Test bank chapter 09

8. In performing short-term CVP analysis for a new product or service, the decision-maker would:

A. Include all current and future fixed costs.

B. Include only current fixed costs.

C. Include only future fixed costs.

D. Include only incremental fixed costs.

E. Include only allocated fixed costs.

9. In measuring the variable cost per unit, CVP analysis includes:

A. Only variable production costs.

B. Only variable distribution and selling costs.

C. Both variable production and variable selling/distribution costs.

D. Only variable and semi-variable production costs.

10. The difference between sales price per unit and variable cost per unit is the:

A. Contribution margin per unit (cm).

B. Total contribution margin (CM).

C. Contribution margin ratio.

D. Margin of safety (MOS).

E. Breakeven point.

11. The contribution margin per unit multiplied by the number of units sold is the:

A. Segment margin.

B. Total contribution margin (CM).

C. Contribution margin ratio.

D. Margin of safety (MOS).

E. Breakeven point.

12. Which one of the following is the most useful measure for comparing the risk of two alternative products?

A. Contribution margin ratio.

B. Margin of safety ratio (MOS%).

C. Financial leverage.

D. Breakeven point.

E. Regression analysis.

16. Which one of the following is defined, at any given sales volume, as the ratio of the total contribution margin to operating profit at that sales volume?

A. Contribution margin ratio.

B. Margin of safety ratio (MOS%).

C. Degree of operating leverage (DOL).

D. Breakeven point.

E. Margin of safety (MOS).

17. Which one of the following is not included as a factor in CVP analysis?

A. Total fixed costs.

B. Variable cost per unit.

C. Desired (targeted) profit.

D. Selling price per unit.

E. Expected production level.

18. Which of the following is not an underlying assumption of a conventional CVP analysis?

A. Learning-curve effects (i.e., productivity gains with experience)

B. Fixed costs, in total, do not change as sales mix or total sales volume change.

C. Selling price per unit is unrelated to assumed sales volume.

D. Inputs to the profit-planning model are known with certainty.

E. Variable costs per unit are unrelated to changes in volume.

Grant’s Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant’s carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant’s has been great. However, the business is very competitive, and Grant has relied on its knowledgeable

and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople.

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19. The annual breakeven point in unit sales is calculated to be:

A. 15,000 units.

B. 14,000 units.

C. 16,000 units.

D. 13,000 units.

E. 17,000 units.

20. The annual breakeven point in dollar sales is calculated to be:

A. $504,000.

B. $576,000.

C. $468,000.

D. $612,000.

E. $540,000.

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