit variable cost decreases b.  total fixed costs decrease c.  unit variable cost increases d.  unit selling price increases

• Question 10

  1 out of 1 points

  	If fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000?
  	Selected Answer: b.  17,250 Answers: a.  8,333 b.  17,250 c.  9,667 d.  15,000 Response Feedback: Rationale: Break-Even Sales (units) = Fixed Costs / Unit Contribution Margin = ($600,000 + $90,000) / $40 = 17,250 units ​

• Question 11

  1 out of 1 points

  	If fixed costs are $400,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero profit?
  	Selected Answer: b.  20,000 units Answers: a.  25,000 units b.  20,000 units c.  400,000 units d.  10,000 units Response Feedback: Rationale: Break-Even Sales (units) = Fixed Costs / Unit Contribution Margin = $400,000 / $20 = 20,000 units ​

• Question 12

  1 out of 1 points

  	Which of the following is not an example of a cost that varies in total as the number of units produced changes?
  	Selected Answer: c.  straight-line depreciation on factory equipment Answers: a.  wages of assembly worker b.  direct materials cost c.  straight-line depreciation on factory equipment d.  electricity per KWH to operate factory equipment

• Question 13

  1 out of 1 points

  	Which of the following is an example of a cost that varies in total as the number of units produced changes?
  	Selected Answer: b.  direct materials cost Answers: a.  salary of a production supervisor b.  direct materials cost c.  property taxes on factory buildings d.  straight-line depreciation on factory equipment

• Question 14

  1 out of 1 points

  	Jacob Inc. has fixed costs of $240,000, the unit selling price is $32, and the unit variable costs are $20. What are the old and new break-even sales (units) if the unit selling price increases by $4?
  	Selected Answer: b.  20,000 units and 15,000 units Answers: a.  7,500 units and 6,667 units b.  20,000 units and 15,000 units c.  20,000 units and 30,000 units d.  12,000 units and 15,000 units Response Feedback: Rationale: Old Break-Even Sales (units) = Fixed Costs / Contribution Margin = $240,000 / ($32 – $20) = 20,000 units New Break-Even Sales (units) = Fixed Costs / Contribution Margin = $240,000 / (($32 + $4) – $20) = 15,000 units ​

• Question 15

  1 out of 1 points

  	Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $30 and $60, respectively. Corn has fixed costs of $378,000. The break-even point in units is
  	Selected Answer: a.  10,500 units Answers: a.  10,500 units b.  12,600 units c.  8,000 units d.  6,300 units Response Feedback: Rationale: Sales mix for Product A = Number of units sold for Product A / Total units sold =  8,000 units / (8,000 units + 2,000 units) = 80% Sales mix for Product B = Number of units sold for Product B / Total units sold =  2,000 units / (8,000 units + 2,000 units) = 20% Unit contribution margin of E = [($30 × 0.80) + ($60 × 0.20)] = $36 Break-Even Sales (units) = Fixed Costs / Contribution Margin = $378,000 / $36 = 10,500 units