1) Which of the following statements is true? 1.The degree of operating leverage in a company is smallest at the break-even point and increases as sales volumes rise. 2.The degree of operating leverage is computed by dividing sales by the contribution margin. 3.A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales volume than a company with low operating leverage. A) Only statement I is true. B) Only statement III is true. C) All of the statements are true. D) None of the statements are true.

2) If the contribution margin is less than fixed expenses:

A) total profit equals total expenses. B) contribution margin is negative. C) a loss occurs. D) variable expenses must exceed fixed expenses in total

3) Webb Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year?

	Contribution Margin Ratio	Break-even Point
A)	Increase	Increase
B)	Decrease	Decrease
C)	Increase	Decrease
D)	Decrease	Increase

A) Choice A B) Choice B C) Choice C D) Choice D

4) If the degree of operating leverage is 6, then a ten percent change in quantity sold should result in a sixty percent change in:

A) Net operating income. B) contribution margin C) revenue D) none of the above

5) Which of the following statements is true? 1. All manufacturing overhead costs are treated as product costs under both absorption and variable costing. 2. Variable costing treats all manufacturing costs as product costs. A) Only statement I is true. B) Only statement II is true. C) Both statements are true. D) Neither statement is true.

6) How would the following costs be classified (product or period) under variable costing at a fork lift manufacturer?

	Cost of purchasing raw materials	Sales commissions
A)	Product	Period
B)	Period	Period
C)	Period	Product
D)	Product	Product

A) Choice A B) Choice B C) Choice C D) Choice D

7) Fetterman Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range. Round to nearest dollar or whole unit

Sales (5,000 units)	$ 300,000
Variable expenses	210,000
Contribution margin	90,000
Fixed expenses	58,800
Net operating income	$ 31,200

Required: a. What is the contribution margin ratio? b. If sales increase to 5,070 units, what would be the estimated increase in net operating income? c. If the selling price increases by $6 per unit and the sales volume decreases by 300 units, what would be the estimated net operating income? d. What is the break-even point in unit sales? e. What is the margin of safety in dollars? f. What is the degree of operating leverage?

g. If sales decrease by 5 % because the advertising budget a (fixed cost) was slashed by $ 15,000, what would be the new net operating income?

h. What is variable expense ratio?

i) What is breakeven point in dollars?

j) Fetterman looking at a target profit - $ 40,000 instead of status quo, how many units must be sold to pull this off?

k) Fetterman looking at a target profit - $ 60,000 instead of status quo, how much in dollar sales to pull this off?

l) what is margin of safety?

m) what is margin of safety percentage?

n) what is estimated increase in NOI if there is an estimated 10 % increase in sales

o) what is degree of operating leverage?