Multiple Choice Questions

1. Sales of Quickie Computers are down, and management plans to increase salespersons’ commissions on sales by 10 percent in hopes of raising sales volume by 10 percent. What effect should this change have?

a. Sales price will increase.

b. Sales price will decrease.

c. Variable costs will increase.

d. Variable costs will decrease.

2. Which of the following items is not subtracted from sales revenue to arrive at the contribution margin on a contribution margin income statement?

a. Variable manufacturing costs

b. Sales commissions paid only on items that are sold

c. Variable sales and administrative expenses

d. Fixed manufacturing overhead

3. The contribution margin income statement is structured in such a way as to emphasize:

a. Cost functionality

b. Cost behavior

c. Organizational efficiency

d. Cost drivers

4. If a company has a positive contribution margin but net income is low or negative, what are some ways of increasing net income?

a. Increase sales price

b. Increase sales volume

c. Decrease variable costs

d. All of the above are ways to increase net income.

5. XYK Company sells flash drives for computers for $15 each. Each unit has variable costs of $5. The company’s total fixed costs are $1,000,000. If sales increase by 1,000 units, how much will the company’s net income increase?

a. Net income will increase by $10,000.

b. Net income will increase by $15,000.

c. Net income will increase by $5,000.

d. Net income will increase by an amount that cannot be determined from the information given.

6. The following data relate to a small specialty lightbulb sold by Walt Zarnoch’s Lighting, Inc.:

Sales price ..........$4.50 per unit

Variable costs ........$3.25 per unit

Fixed costs .........$5,000

Units sold ..........20,000

If one more unit is sold, net income will:

a. Increase by $4.50

b. Increase by $1.25

c. Decrease by $3.25

d. Decrease by $3.50

7. Emily Sand Corp. has the following information available regarding last year’s operations:

Sales (150,000 units) ........$300,000

Variable costs ........... 100,000

contribution margin ..........$200,000

Fixed costs ............ 100,000

Net income ............$100,000

The company’s operating leverage was:

a. 1.25

b. 1.67

c. 2.00

d. 2.25

8. Emily Sand Corp. has the following information available regarding last year’s operations:

Sales (150,000 units) ........$300,000

Variable costs .......... 100,000

contribution margin .........$200,000

Fixed costs ........... 100,000

Net income ...........$100,000

If sales increase by 20%, how much will the company’s net income be?

a. $120,000

b. $140,000

c. $160,000

d. $180,000

9. Which of the following factors is not directly relevant to a company that is evaluating “what-if” scenarios to examine the impact of options on the company’s financial statements?

a. Changes in a product’s sales price

b. Advertising expenses that will not change

c. Increases in a product’s variable manufacturing costs

d. The quantity of product that is expected to sell