Question

 

 

7. The costs of carrying inventory include all of the following except:

a)Ordering costs.

b)Cost of warehouse space.

c)Insurance and handling costs.

d)Interest on funds tied up in inventory.

e)None of the above.

 

8. Once the break-even point is reached:

a)The contribution margin ratio begins to decrease.

b)The variable expenses will remain constant in total.

c)The total contribution margin changes from negative to positive.

d)The net operating income will increase by the unit contribution margin for each additional item sold.

e)None of the above.

 

9. Allocated common fixed costs:

a)Are always incremental costs.

b)Can make a product line appear to be unprofitable.

c)Are always relevant in decisions involving dropping a product line.

d)All of the above.

e)None of the above.

 

10. If Company C has a higher degree of operating leverage than Company D, then:

a)Company C is less risky.

b)Company C is more profitable.

c)Company C has higher variable expenses.

d)Company C’s profits are more sensitive to percentage changes in sales.

e)None of the above.

Answer 1

 

7)

The correct answer is Option e (None of the above).

Explanation:

Because inventory costs are all costs related with ordering, holding and managing with the stock or inventory of an activity or business.For example: compensation paid to representatives,interest paid on venture,obsolence cost ,Capital expense.So,that all are including inventory costs and the answer is none of the above.

8)

The correct answer is Option d (The net operating income will increase by the unit contribution margin for each additional item sold).

Explanation:

When the organization has accomplished make break even point ,its fixed expense is recuperated and contribution margin of each extra unit sold above equal the break even point frames some portion of net operating income.

9)

The correct answer is Option b (Can make a product line appear to be unprofitable.)

Explanation :

b) Some items may use as an extent a greater proportion of the fixed expenses than others for example one item occupies more floor space than another (identified with lease) .Therefore option b is the answer.

a) No, the more units there are the less fixed/cost per unit - variable expenses then again are incremental .

c) not generally, since approaches like contribution margin don't consider fixed expenses

10)

The correct answer is option d(Company C’s profits are more sensitive to percentage changes in sales.)

Explanation:

Operating leverage is the level to which a firm or task can increment working income by expanding revenue.