MBA Lecture 7

Which type of cost changes with the level of activity?

• Total cost

• Fixed cost

• Mixed cost

• Variable cost

Which statement best describes the relevant range?

• The relevant range is the level of activity where an entity will operate

• The relevant range is the level of activity where all costs can be predicted accurately

• The relevant range is the level of activity where cost behaviour is assumed to be valid

• The relevant range is the physical area where an entity plans to conduct its business

How will variable cost be affected if production increases by 20%?

• It will increase by more than 20%

• It will decrease by 20%

• It will increase by 20%

• It will remain the same

Selling price is $25 per unit and variable costs are $16 per unit. Calculate the contribution margin per unit

• $9

• $1.56

• $41

• $11

Warmth Ltd’s selling price is $8 per unit, its variable costs are $3 per unit and its fixed costs are $300 000. What is Warmth Ltd’s break-even number of sales units?

• 25 000 units

• 60 000 units

• 37 500 units

• 100 000 units

 If Community Pty Ltd sells 4000 chairs and 1000 tables, what is the sales mix?

• 0.8 chairs, 0.2 tables

• 0.4 chairs, 0.1 tables

• 0.2 chairs, 0.8 tables

• None of the options are correct

Select the formula that can be used to determine the contribution margin ratio

• After-tax profit divided by (1 – tax rate)

• Selling price per unit less variable costs per unit

• Contribution margin per unit divided by selling price per unit

• Fixed costs ($) divided by contribution margin per unit ($)

Which of the following statements is not an important assumption regarding CVP analysis?

• Unit price and cost data vary over the time period

• Fixed costs remain fixed

• The sales mix for multiple products remains constant

• Cost behaviour is linear

Operating leverage refers to

• the mix between sales and fixed costs

• the mix between variable costs and fixed costs

• the mix between sales and variable costs

• the relationship between product mix and costs

Which of the following statements is correct when assessing profitability with resource limitations?

• Most businesses are not limited by market demand

• The most profitable result will be to maximise production of the product with the highest contribution margin per unit of the limiting factor

• The most profitable result will be to minimise production of the product with the highest overall contribution margin

• Limiting factors only relate to labour hours