Multiple choice questions related to firm's revenues  and operating income, Cost behavior.

1. A management that wanted to increase the financial leverage of its firm would:

a.raise additional capital by selling common stock.

b.use excess cash to purchase preferred stock for the treasury.

c.raise additional capital by selling fixed interest rate long-term bonds.

d.try to increase its ROI by increasing asset turnover.

2. When a firm has financial leverage:

a.ROI will be greater than ROE.

b.ROI will usually be less than it would be without leverage.

c.risk is greater than if there isn't any leverage.

d.the firm will always have a higher ROE than it would without leverage.

3. Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:

a.net income will change proportionately.

b.the effect on net income will depend on the behavior pattern of various costs.

c.fixed costs will rise proportionately.

d.variable costs will not change.

4. Management accounting is:

a.a highly technical subject that people in personnel or engineering should not be expected to understand.

b.performed by individuals who seldom work with people in other functional areas of the organization.

c.the principal activity involved in determining the goals and objectives of the entity.

d.an activity that gets involved with virtually all of the other functional areas of the organization.

5. When the cost behavior pattern has been identified as fixed at a certain volume of activity:

a.any change in volume will probably cause the cost to change.

b.it is appropriate to express the cost on a per unit of activity basis.

c.the total cost will not change even if the volume of activity changes substantially.

d.the total cost may change if the volume of activity changes substantially.

6. As the level of activity decreases:

a.fixed cost per unit decrease.

b.variable cost per unit decrease.

c.fixed cost remains constant in total.

d.variable cost remains constant in total.

7. As the level of activity increases:

a.fixed cost per unit increase.

b.variable cost per unit increase.

c.variable cost per unit decrease.

d.fixed cost per unit decrease.

8. Managerial accounting supports the management process most significantly by:

a.measuring and reporting financial results after the fact.

b.determining the goals and objectives of the entity.

c.providing estimates of financial results for various plans.

d.establishing operating policies to be followed during a period of time.

9. A 10% change in a firm's revenues is likely to result in a change of more than 10% in the firm's operating income because:

a.not all of the firm's costs will change in proportion to the revenue change.

b.the firm has financial leverage.

c.the contribution margin ratio will change in proportion to the revenue change.

d.only fixed expenses will change in proportion to the revenue change.

10. Cost behavior refers to:

a.costs that are both good and bad.

b.costs that increase at a quicker rate than others.

c.costs that decrease at a quicker rate than others.

d.costs that are variable or fixed.

e.none of the above.