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?

Variable cost/fixed cost

Fixed cost/fixed cost

Fixed cost/variable cost

Variable cost/variable cost

2. Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000 of which $70,000 are fixed costs. What is the amount of contribution margin per unit?

$0.400

$0.5375

$0.250

None of these is correct.

3.

Based on the income statements of the three following retail businesses, which company has the highest operating leverage? Revenue Variable costs Contribution margin Fixed costs Net income Alpha Company $200,000 (95,000 $105,000 (80,000) $25,000 Beta Company $200,000 (155,000) $45,000 (20,000) $25,000 Gamma Company $200,000 (125,000 $75,000 (50,000) $25,000 Alpha Company Beta Company Gamma Company They all have same operating leverage