Quiz 5 Name:________________________
Part I: True or False Question and Fill in Blank.
1. T or F: The planning horizon for a discretionary fixed costusually encompasses many years.
2. Tor F: Committed fixed costs are those that relate to theinvestment in facilities, equipment and the basic organizationalstructure of a company.
3. T or F: The high-low method uses cost and activity data fromjust two extreme volume levels (periods) to establish a costformula.
4. T or F: On an income statement prepared by the traditionalapproach, costs are organized and presented according tofunction.
5. T or F: Contribution margin is defined as sales lessdiscretionary fixed costs.
6. T or F: The contribution format is widely used for preparingexternal financial statements.
7. T or F: Reynold Enterprises sells a single product for $25.The variable expense per unit is $15 and the fixed expense per unitis $5 at the current level of sales. The company's net operatingincome will increase by $5 if one more unit is sold over BEP.
8. T or F: Incremental analysis is an analytical approach thatfocuses on those items of revenue and cost that will change as aresult of a decision.
9. T or F: On a CVP graph for a profitable company, the totalrevenue line will be steeper than the total expense line.
10. T or F: The impact on net operating income of a given dollarchange in sales can be computed by applying the contribution marginratio to the dollar change in sales.
11. T or F: The larger the contribution margin ratio, thesmaller the amount of sales required to cover a given amount offixed expenses.
12. T or F: Fawn Company's margin of safety is $90,000. If thecompany's sales drop by $80,000, it will still have positive netoperating income.
13. T or F: The margin of safety can be defined as the amount bywhich sales can decrease before losses are incurred by the company.
14. Mark Company currently sells a video recorder with a sellingprice of $300 per unit. The variable expense per unit is $175 andfixed expenses are $100,000. If the company reduces variableexpenses by $20 per unit and increases the fixed expenses by$10,000, the break-even point will __increase or decrease__.
15. The degree of operatingleverage is computed by dividing contribution margin by______________.
16. The variable expenseper unit is $12 and the selling price per unit is $40. Then thecontribution margin ratio
is _____________%.
17. Long Companyâsvariables expenses are 60% of sales. A $1,200 increase in thecompanyâs fixed expenses will
increasethe break-even point in sales by $ _______________.
Part II: Classification of Costs asPeriod or Product Cost (@1/2)
1. ______________Depreciation on salespersonsâ cars.
2. ______________Rent on equipment used in the factory.
3. ______________Lubricants used for maintenance of machines.
4. ______________Salaries of finished goods warehouse personnel.
5. ______________Soap and paper towels used by factory workers at the end of ashift.
6. ______________Factory supervisorsâ salaries.
7. ______________Heat, water, and power consumed in the factory.
8. ______________Advertising costs.
9. ______________Workersâ compensation insurance on factory employees.
10. ______________ Attractivelydesigned box for packaging the companyâs product.
