and at the cover page, assume that you purchased the following limits:
81. Cost structure
a.refers to the relative proportion of fixed versus variable costs that a company incurs.
b.generally has little impact on profitability.
c.cannot be significantly changed by companies.
d.refers to the relative proportion of operating versus nonoperating costs that a company incurs.
82. Outsourcing production will
a.reduce fixed costs and increase variable costs.
b.reduce variable costs and increase fixed costs.
c.have no effect on the relative proportion of fixed and variable costs.
d.make the company more susceptible to economic swings.
83. Reducing reliance on human workers and instead investing heavily in computers and online technology will
a.reduce fixed costs and increase variable costs.
b.reduce variable costs and increase fixed costs.
c.have no effect on the relative proportion of fixed and variable costs.
d.make the company less susceptible to economic swings.
84. Cost structure refers to the relative proportion of
a.selling expenses versus administrative expenses.
b.selling and administrative expenses versus cost of goods sold.
c.contribution margin versus sales.
d.none of the above.
85. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s degree of operating leverage is
a.1.22.
b.1.47.
c.1.20.
d.6.00.
86. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s margin of safety ratio is
a..08.
b..17.
c..20.
d..83.
87. Which of the following statements is not true?
a.Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales.
b.Companies that have higher fixed costs relative to variable costs have higher operating leverage.
c.When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.
d.When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.
88. Miller Manufacturing’s degree of operating leverage is 1.5. Warren Corporation’s degree of operating leverage is 6. Warren’s earnings would go up (or down) by ________ as much as Miller’s with an equal increase (or decrease) in sales.
a.1/4
b.4.5 times
c.4 times
d.7.5 times
89. The margin of safety ratio
a.is computed as actual sales divided by break-even sales.
b.indicates what percent decline in sales could be sustained before the company would operate at a loss.
c.measures the ratio of fixed costs to variable costs.
d.is used to determine the break-even point.
90. A cost structure which relies more heavily on fixed costs makes the company
a.more sensitive to changes in sales revenue.
b.less sensitive to changes in sales revenue.
c.either more or less sensitive to changes in sales revenue, depending on other factors.
d.have a lower break-even point.
