125(3)

Q1. If sales are $820,000, variable costs are 68% of sales, and operating income is $260,000, what is the contribution margin ratio? a. 53% b. 38% c. 47% d. 32% Q2. Which of the following statements is TRUE regarding fixed and variable costs? a. Both costs are constant when considered on a per-unit basis. b. Both costs are constant when considered on a total basis. c. Fixed costs are fixed in total, and variable costs are fixed per unit. d. Variable costs are fixed in total, and fixed costs vary in total. Q3. If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 20%. a. true b. false Q4. The difference between the current sales revenue and the sales at the break-even point is called the a. contribution margin. b. margin of safety. c. price factor. d. operating leverage. Q5. Even if a business sells six products, it is possible to estimate the break-even point. a. true b. false Q6. If a business had sales of $4,000,000, fixed costs of $1,200,000, a margin of safety of 25%, and a contribution margin ratio of 40%, what was the break-even point? a. $3,000,000 b. $2,800,000 c. $4,800,000 d. $2,000,000 Q7. Cost-volume-profit analysis can be presented in both equation form and graphic form. a. true b. false Q8. If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio? a. 42% b. 37% c. 44% d. 15% Q9. If direct materials cost per unit decreases, the break-even point will increase. a. true b. false Q10. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio. a. true b. false Q11. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 7,500 units. a. true b. false Q12. The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits is termed a. contribution margin analysis. b. cost-volume-profit analysis. c. budgetary analysis. d. gross profit analysis. Q13. If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if fixed costs are reduced by $50,000? a. 15,834 units b. 67,500 units c. 62,500 units d. 63,333 units Q14. Because variable costs are assumed to change in constant proportion with changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle. a. true b. false Q15. The point where the profit line intersects the horizontal axis on the profit-volume chart represents a. the maximum possible operating loss. b. the maximum possible operating income. c. the total fixed costs. d. the break-even point. Q16. Which ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit? a. Margin of safety ratio b. Contribution margin ratio c. Costs and expenses ratio d. Profit ratio Q17. For purposes of analysis, mixed costs can generally be separated into their variable and fixed components. a. true b. false Q18. Break-even analysis is one type of cost-volume-profit analysis. a. true b. false Q19. If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating income of $30,000 are 10,000 units. a. true b. false Q20. Variable costs are costs that remain constant in total with changes in the activity level. a. true b. false Q21. If a business had sales of $4,000,000 and a margin of safety of 25%, what was the break-even point? a. $5,000,000 b. $3,000,000 c. $12,000,000 d. $1,000,000 Q22. If fixed costs are $600,000 and the unit contribution margin is $12, what amount of units must be sold in order to realize an operating income of $100,000? a. 33,334 b. 58,334 c. 41,667 d. 50,000 Q23. The relevant range is useful for analyzing cost behavior for management decision-making purposes. a. true b. false Q24. Which of the following activity bases would be the most appropriate for food costs of a hospital? a. Number of cooks scheduled to work b. Number of x-rays taken c. Number of patients who stay in the hospital d. Number of scheduled surgeries Q25. If fixed costs are $850,000 and the unit contribution margin is $90, what amount of units must be sold in order to have a zero profit? a. 9,445 b. 8,500 c. 7,650 d. 85,000 Q26. With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called a. 'what if' or sensitivity analysis. b. vary the data analysis. c. computer-aided analysis. d. data gathering. Q27. The variable cost per unit remains constant with changes in the level of activity. a. true b. false Q28. If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 25%. a. true b. false Q29. Which of the following conditions would cause the break-even point to increase? a. Total fixed costs decrease b. Unit selling price increases c. Unit variable cost decreases d. Unit variable cost increases Q30. If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease. a. true b. false Q31. If the property tax rates are increased, this change in fixed costs will result in an increase in the break-even point. a. true b. false Q32. Winston Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are a. $56,000. b. $28,400. c. $17,600. d. $29,900. Q33. If fixed costs are $350,000, the unit selling price is $75, and the unit variable costs are $30, what is the break-even sales (in units)? a. 3,500 units b. 7,778 units c. 11,667 units d. 4,667 units Q34. Which of the following are present value methods of analyzing capital investment proposals? a. Internal rate of return and average rate of return b. Average rate of return and net present value c. Net present value and internal rate of return d. Net present value and payback Q35. If the minimum acceptable rate of return for investments exceeds the average rate of return on an asset, the asset should be purchased. a. true b. false Q36. Qualitative considerations are best evaluated using present value methods such as internal rate of return. a. true b. false Q37. Leasing assets may be a favorable alternative to purchasing assets if the asset has a high risk of becoming obsolete. a. true b. false Q38. The internal rate of return method of analyzing capital investment proposals uses the present value concept to compute an internal rate of return expected from the proposals. a. true b. false Q39. The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing. a. true b. false Q40. In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are normally used? a. Cash payback method and average rate of return method b. Average rate of return method and net present value method c. Net present value method and cash payback method d. Internal rate of return and net present value methods Q41. The average rate of return method of capital investment analysis gives consideration to the present value of future cash flows. a. true b. false Q42. The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. The expected average rate of return on investment is 20%. a. true b. false Q43. A series of unequal cash flows at fixed intervals is termed an annuity. a. true b. false Q44. Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of a. sales mix analysis. b. variable cost analysis. c. variable cost analysis. d. capital investment analysis. Q45. Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects? a. Interest deduction b. Depreciation deduction c. Minimum tax provision d. Charitable contributions Q46. The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called a. absorption cost analysis. b. variable cost analysis. c. capital investment analysis. d. cost-volume-profit analysis. Q47. The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 30%. a. true b. false Q48. A qualitative characteristic that may impact upon capital investment analysis is the impact of investment proposals on product quality. a. true b. false Q49. Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return? a. Average rate of return b. Internal rate of return c. Cash payback period d. Accounting rate of return Q50. Crane Company is considering the acquisition of a machine that costs $60,000. The machine is expected to have a useful life of 5 years, a negligible residual value, an annual cash flow of $15,000, and annual operating income of $15,000. What is the estimated cash payback period for the machine? a. 1.7 years b. 3 years c. 4 years d. 5 years Q51. The payback period is determined using which of the following formulas? a. Amount to be invested/Annual average net income b. Annual net cash flow/Amount to be invested c. Annual average net income/Amount to be invested d. Amount to be invested/Equal annual net cash flows Q52. The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and a $40,000 residual value, is expected to yield total net income of $500,000 for the 5 years. The expected average rate of return is 50%. a. true b. false Q53. Care must be taken involving capital investment decisions since normally a long-term commitment of funds is involved and operations could be affected for many years. a. true b. false Q54. The expected average rate of return for a proposed investment of $540,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $216,000 for the 4 years, is a. 18%. b. 15%. c. 27%. d. 20%. Q55. When evaluating a proposal by use of the net present value method, if there is an excess of present value over the amount to be invested, the rate of return on the proposal is more than the rate used in the analysis. a. true b. false Q56. If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years. a. true b. false Q57. In net present value analysis for a proposed capital investment, the expected future net cash flows are reduced to their present values. a. true b. false Q58. The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method. a. true b. false Q59. Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals? a. Internal rate of return b. Cash payback c. Net present value d. Average rate of return Q60. Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method that makes the proposals comparable? a. Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years. b. Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six. c. Ignore the useful lives of six and nine years and find an average (7 1/2 years). d. Ignore the useful lives of six and nine years and compute the average rate of return. Q61. A present value index can be used to rank competing capital investment proposals when the net present value method is used. a. true b. false Q62. The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) average rate of return and (2) cash payback methods. a. true b. false Q63. Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis? a. Price-level index b. Present value factor c. Annuity d. Present value index Q64. The process by which management allocates available investment funds among competing investment proposals is called a. investment capital. b. investment rationing. c. cost-volume-profit analysis. d. capital rationing. Q65. The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method. a. true b. false Q66. Which of the following is a present value method of analyzing capital investment proposals? a. Average rate of return b. Cash payback method c. Accounting rate of return d. Net present value Q67. In general, present value methods of analyzing capital investments are more desirable than methods ignoring present value because a. the calculations in methods that ignore present value are more complex than those in methods using present value. b. the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar. c. the calculations in methods that consider present value are less complex than those methods ignoring present value. d. the present value methods consider that a dollar in the future is worth more than a dollar today due to the potential earning power of that dollar. Q68. The purpose of an audit is to a. determine whether or not a company is a good investment. b. render an opinion on the fairness of the statements. c. determine whether or not a company complies with income tax regulations. d. determine whether or not a company is a good credit risk. Q69. The percentage analysis of increases and decreases in individual items in comparative financial statements is called a. vertical analysis. b. solvency analysis. c. profitability analysis. d. horizontal analysis. Q70. The percentage of change in long-term liabilities between two balance sheet dates is an example of a. vertical analysis. b. solvency analysis. c. profitability analysis. d. horizontal analysis. Q71. Statements in which all items are expressed in relative terms are called common-size statements. a. true b. false Q72. The ratio of current assets to current liabilities is referred to as the acid-test ratio. a. true b. false Q73. If a company has issued only one class of stock, the earnings per share is determined by dividing net income by the number of shares outstanding. a. true b. false Q74. Based on the following data, what is the amount of working capital?

