1. A differential cost is a variable cost

True

False.

2. If the number of units sold increase, the break-even point will decrease.

True

False.

3. All other things the same, a decrease in variable expenses per unit will reduce the break-even point.

True

False.

4. Inventories are usually the most liquid, but lowest-yielding, current asset of a firm.

True

False.

5. A sunk cost is a cost that has already been incurred but that can be avoided at least in part depending on the action a manager takes.

True

False.

6. At the break-even point, variable expenses and fixed expenses are equal.

True

False.

7. The costs of carrying inventory include all of the following except: *

a- Ordering costs.

b- Cost of warehouse space.

c- Insurance and handling costs.

d- Interest on funds tied up in inventory.

e- None of the above.

8. Once the break-even point is reached: *

a- The contribution margin ratio begins to decrease.

b- The variable expenses will remain constant in total.

c- The total contribution margin changes from negative to positive.

d- The net operating income will increase by the unit contribution margin for each additional item sold.

e- None of the above.

9. Allocated common fixed costs: *

a- Are always incremental costs.

b- Can make a product line appear to be unprofitable.

c- Are always relevant in decisions involving dropping a product line.

d- All of the above.

e- None of the above.

10. If Company C has a higher degree of operating leverage than Company D, then: *

a- Company C is less risky.

b- Company C is more profitable.

c- Company C has higher variable expenses.

d- Company Cs profits are more sensitive to percentage changes in sales.

e- None of the above.