1. Consider the following statements: I. Reynolds Enterprises sells a single product for $25. The variable expense per unit is $20 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income would increase by $5 if one more unit is sold. II. On a cost-volume-profit graph, the revenue line will be shown above the total expense line for any activity level above the break-even point. a. I is true; II is true b. I is true; II is false c. I is false; II is true d. I is false; II is false 2. Consider the following statements: I. At the break-even point, the Total Contribution Margin and Fixed expenses are equal. II. All other things the same, an increase in total fixed expenses will increase the break-even point. a. I is true; II is true b. I is true; II is false c. I is false; II is true d. I is false; II is false 3. Consider the following statements: I. All other things the same, a reduction in the variable expense per unit will increase the break- even point. II. For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales. a. I is true; II is true b. I is true; II is false c. I is false; II is true d. I is false; II is false 4. If a company increases the variable expense per unit while decreasing the total fixed expenses, the total expense line relative to the previous position will a. shift downward and have a steeper slope. c. shift upward and have a flatter slope. b. shift downward and have a flatter slope. d. shift upward and have a steeper slope. 5. Which of the following is not a correct definition of the break-even point? a. The point where total sales equals total expenses. b. The point where total profit equals total fixed expenses. c. The point where total contribution margin equals total fixed expenses. d. The point where total profit equals zero. 6. The Margin of Safety is: a. The excess of budgeted or actual sales over budgeted or actual variable expenses. b. The excess of budgeted or actual sales over budgeted or actual fixed expenses. c. The excess of budgeted or actual sales over the breakeven volume of sales. d. The excess of budgeted net operating income over actual net operating income. 7. WCorporation, a company that produces and sells a single product, has provided the following information for the month: Sales [5,000 units] $205,000; Variable expenses $125,000; fixed expenses $62,400. If relationships remain the same and 7,000 units are sold next month, the net operating income for next month should be closest to: a. $29,400 c. $46,800 b. $33,000 d. $49,600 e. None of the above. The answer is 8. WCorporation sells a single product for $15 per unit. Last year the company's sales revenue was $225,000 and its operating income was $23,000. If fixed expenses totaled $72,000 for the year, the break-even point in unit sales was: a. 9,600 c. 12,800 b. 10,400 d. 14,000 e. None of the above. The answer is 9. Company A and Company B have the same level of Net Income. Company A has a higher proportion of fixed expenses to variable expenses than Company B. [Refer to Chapter Emphasis] a. Company A will have a lower level of Degree of Operating Leverage than Company B. b. Company A will have the same level of Degree of Operating Leverage than Company B. c. Company A will have a higher level of Degree of Operating Leverage than Company B. 10. Arthur Corporation has a margin of safety percentage of 25% based on actual sales. The break-even point is $300,000 and the variable expenses are 40% of sales. Given this information, the actual profit is: a. $50,000 c. $70,000 b. 60,000 d. 80.000 e. None of the above. The answer is
