12. T or F: Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income.

13. T or F: The margin of safety can be defined as the amount by which sales can decrease before losses are incurred by the company.

14. Mark Company currently sells a video recorder with a selling price of $300 per unit. The variable expense per unit is $175 and fixed expenses are $100,000. If the company reduces variable expenses by $20 per unit and increases the fixed expenses by $10,000, the break-even point will __increase or decrease__.

15. The degree of operating leverage is computed by dividing contribution margin by ______________.

16. The variable expense per unit is $12 and the selling price per unit is $40. Then the contribution margin ratio

is _____________%.

17. Long Companys variables expenses are 60% of sales. A $1,200 increase in the companys fixed expenses will

increase the break-even point in sales by $ _______________.

Part II: Classification of Costs as Period or Product Cost (@1/2)

1. ______________ Depreciation on salespersons cars.

2. ______________ Rent on equipment used in the factory.

3. ______________ Lubricants used for maintenance of machines.

4. ______________ Salaries of finished goods warehouse personnel.

5. ______________ Soap and paper towels used by factory workers at the end of a shift.

6. ______________ Factory supervisors salaries.

7. ______________ Heat, water, and power consumed in the factory.

8. ______________ Advertising costs.

9. ______________ Workers compensation insurance on factory employees.

10. ______________ Attractively designed box for packaging the companys product.