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| 1 | |
Operating leverage factor is calculated as: |
| | A) | contribution margin ÷ net profit |
| | B) | fixed costs ÷ contribution margin per unit |
| | C) | net profit ÷ fixed costs |
| | D) | net profit ÷ variable costs |
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| 2 | |
Company X and Company Y are competitors in the same industry. Company X has replaced direct labour with investment in highly automated machinery. Company Y continues manufacturing its product using large amounts of direct labour. Forecasted sales volumes for both firms are 20% less than for the previous year. Which statement regarding the projected profits is true? |
| | A) | Company X will lose more profit than Company Y. |
| | B) | Company Y will lose more profit than Company X. |
| | C) | Company X and Company Y will lose the same amount of profit. |
| | D) | Neither Company X nor Company Y will lose profit. |
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| 3 | |
Greene Company expects the following results in the coming year: sales revenues of $600 000, variable costs of $450 000, fixed costs of $100 000 and expected production and sales volume of 6000 units. The Marketing Manager believes that if an additional $30 000 were spent on an advertising campaign, sales volume would increase by 1000 units. What would be the effect on net profit if the advertising expenditure increases by $30 000 and the sales volume increases by 1000 units? |
| | A) | Net profit increases by $5000. |
| | B) | Net profit decreases by $5000. |
| | C) | Net profit increases by $25 000. |
| | D) | Net profit decreases by $25 000. |
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| 4 | |
Stephen is interested in entering the cut flower business. He estimates if he enters this business, his fixed costs would be $150 000 per year and his variable costs would equal 40% of sales. If each bunch of flowers sells for $1.50, the number of bunches of flowers Stephen would need to sell to generate a profit that is equal to a 10% return on sales is: |
| | A) | 147 857 |
| | B) | 200 000 |
| | C) | 250 000 |
| | D) | 166 667 |
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| 5 | |
Scarlet Company’s forecasts for the coming year are as follows: sales volume of 10 000 units, selling price per unit of $100, variable manufacturing cost per unit of $25, fixed manufacturing cost per unit of $5, variable selling and administration costs per unit of $15 and fixed selling and administration costs per unit of $10. Scarlet Company’s operating leverage factor for the coming year is: |
| | A) | 1.15 |
| | B) | 1.10 |
| | C) | 1.333 |
| | D) | 1.666 |
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| 6 | |
Scarlet Company forecasts for coming year are as follows: sales volume, 10 000 units; selling price per unit, $100; variable manufacturing cost per unit, $25; fixed manufacturing cost per unit, $5; variable selling and administration costs per unit, $15; fixed selling and administration per unit, $10. If sales were expected to increase by 20% in the coming year, net profit would increase by: |
| | A) | 37.8% |
| | B) | 24% |
| | C) | 26.7% |
| | D) | 33.3% |
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| 7 | |
If the fixed costs increase, the break-even point will: |
| | A) | increase |
| | B) | decrease |
| | C) | remain the same |
| | D) | remain the same, but the contribution margin per unit will increase |
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| 8 | |
A business reported that its contribution margin was equal to 30% of sales and that its net income was 10% of sales. If its fixed costs were $50 000, the sales revenue was: |
| | A) | $125 000 |
| | B) | $150 000 |
| | C) | $166 667 |
| | D) | $250 000 |
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| 9 | |
A company’s safety margin would be negative if: |
| | A) | the company’s operating leverage factor was greater than 1 |
| | B) | the company’s variable costs were lower than its fixed costs |
| | C) | the difference between the company’s budgeted sales volume and actual sales volume was positive |
| | D) | the company was currently operating at a level of sales volume that is below the company’s break-even level of sales volume |
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| 10 | |
At break-even, the contribution margin equals: |
| | A) | total sales revenue |
| | B) | total fixed costs |
| | C) | total fixed costs |
| | D) | total manufacturing costs |
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