Management Science Prelim

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Multiple Choice

One of the first steps to take when using CVP analysis to help make decisions is:

• finding out where the total costs line intersects with the total revenues line on a graph.

• identifying which costs are variable and which costs are fixed.

• calculation of the degree of operating leverage for the company.

• estimating how many products will have to be sold to make a decent profit.

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Multiple Choice

Which of the following would decrease contribution margin per unit the most?

• A 15% decrease in selling price

• A 15% increase in variable expenses

• A 15% increase in selling price

• A 15% decrease in variable expenses

Multiple Choice

A company’s breakeven point in peso sales may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are equal within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in peso sales to:

• Decrease by less than the percentage increase in selling price.

• Decrease by more than the percentage increase in the selling price.

• Increase by less than the percentage increase in selling price.

• Remain unchanged.

Multiple Choice

Which of the following statements most accurately explains the behavior of costs?

• There is no norm; rather, costs can be fixed, variable, or a combination of both.

• The majority of costs are variable per unit of production.

• The majority of costs are fixed per unit of production.

• Costs can be fixed or variable but usually not a combination of both.

Multiple Choice

Which of the following statements is true regarding fixed and variable costs?

• Both costs are constant when considered on a total basis.

• Variable costs are constant in total, and fixed costs are constant per unit.

• Both costs are constant when considered on a per unit basis.

• Fixed costs are constant in total, and variable costs are constant per unit.

Multiple Choice

If a company’s variable costs are 70% of sales, which formula represents the computation of peso sales that will yield a profit equal to 10% of the contribution margin when P equals sales in pesos for the period and FC equals total fixed costs for the period?

• P = .2/FC

• P = FC/.2

• P = .27/FC

• P = FC/.27

Multiple Choice

Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and utilization of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the:

• Gross margin per unit for each additional unit sold.

• Contribution margin per unit for each additional unit sold.

• Fixed costs per unit for each additional unit sold.

• Variable costs per unit for each additional unit sold.

Multiple Choice

Assume total costs are represented on the vertical (y) axis and volume of activity is represented on the horizontal (x) axis. If the graph shows a line that is parallel to the horizontal axis and Constantly the same all throughout the Activity, then the graph best illustrates

• Total Variable Cost

• Selling Cost and Commission

• Total Direct materials cost.

• Total Fixed Cost

Multiple Choice

The contribution margin ratio always increases when the

• Variable costs as a percentage of net sales increase.

• Variable costs as a percentage of net sales decrease.

• Breakeven point increases.

• Breakeven point decreases.

Multiple Choice

As projected net income increases the

• degree of operating leverage declines

• margin of safety stays constant

• breakeven point goes down

• contribution margin ratio goes up

Multiple Choice

A managerial preference for a very low degree of operating leverage might indicate that

• an increase in sales volume is expected

• a decrease in sales volume is expected

• the firm is very unprofitable

• the firm has very high fixed costs

Multiple Choice

When graphed, a typical Total variable cost appears as:

• a horizontal line.

• a vertical line.

• a diagonal line that slopes downward to the right.

• a diagonal line that slopes upward to the right.

Multiple Choice

LEVERAGE Company changed its cost structure by increasing fixed costs and decreasing its per-unit variable costs. The change

• Increases risk and increases potential profit

• Increases risk and decreases potential profit

• Decreases risk and decreases potential profit

• Decreases risk and increases potential profit

Multiple Choice

If a company desires to increase its safety margin, it should:

• increase fixed costs.

• decrease the contribution margin.

• decrease selling prices, assuming the price change will have no effect on demand.

• stimulate sales volume.

Multiple Choice

The following information was taken from a computer printout generated with the least squares method for use in estimating the:

Variable Rate is: P90

Total Fixed Cost is: P11,400

The Total overhead cost formula is:

• OVERHEAD = P11,400 - P90X

• OVERHEAD = P11,400 + P90X

• OVERHEAD = P11,400 + (P45 X 0.6)

• OVERHEAD = P11,400 X 0.6