Question

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 C’s profits are more sensitive to percentage changes in sales.

e)None of the above.

Answer 1

7
Answer is a)Ordering costs
Since ordering costs are incurred at time of ordering and not related to carrying inventory.

8.
Answer is d)The net operating income will increase by the unit contribution margin for each additional item sold
Since upto break even point, fixed costs are covered.

9.
Answer is b)Can make a product line appear to be unprofitable

10.
Answer is d)Company C’s profits are more sensitive to percentage changes in sales

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