Accounts payable	$ 32,000
Accounts receivable	64,000
Accrued liabilities	7,000
Cash	20,000
Intangible assets	40,000
Inventory	72,000
Long-term investments	100,000
Long-term liabilities	75,000
Marketable securities	35,000
Notes payable (short-term)	20,000
Property, plant, and equipment	625,000
Prepaid expenses	2,000

a. $190,000 b. $134,000 c. $118,000 d. $62,000 Q75. If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal. a. true b. false Q76. Based on the following data for the current year, what is the accounts receivable turnover?

Net sales on account during year	$ 525,500
Cost of merchandise sold during year	375,000
Accounts receivable, beginning of year	50,000
Accounts receivable, end of year	40,000
Inventory, beginning of year	110,000
Inventory, end of year	140,000

a. 13.14 b. 11.7 c. 10.35 d. 8.3 Q77. The excess of current liabilities over current assets is referred to as working capital. a. true b. false Q78. The number of times interest charges are earned is computed as a. net income plus interest charges, divided by interest charges. b. income before income tax plus interest charges, divided by interest charges. c. net income divided by interest charges. d. income before income tax divided by interest charges. Q79. In computing the rate earned on total assets, interest expense is added to net income before dividing by average total assets. a. true b. false Q80. The relationship of $225,000 to $100,000, expressed as a ratio, is a. 2.0 to 1. b. 1.8 to 1. c. 1.5 to 1. d. 2.25 to 1. Q81. Which of the following is a measure of the liquid position of a corporation? a. Earnings per share b. Inventory turnover c. Current ratio d. Number of times interest charges earned Q82. The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%. a. true b. false Q83. Profitability refers to the ability of the business to a. earn a reasonable amount of income. b. provide owners with dividends. c. pay its current and noncurrent liabilities. d. manage its accounts receivable and inventory. Q84. The balance sheets at the end of each of the first two years of operations indicate the following:

	2011	2010
Total current assets	$600,000	$560,000
Total investments	60,000	40,000
Total property, plant, and equipment	900,000	700,000
Total current liabilities	125,000	80,000
Total long-term liabilities	350,000	250,000
Preferred 9% stock, $100 par	100,000	100,000
Common stock, $10 par	600,000	600,000
Paid-in capital in excess of par--common stock	60,000	60,000
Retained earnings	325,000	210,000

If net income is $130,000 and interest expense is $40,000 for 2011, what are the earnings per share on common stock for 2011 (rounded to two decimal places)? a. $2.17 b. $2.68 c. $2.02 d. $2.32 Q85. The ability of a business to earn a reasonable amount of income is referred to as the factor of a. leverage. b. profitability. c. wealth. d. solvency. Q86. The relationship of each asset item as a percent of total assets is an example of horizontal analysis. a. true b. false Q87. The terms acid-test ratio and quick ratio refer to the same ratio--the instant debt-paying ability of a company. a. true b. false Q88. Solvency analysis focuses on the ability of a business to make a profit. a. true b. false Q89. Which of the following is included in the computation of the quick ratio? a. Prepaid rent b. Accounts receivable c. Inventory d. Supplies Q90. Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions. a. true b. false Q91. If a firm has an quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase. a. true b. false Q92. A company with working capital of $500,000 and a current ratio of 2.25 pays a $100,000 short-term liability. The amount of working capital immediately after payment is a. $600,000. b. $400,000. c. $500,000. d. $100,000. Q93. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis. a. true b. false Q94. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory. a. true b. false Q95. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as vertical analysis. a. true b. false Q96. Balance sheet and income statement data indicate the following:

Bonds payable, 12% (issued 1998, due 2022)	$1,000,000
Preferred 5% stock, $100 par (no change during year)	300,000
Common stock, $50 par (no change during year)	2,000,000
Income before income tax for year	300,000
Income tax for year	80,000
Common dividends paid	50,000
Preferred dividends paid	15,000

Based on the data presented above, what is the number of times interest charges were earned (rounded to one decimal place)? a. 3.5 b. 2.2 c. 4.0 d. The answer cannot be determined. Q97. Ratios and various other analytical measures are NOT a substitute for sound judgment, nor do they provide definitive guides for action. a. true b. false Q98. The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses. a. true b. false Q99. The comparison of the financial data of a single company for two or more years is called horizontal analysis. a. true b. false Q100. The rate earned on total assets is one of the measures of profitability. a. true b. false