Question :
91. Which of the following statements most likely true if Red : 1295601
91. Which of the following statements is most likely true if Red Inc. has an operating leverage of 2.0 while Blue Corp. has an operating leverage of 1.4?
A. Red Inc. is selling its products for a higher sales price than Blue Corp.
B. Red Inc.’s net income will be less sensitive to a change in sale volume than Blue Corp.
C. Blue Corp.’s fixed costs in relation to variable costs is lower than Red Inc.’s.
D. Blue Corp. has a lower contribution margin per unit than Red Inc.
92. A company with a high level of operating leverage will:
A. experience fewer fluctuations in income as sales fluctuate than a company with a low level of operating leverage.
B. experience wider fluctuations in income as sales fluctuate than a company with a low level of operating leverage.
C. earn higher profits than a company with a low level of operating leverage.
D. earn lower profits than a company with a low level of operating leverage.
93. Under variable costing, which of the following is not considered a product cost?
A. Direct materials
B. Direct labor
C. Fixed manufacturing overhead
D. Variable manufacturing overhead
94. Under absorption costing, which of the following is not considered a product cost?
A. Direct labor
B. Fixed manufacturing overhead
C. Variable manufacturing overhead
D. Administrative costs
95. The primary difference between variable and absorption costing is the treatment of:
A. fixed selling and administrative costs.
B. variable selling and administrative costs.
C. fixed manufacturing overhead.
D. variable manufacturing overhead.
96. Which of the following statements is false regarding absorption costing?
A. Variable overhead is treated as a product cost.
B. Absorption costing is required for external financial statements prepared in accordance with generally accepted accounting principles (GAAP).
C. Fixed overhead is treated as a product cost.
D. Fixed overhead is expensed in the period incurred.
97. Which of the following statements is false regarding variable costing?
A. Variable overhead is treated as a product cost.
B. Variable costing is required for external financial statements prepared in accordance with generally accepted accounting principles (GAAP).
C. Fixed overhead is treated as a period cost.
D. Period costs are expensed as they are incurred.
98. Which of the following descriptions would not be found on an income statement prepared using variable costing?
A. Sales
B. Fixed costs
C. Cost of goods sold
D. Net income
99. Which of the following line descriptions would not be found on an income statement prepared using absorption costing?
A. Sales
B. Contribution margin
C. Cost of goods sold
D. Net income
100. Assuming the number of units sold and produced are the same, which of the following statements is true when comparing net income using absorption and variable costing?
A. Absorption costing will yield a higher net income.
B. Variable costing will yield a higher net income.
C. Net income will be the same under both methods.
D. Variable costing will have higher sales revenue.
