Q1. If the fixed expenses of a product increase while variable expenses and the selling price remain constant, what will happen to the total contribution margin and the break-even point?
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Contribution margin
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Break-even point
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A.
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Increase
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Decrease
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B.
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Decrease
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Increase
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C.
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Unchanged
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Increase
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D.
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Unchanged
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Unchanged
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A) Choice A.
B) Choice B.
C) Choice C.
D) Choice D.
Q2. Dodero Company produces a single product that sells for $100 per unit. Fixed expenses total $12,000 per month, and variable expenses are $60 per unit. The company's sales average 500 units per month. Which of the following statements is correct?
A) The company's break-even point is $12,000 per month.
B) The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.
C) The company's contribution margin ratio is 40%.
D) All of the answers are correct.
Q3. Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just break even at this level of sales. The contribution margin ratio is 25%. What are the company's fixed expenses?
A) $100,000.
B) $160,000.
C) $200,000.
D) $300,000.
Q4. Jarvey Company is studying a project that would have a ten-year life and would require a $450,000 investment in equipment that has no salvage value. The project would provide net income each year as follows for the life of the project:
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Sales
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$500,000
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Less cash variable expenses
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200,000
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Contribution margin
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300,000
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Less fixed expenses:
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|
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Fixed cash expenses
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$150,000
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|
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Depreciation expenses
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45,000
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195,000
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Net income
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$105,000
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The company's required rate of return is 12%. What is the payback period for this project?
A) 2 years
B) 3 years
C) 4.28 years
D) 9 years
Q5. The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year. Cash outflows for operating this machine will be $6,000 each year. The cost of the machine is $65,000. It is expected to have a useful life of five years with no salvage value. For this machine, the simple rate of return is:
A) 9.2%.
B) 20%.
C) 40%.
D) 49.2%.
Q6. The Sawyer Company has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects:
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Project X
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Project Y
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Cost of equipment needed now
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$80,000
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--
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Working capital requirement
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--
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$80,000
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Annual cash operating inflows
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$23,000
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$18,000
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Salvage value in 5 years
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$ 6,000
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--
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Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%.
The net present value of project X is:
A) ($11,708).
B) $2,915.
C) $5,283.
D) $6,317.
Q7. Perkins Company is considering several investment proposals, as shown below:
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Investment Proposal
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A
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B
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C
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D
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Investment required
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$80,000
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$100,000
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$60,000
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$ 75,000
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Present value of future net cash flows
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$96,000
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$150,000
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$84,000
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$120,000
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In what order do the proposals rank in terms of preference using the profitability index?
A) D, B, C, A
B) B, D, C, A
C) B, D, A, C
D) A, C, B, D
Q8. At a break-even point of 800 units sold, White Company's variable expenses are $8,000 and its fixed expenses are $4,000. What will the Company's net income be at a volume of 801 units?
A) $5.
B) $10.
C) $15.
D) $20.
Q9. The following information relates to Clyde Corporation, which produced and sold 50,000 units last month.
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Sales
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$850,000
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Manufacturing costs:
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Fixed
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210,000
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Variable
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140,000
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Selling and administrative expenses:
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Fixed
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300,000
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Variable
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45,000
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There were no beginning or ending inventories. Production and sales next month are expected to be 40,000 units. The company's unit contribution margin next month should be? (round your final answer to two decimal places.)
A) $3.10.
B) $7.98.
C) $13.30.
D) $16.63.
Q10. The following monthly data are available for the Eager Company and its only product:
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Unit sales price
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$75
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Unit variable expenses
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$30
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Total fixed expenses
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$180,000
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Actual sales for the month of March
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7,000 units
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The margin of safety for the company for March was:
A) $135,000.
B) $225,000.
C) $315,000.
D) $495,000.