Exam 2 Review

The contribution margin ratio is...

• contribution margin divided by variable expenses

• sales revenue divided by contribution margin

• contribution margin divided by sales revenue

• fixed expenses divided by variable expenses

Which is true of price-setters?

• Their pricing approach emphasizes target costing

• Their pricing approach emphasizes cost-plus pricing

• They are in highly competitive markets

• Their products lack uniqueness

In the cost equation y = vx + f the term "v" stands for...

• variable cost per unit

• fixed cost

• total variable cost

• total cost

Which of the following is true about regression analysis?

• It is based on two data points

• The resulting S-squared statistic shows how well the line fits the data points

• It is theoretically less sound than the high-low method

• It is sometimes referred to as the line of best fit

A company with a low operating leverage

• has relatively more risk than a company with high operating leverage

• has relatively more variable costs than fixed costs

• has relatively more fixed costs than variable costs.

• has an equal proportion of fixed and variable costs.

Use the high-low method to determine the variable and fixed cost components of Swift Change's operating costs. Use this information to project the monthly operating costs for a month in which the company performs 3,900 oil changes.

• 18,500

• 5

• 390

• 38,000

Answer explanation

A legal firm wanted to determine the relationship between its monthly operating costs and a potential cost driver, professional hours. An excerpt from the output of a regression analysis performed using Excel showed the following information: Given this output, write the legal firm's monthly cost equation.

• y=.27x+947.20

• y=.27x+1217.79

• y=947.20x+.27

• y=1217.79x+.27

Answer explanation

FunTime Cruiseline offers nightly dinner cruises departing from several cities. Dinner cruise tickets sell for $50 per passenger. FunTime Cruiseline's variable cost of providing the dinner is $30 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $210,000 per month. Suppose FunTime Cruiseline embarks on a cost reduction drive and slashes fixed expenses from $210,000 per month to $150,000 per month. Compute the new breakeven point in units.

• 6000

• 7500

• 8200

• 4300

Answer explanation

Shilling Co. produces oil filters for $3.25 each. A retailer has offered to purchase 20,000 oil filters for $1.55 per filter. Of the total manufacturing cost per filter of $2.10, $1.30 is the variable manufacturing cost per filter. For this special order, Shilling would have to buy a special stamping machine that costs $8,000 to mark the customer's logo on the special-order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would otherwise be idle. No variable non manufacturing costs would be incurred by the special order. Should they accept or reject the special order?

• Accept

• Reject

Answer explanation

InteliSystems makes an optical switch that it uses in its final product. InteliSystems incurs $10.50 of Direct Materials, Direct Labor, and Variable Overhead per unit, and $6.50 on Fixed Overhead per unit. Another company has offered to sell the switch for $8.50 per unit. InteliSystems needs 79,000 optical switches next year. If InteliSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose, yet none of the fixed costs are avoidable. Should InteliSystems make or buy the switches?

• Make

• Buy

Answer explanation