Multiple Choice Questions
1. If the margin of safety is 0, then
a. The company is precisely breaking even.
b. The company is operating at a loss.
c. The company is earning a small profit.
d. The margin of safety cannot be less than or equal to 0; it must be positive.
e. None of the above is true.
2. The contribution margin is the
a. Amount by which sales exceed total fixed cost.
b. Difference between sales and total cost.
c. Difference between sales and operating income.
d. Difference between sales and total variable cost.
e. Difference between variable cost and fixed cost.
Use the following information for Multiple-Choice Exercises 3 and 4:
Dartmouth Company produces a single product with a price of $10, variable cost per unit of $3, and total fixed cost of $8,400.
3. Refer to the information for Dartmouth above. Dartmouth’s break-even point in units
a. Is 840.
b. Is 1,200.
c. Is 2,800.
d. Is 3,000.
e. Cannot be determined from the information given.
4. Refer to the information for Dartmouth above. The variable cost ratio and the contribution margin ratio for Dartmouth are Variable cost ratio Contribution margin ratio
a. 70% 70%.
b. 30% 30%.
c. 30% 70%.
d. 70% 30%.
e. The contribution margin ratio cannot be determined from the information given.
5. If a company’s total fixed cost rises by $10,000, which of the following will be true?
a. The break-even point will decrease.
b. The variable cost ratio will increase.
c. The break-even point will be unchanged.
d. The variable cost ratio will decrease.
e. The contribution margin ratio will be unchanged.
6. Solemon Company has total fixed cost of $15,000, variable cost per unit of $6, and a price of $8. If Solemon wants to earn a targeted profit of $3,600, how many units must be sold?