Firms that have high operating leverage tend to avoid large fluctuations in prof
ID: 2667599 • Letter: F
Question
Firms that have high operating leverage tend to avoid large fluctuations in profit when sales fluctuate.True
False
2. Happy Reading, a producer of children’s books, has provided the following calculations:
Selling price per unit $6.60
Contribution margin per unit $3.00
Total fixed costs $46,200.00
What is the break-even point in books?
20,790
15,400
12,833
7,000
3. A significant weakness of the high-low method is that it uses only two data points.
True
False
4. Firms that have high operating leverage
have relatively high levels of fixed cost.
have production costs that are mostly variable.
will have smaller changes in profit when the activity level changes.
are generally thought to be less risky.
5. Total variable costs change in direct response to changes in volume or activity.
True
False
6. Variable costing facilitates C-V-P analysis.
True
False
7. T-Shirt Man is a direct marketer of popular t-shirts. Following is information about its revenue and cost structure:
Assume 400,000 t-shirts are produced and 350,000 are sold in 2011. What is income under full costing?
$975,000
$1,400,000
$850,000
$2,250,000
8. Bjorni Inc. makes a single product, the Bjorn. Information for 2010 appears below:
Will income be higher under variable or full costing?
Variable.
Full.
They will be the same.
Cannot be determined.
9. Bjorni Inc. makes a single product, the Bjorn. Information for 2010 appears below:
How much is the profit for the year under variable costing?
$190,000
$275,000
$185,000
$125,000
10. Lenat’s contribution income statement utilizing variable costing appears below:
Lenat Company produced 50,000 units during the year. Variable costs per unit and fixed production costs have remained constant the entire year. There were no beginning inventories. How much is the dollar value of the ending inventory using full costing?
$140,000
$160,000
$156,000
$128,000
Explanation / Answer
Firms that have high operating leverage tend to avoid large fluctuations in profit when sales fluctuate.
True
False
2. Happy Reading, a producer of children’s books, has provided the following calculations:
Selling price per unit $6.60
Contribution margin per unit $3.00
Total fixed costs $46,200.00
What is the break-even point in books?
(6)(x) = 46,200 + 3x
3x = 46,200
x = 15,400
20,790
15,400
12,833
7,000
3. A significant weakness of the high-low method is that it uses only two data points.
True
False (it uses two variables, not data points)
4. Firms that have high operating leverage
have relatively high levels of fixed cost.
have production costs that are mostly variable.
will have smaller changes in profit when the activity level changes.
are generally thought to be less risky. - this is your best answer, but (c) can also "work"
5. Total variable costs change in direct response to changes in volume or activity.
True
False
6. Variable costing facilitates C-V-P analysis.
True
False
7. T-Shirt Man is a direct marketer of popular t-shirts. Following is information about its revenue and cost structure:
Assume 400,000 t-shirts are produced and 350,000 are sold in 2011. What is income under full costing?
It doesn't give the price, but the income would be
(400,000)(variable cost) + (fixed cost) - (350,000)(price of shirt)
$975,000
$1,400,000
$850,000
$2,250,000
8. Bjorni Inc. makes a single product, the Bjorn. Information for 2010 appears below:
Will income be higher under variable or full costing?
Variable.
Full.
They will be the same.
Cannot be determined.
9. Bjorni Inc. makes a single product, the Bjorn. Information for 2010 appears below:
How much is the profit for the year under variable costing? Same formula as above.
$190,000
$275,000
$185,000
$125,000
10. Lenat’s contribution income statement utilizing variable costing appears below:
Lenat Company produced 50,000 units during the year. Variable costs per unit and fixed production costs have remained constant the entire year. There were no beginning inventories. How much is the dollar value of the ending inventory using full costing?
(50,000)(variable cost) + (fixed cost) - (# units sold)(price of one unit)
$140,000
$160,000
$156,000
$128,000
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