Multiple Choice Questions1. Oil Corporation has the following financial perspective of profitability for the current month:Revenues $10,000Cost of Goods Sold -2Direct Materials (Variable) $1,000Direct

Multiple Choice Questions

1. Oil Corporation has the following financial perspective of profitability for the current month:

Revenues $10,000

Cost of Goods Sold -2

Direct Materials (Variable) $1,000

Direct Labor (Variable) $1,000

Variable Overhead $500

Fixed Overhead $1,500

Gross Margin $6,000

Variable Operating Expenses $1,000

Fixed Operating Expenses $3,000

Profit $2,000

Letty, a manager at Oil Corp., has decided to adopt a managerial perspective of profitability.

Using the provided information, which of the following statements are true about the managerial perspective? (Check all that apply.)

• Total variable costs will be $3,500.
• Gross margin will be $6,500.
• Contribution margin will be $6,500.
• Profit will be $2,000

2. Which of the following are true statements regarding the development of the break-even point formula? (Check all that apply.)

• Variable costs are reflected in the equation as a total.
• Revenues are reflected in the equation as a total.
• Fixed costs are reflected in the equation as a total.
• Profit is assumed to be zero.
• Contribution margin is reflected in the equation on a per-unit basis.

3. Jonas Company has the following information related to its manufacturing and selling of decorative vases.

Current selling price, per unit - $8.00

Direct materials, per unit - $3.00

Direct labor, per unit - $1.50

Variable manufacturing overhead, per unit - $1.00

Variable operating expense - $1.25

Fixed manufacturing overhead - $750,000

Fixed operating expenses - $400,000

What is the Jonas Company’s break-even point for decorative vases?

(Choose one)

• 120,000 vases
• 600,000 vases
• 920,000 vases
• 300,000 vases

4. Beloit Corporation has the following information related to its manufacturing and selling of computer back-up hard drives.

Current selling price, per unit - $80.00

Direct materials, per unit - $15.00

Direct labor, per unit - $5.00

Variable manufacturing overhead, per unit - $10.00

Fixed manufacturing overhead - $200,000

Fixed operating expenses - $50,000

Analysts compute the break-even point using the above information, and conclude that production capacity and estimated sales can reach that point.

However, a few days later, the analyst learns that the selling price will increase by 5%.

What is the effect on the original break-even point of this change? 

(Choose one)

• An increase of 370 drives
• A decrease of 435 drives
• A decrease of 370 drives
• A decrease of 5%
• An increase of 435 drives

5. James Company has the following information related to its manufacturing and selling of staplers.

Current selling price, per unit - $6.00

Direct materials, per unit - $2.00

Direct labor, per unit - $1.00

Variable manufacturing overhead, per unit - $1.00

Variable operating expense - $1.00

Fixed manufacturing overhead - $20,000

Fixed operating expenses - $5,000

Which of the following are true regarding the assumptions of James Company’s cost-volume-profit analysis? (Check all that apply.)

• Fixed manufacturing overhead of $20,000 is sufficient to achieve the break-even volume.
• Demand will be sufficient to warrant an average price of $6 per unit.
• If variable costs change, direct labor costs will be half of direct materials costs.
• James Company offers discounts to the $6 selling price if the break-even point exceeds demand.

6. Ryan Corporation has the following information relating to its manufacturing and selling of cakes:

Average current selling price: $14.00

Average variable cost of cakes: $6.00

Fixed yearly costs: $240,000

The income tax rate is 35%

If Ryan Corporation had net income before tax of $90,000, what amount of income after tax would they have? How many cakes would generate this income level?

(Choose one)

• $58,500; 41,250 cakes
• $31,500; 45,000 cakes
• $45,000; 41,250 cakes
• $60,000; 41,250 cakes

7. Garrett Company has the following information relating to its two products, product Red and product Blue.

Color - Selling Price - Variable Cost - Fixed Cost

Red - $14 - $6 - $16,000

Blue - $15 - $5 - $10,000

If Garrett Company viewed its products in aggregate, what would the break-even point be if managers projected a 60% - 40% sales mix for Red and Blue, respectively? How about a 40% - 60% sales mix for Red and Blue, respectively?

(Choose one)

• 2,444 units; 2,210 units (rounded)
• 2,667 units; 2,451 units (rounded)
• 3,000 units; 2,987 units (rounded)
• 2,955 units; 2,826 units (rounded)

8. Garrett Company has the following information relating to its two products, product Red and product Blue.

Color - Selling price - Variable cost - Fixed costs

Red -$14 - $6 - $16,000

Blue - $15 - $5 - $10,000

Assuming Garrett Company views each product separately, what is the breakeven point for Red? For Blue?

(Choose one)

• 1,500 units; 1,000 units
• 2,000 units; 1,000 units
• 3,000 units; 2,000 units
• 2,500 units; 2,000 units