IV. Multiple Choice (3 points each, and total 42 points). For each of the follow
ID: 2570332 • Letter: I
Question
IV. Multiple Choice (3 points each, and total 42 points). For each of the following questions, circle the letter of the best answer. 1. Assuming that the unit sales are unchanged, the total contribution margin will decrease if. a. fixed expenses increase. b. fixed expenses decrease c. variable expense per unit increases. d. variable expense per unit decreases. 2. Once the break-even point is reached: a. variable expenses will remain constant in total. b. the contribution margin ratio begins to decrease. c. the total contribution margin changes from negative to positive. d. net operating income will increase by the unit contribution margin for each additional item sold. 3. Tribley Inc. has an operating leverage of 8.0. If the company's sales increase by 19%, its net operating income should increase by about: a. 8.0% b. 19.0% c. 152.0% d. cannot be determined from the information given. 4. Under variable costing, fixed manufacturing overhead is: a. never expensed. b. expensed immediately when incurred. c. applied directly to finished goods inventory d. treated in the same manner as variable manufacturing overhead. 5. Sea Company reports the following information regarding its production cost. 42,000 units S35 per unit $28 per unit $17 per unit Units produced Direct labor Direct materials Variable manufacturing overhead Fixed manufacturing overhead $105,000 in total Which of the following choices correctly depicts the per-unit cost of products under variable costing and absorption costing? a. Variable costing, $63; absorption costing, $80. b. Variable costing, $80; absorption costing, $63. c. d. Variable costing, $80; absorption costing, $82.50 Variable costing, $82.5; absorption costing, $80.Explanation / Answer
Answer to Part 1.
Option C i.e. Variable Expense per unit increases.
Contribution Margin is excess of Sales over Variable Expenses. If the Variable Expense increases, the Contribution margin will decrease. The Fixed Cost doesn’t effects the Contribution margin. The Contribution Margin gets affected with two factors i.e. Selling Price per unit and Variable Cost per unit.
Contribution Margin = Sales – Variable Expense
Answer to Part 2.
Option D i.e. Net Operating Income will increase by the unit contribution margin for each additional item sold.
Break Even Point is the level of sales where there is no Profit and no loss. After reaching the Break Even Point, the Company’s Net operating Income is the Contribution Margin per unit for each unit sold.
Variable Expenses or Contribution Margin will change with the same rate for every unit sold in the same way as it is changing before achieving Break Even Point.
Answer to Part 3.
Option C i.e. 152.0%
Degree of Operating Leverage = Change in Operating Income / Change in Sales
8.0 = Change in Operating Income / 19%
Change in Operating Income = 152%
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