Question 1

Mug Shots operates a chain of coffee shops. The company pays rent of $15,000 per year for each shop. Supplies (napkins, bags and condiments)  are purchased as needed. The managers of each shop are paid a salary of $2,500 per month and all other employees are paid on an hourly basis. The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost, respectively?

Accepted Answer

A)  Variable cost and fixed cost
B)  Fixed cost and fixed cost
C)  Fixed cost and variable cost
D)  Variable cost and variable costE) B) and D)
F) A) and D)

Question 2

The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000. If sales increase by 5%, what is net income expected to be?

Accepted Answer

A)  $25,200
B)  $26,160
C)  $24,667
D)  $43,200E) A) and D)
F) All of the above

Question 3

Taste of the Town, Inc. operates a gourmet sandwich shop. The company orders bread, cold cuts, and produce several times a week. If the cost of these items remains constant per customer served, the cost is said to be:

Accepted Answer

A)  Variable
B)  Fixed
C)  Opportunity
D)  MixedE) A) and B)
F) B) and D)

Question 4

The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity's cost structure. Select the incorrect statement from the following.

Accepted Answer

A)  If the director expects a low turnout, she should use a fixed cost structure.
B)  If the director expects a large turnout, she should attempt to convert variable costs into fixed costs.
C)  If the director shifts the cost structure from fixed to variable, the level of risk decreases.
D)  If the director shifts the cost structure from fixed to variable, the potential for profits will be reduced.E) A) and B)
F) All of the above

Question 5

The following income statement is provided for Grant, Inc.   Sales revenue (1,500@$30 per unit ) $45,000 Variable costs (1,500@$14 per unit ) 21,000 Fixed costs 16,000‾ Net income $8,000\begin{array}{|l|c|}\hline 	ext { Sales revenue }(1,500 @ \$ 30 	ext { per unit })  & \$ 45,000\\hline 	ext { Variable costs }(1,500 @ \$ 14 	ext { per unit })  & 21,000\\hline 	ext { Fixed costs } &\underline{16,000} \\hline 	ext { Net income } & \$8,000 \\hline\end{array} Sales revenue (1,500@$30 per unit )  Variable costs (1,500@$14 per unit )  Fixed costs  Net income ​$45,00021,00016,000​$8,000​​ 
 What is this company's magnitude of operating leverage?

Accepted Answer

A)  0.33
B)  1.31
C)  2.00
D)  3.00 E) C) and D)
F) All of the above

Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity's cost structure. Select the incorrect statement from the following.

Correct Answer
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Correct Answer
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Correct Answer
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The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000. If sales increase by 5%, what is net income expected to be?

Correct Answer
verified

Taste of the Town, Inc. operates a gourmet sandwich shop. The company orders bread, cold cuts, and produce several times a week. If the cost of these items remains constant per customer served, the cost is said to be:

Correct Answer
verified

Exam 2: Cost Behavior, Operating Leverage, and Profitability Analysis

The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity's cost structure. Select the incorrect statement from the following.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000. If sales increase by 5%, what is net income expected to be?

Correct AnswerverifiedShow Answer

Taste of the Town, Inc. operates a gourmet sandwich shop. The company orders bread, cold cuts, and produce several times a week. If the cost of these items remains constant per customer served, the cost is said to be:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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