Question :
44. Lucy Treasures operates a chain of gift shops. The company : 1208148
44. Lucy Treasures operates a chain of gift 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. Fixed cost
B. Variable cost
C. Mixed cost
D. Semivariable
45. 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 B’s net income would be substantially higher than A’s. Based on this information,
A. Company B’s cost structure has more variable costs than A’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 B’s magnitude of operating leverage was lower than A’s.
46. Operating leverage exists when
A. small percentage changes in revenue produce large percentage changes in profit.
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. the organization avoids all fixed costs in its operations.
47. For the last two years Ballard Company had net income as follows:
What was the percentage change in income from 2011 to 2012?
A. 20% increase
B. 20% decrease
C. 25% decrease
D. 25% increase
48. The activity director for Ritzy Resort 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.
49. Select the incorrect statement regarding the relationship between cost behavior and revenue.
A. A pure variable cost structure offers higher potential rewards.
B. A pure variable cost structure offers more security if volume expectations are not achieved.
C. In a pure fixed 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.
50. 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.
51. The manager of Kingsland Company stated that 55% of its total costs were fixed. The manager was describing the company’s
A. operating leverage.
B. contribution margin.
C. cost averaging.
D. cost structure.
52. Select the incorrect statement regarding cost structures.
A. The more variable cost, the higher the fluctuation in income as sales fluctuate.
B. Highly leveraged companies will experience greater profits than companies less leveraged when sales increase.
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.
53. Executive management at Bargain 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. high leverage cost structure.
B. medium leverage cost structure.
C. low leverage cost structure.
D. no leverage cost structure.
