1) A lower price for the firm's product will reduce the firm's breakeven point.
A. True
B. False
2) Profit is generally adequate to finance significant growth.
A. True
B. False
3) The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage.
A. True
B. False
4) If fixed costs rise while other variables stay constant
A.the breakeven point rises.
B.degree of operating leverage increases.
C.total profit declines.
D.all of these
5) Operating leverage emphasizes the impact of using fixed assets in the business.
A. True
B. False
6) In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced
A.is higher.
B.is lower.
C.is the same.
D.can be either higher or lower.
7) The contribution margin is equal to price per unit minus total costs per unit.
A. True
B. False
8) Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet?
A.decrease in inventory.
B.increase in retained earnings.
C.decrease in accounts payable.
D.decrease in accounts receivable.
9) An increase in sales and profits generates the necessary cash required for economic growth.
A. True
B. False
10) The percent-of-sales forecast is likely to be most accurate when used with cyclical companies.
A. True
B. False
11) Pro forma financial statements are
A.the most comprehensive means of financial forecasting.
B.often required by prospective creditors.
C.projections of financial statements for a future period.
D.all of these.
12) When the cost of raw materials is increasing, FIFO accounting
A.yields higher ending inventory values than LIFO.
B.produces higher unit sales than using LIFO.
C.yields higher cost of goods sold than LIFO.
D.All of these.
13) If sales volume exceeds the break-even point, the firm will experience
A.an operating loss.
B.an operating profit.
C.an increase in plant and equipment.
D.an increase in stock price.
14) The value of ending inventory should be equal to beginning inventory plus total production costs minus cost of goods sold.
A. True
B. False
15) Leverage works best when volume is increasing.
A. True
B. False
16) The percent-of-sales method would be more accurate under a steady sales assumption than cyclical sales.
A. True
B. False
17) If the price per unit decreases because of competition but the cost structure remains the same
A.the breakeven point rises.
B.the degree of combined leverage declines.
C.the degree of financial leverage declines.
D.All of these
18)
|
Sales (100,000 units)
|
$ 1,000,000
|
|
Variable costs
|
300,000
|
|
Contribution margin
|
700,000
|
|
Fixed manufacturing costs
|
200,000
|
|
Operating income
|
500,000
|
|
Interest
|
75,000
|
|
Earnings before taxes
|
425,000
|
|
Taxes (30%)
|
127,500
|
|
Net Income
|
$ 297,500
|
Refer to the figure above. The Degree of Operating Leverage is
A.1.40x
B.1.56x
C.3.33x
D.2.22x
19) The percent-of-sales method for financial forecasting assumes that balance sheet accounts maintain a constant relationship to sales.
A. True
B. False
20) As the contribution margin rises, the breakeven point goes down.
A. True
B. False
21) In the percent-of-sales method, an increase in dividends
A.will increase required new funds.
B.will decrease required new funds.
C.has no effect on required new funds.
D.more information is needed.
22) Which of the following is not true about leverage?
A.operating leverage influences the top half of the income statement, determining EBIT.
B.financial leverage deals with the bottom half of the income statement, determining EPS
C.combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT.
D.none of these
23) The finance department should work independently without the input of other departments because there may be significant biases when creating proformas.
A. True
B. False