In: Accounting
___ 1. Lester Company has a single product. The
selling price is $50 and the variable cost is $30 per
unit. The company’s fixed expenses are $200,000 per
month. What is the company’s unit contribution mar-
gin? a) $50; b) $30; c) $20; d) $80.
___ 2. Refer to the data for Lester Company in
question 1 above. What is the company’s contribution
margin ratio? a) 0.60; b) 0.40; c) 1.67; d) 20.00.
___ 3. Refer to the data for Lester Company in
question 1 above. What is the company’s break-even
in sales dollars? a) $500,000; b) $33,333; c) $200,000;
d) $400,000.
___ 4. Refer to the data for Lester Company in
question 1 above. How many units would the company
have to sell to attain target profits of $50,000? a)
10,000; b) 12,500; c) 15,000; d) 13,333.
___ 5. The following figures are taken from Park-
er Company’s income statement: Net income, $30,000;
Fixed costs, $90,000; Sales, $200,000; and CM ratio,
60%. The company’s margin of safety in dollars is: a)
$150,000; b) $30,000; c) $50,000; d) $80,000.
___ 6. Refer to the data in question for Parker
Company in 5 above. The margin of safety in percen-
tage form is: a) 60%; b) 75%; c) 40%; d) 25%.
___ 7. Refer to the data for Parker Company in
question 5 above. What is the company’s total contri-
bution margin? a) $110,000; b) $120,000; c) $170,000;
d) $200,000.
___ 8. Refer to the data for Parker Company in
question 5 above. What is the company’s degree of
operating leverage? a) 0.25; b) 0.60; c) 1.25; d) 4.00.
___ 9. If sales increase from $400,000 to
$450,000, and if the degree of operating leverage is 6,
net income should increase by: a) 12.5%; b) 75%; c)
67%; d) 50%.
___ 10. In multiple product firms, a shift in the
sales mix from less profitable products to more profit-
able products will cause the company’s break-even
point to: a) increase; b) decrease; c) there will be no
change in the break-even point; d) none of these.