Question : 21.Cool Runnings operates a chain of frozen yogurt shops. The : 1257100

 

 

21.Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000 of rent expense per month for each shop. The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis. Relative to the number of shops, the cost of rent is which kind of cost?   

A. Variable cost

 

B. Fixed cost

 

C. Mixed cost

 

D. Opportunity cost

 

 

22.Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A’s net income would be substantially higher than B’s. Based on this information,   

A. Company A’s cost structure has more variable costs than B’s.

 

B. Company A’s cost structure has higher fixed costs than B’s.

 

C. Company B’s cost structure has higher fixed costs than A’s.

 

D. At a volume of 50,000 units, Company A’s magnitude of operating leverage was lower than B’s.

 

 

23.Operating leverage exists when:   

A. a company utilizes debt to finance its assets.

 

B. management buys enough of the company’s shares of stock to take control of the corporation.

 

C. the organization makes purchases on credit instead of paying cash.

 

D. small percentage changes in revenue produce large percentage changes in profit.

 

 

24.For the last two years BRC Company had net income as follows:  What was the percentage change in income from 2012 to 2013?   

A. 20% increase

 

B. 20% decrease

 

C. 25% increase

 

D. 25% decrease

 

 

25.The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity’s cost structure. Select the incorrect statement from the following.   

A. If the director expects a low turnout, she should use a fixed cost structure.

 

B. If the director expects a large turnout, she should attempt to convert variable costs into fixed costs.

 

C. If the director shifts the cost structure from fixed to variable, the level of risk decreases.

 

D. If the director shifts the cost structure from fixed to variable, the potential for profits will be reduced.

 

 

26.Select the incorrect statement regarding the relationship between cost behavior and profits.   

A. A pure variable cost structure offers higher potential rewards.

 

B. A pure fixed cost structure offers more security if volume expectations are not achieved.

 

C. In a pure variable cost structure, when revenue increases by $1, so do profits.

 

D. In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.

 

 

27.Select the correct statement from the following.   

A. A fixed cost structure offers less risk (i.e., less earnings volatility) and higher opportunity for profitability than does a variable cost structure.

 

B. A variable cost structure offers less risk and higher opportunity for profitability than does a fixed cost structure.

 

C. A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure.

 

D. A variable cost structure offers greater risk but higher opportunity for profitability than does a fixed cost structure.

 

 

28.The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company’s:   

A. operating leverage.

 

B. contribution margin.

 

C. cost structure.

 

D. cost averaging.

 

 

29.Select the incorrect statement regarding cost structures.   

A. Highly leveraged companies will experience greater profits than companies less leveraged when sales increase.

 

B. The more variable cost, the higher the fluctuation in income as sales fluctuate.

 

C. When sales change, the amount of the corresponding change in income is affected by the company’s cost structure.

 

D. Faced with significant uncertainty about future revenues, a low leverage cost structure is preferable to a high leverage cost structure.

 

 

30.Executive management at Ballard Books is very optimistic about the chain’s ability to achieve significant increases in sales in each of the next five years. The company will most benefit if management creates a:   

A. low leverage cost structure.

 

B. medium leverage cost structure.

 

C. high leverage cost structure.

 

D. no leverage cost structure.