1.A firm’s sales increase by 50% and inventory was $100,000. According to the percent of sales method of forecasting, what will the new inventory be?
A. $100,000B.$120,000C.$150,000D. $175,000
= $100,000 × 1.5 = $150,000
Answer: C
2. If a firm produces 50,000 widgets and sells each unit for $20.50, what is the total revenue generated by this production?
A. $100,250B.$1,025,000&nb sp;C.$10,250D.$10,250,000
= 50, 000 × $20.5
= $1,025,000
Answer: B
3.If investors want to reinvest funds in a firm so that it can grow, which of the following business forms would they prefer?
A. A sole proprietorshipB.A limited partnershipC. A corporationD. An S Corporation
4.Break-even analysis is concerned with the relationship between
A. financial leverage and riskB. total costs and revenuesC. debt and equity
D. dividend & retained earnings
5.A union contract suggests that labor costs may be
A. variableB. fixedC. a noncash expenseD. undetermined
6.A product that sells for $5 per unit. If fixed costs are $1,000 and variable costs are $2 per unit, what is the degree of operating leverage at 2,000 units?
A..083B.1.0C. 1.2D. 2.0
= 1.2
Answer: C
7.The federal corporate income tax is
A.decreased by the distribution of earningsB.increased by the distribution of earnings
C.decreased by depreciationD.increased by depreciation
8.In which of the following business forms do owners have unlimited liability?
A.An S corporationB.A corporationC.A Sole proprietorshipD. A limited partnership
9.Airlines have a high degree of operating leverage because of
A.a large investment in fixed assetsB.small fixed expenses
C.insufficient government regulationD.a large use of debt financing
10.Currently, a firm’s accounts payable is 5% of sales. If the level of sales is anticipated to increase from $10,000 to $20,000, what is the level of accounts payable forecasted by the percent of sales method?
A.$250B$500C.$750D.$1,000
Current Accounts Payable = $10,000 × 5% = $500
Percentage Increase in Sales = ($20,000 - $10,000) ÷ $10,000 = 100%
New Sales Level = $500 × 2 = $1,000
Answer: D
11.Which of the following statements about fixed costs is correct?
A.Fixed costs are greater than variable costsB.Fixed costs are paid before variable costs
C.Fixed costs don’t change with the level of outputD. Fixed costs don’t change with the size of the firm
12.If ABC, Inc, has $650,000 in sales and $230,000 in expenses what are the firm’s earnings before interest
and taxes (EBIT)?
A. $850,000B.$650,000C.$325,000D.$420,000
= $650,000 - $230,000
= $420,000
Answer: D
13.Which of the following is an advantage of the sole proprietorship?
A.Ease of formationB.Joint ownershipC.Limited liabilityD.Ease of transfer of ownership
14.A product sells for $2 per unit. If fixed costs are $200 and variable costs are $1 per unit, what is the break-even level of output?
A.200 unitsB.150 unitsC.100 unitsD.50 units
Contribution Margin = Sales Price – Variable Costs
= $2 - $1 = $1
Fixed Costs = $200
Break-even point in units =
Answer: A
15.Which of the following tends to vary spontaneously with changes in the level of sales?
A.Long-term debtB.PlantC.Accounts payableD. Paid in capital
16.If Sam’s Diner has an EBT of $350,000, what are the diner’s net earnings after paying $50,000 in taxes and $34,000 in interest?
A. $434,000B.$334,000C.$311,000D.$266,000
= $350,000 – ($50,000 + $34,000)
= $266,000
Answer D
17.Which of the following is usually a variable expense?
A.SalariesB. RentC.WagesD.Insurance premiums
18.If a firm substitutes fixed for variable costs, which of the following will occur?
A.The use of financial leverage will be increased
B.The degree of operating leverage will be increased
C.The break-even level of output will be reduced
D.The profits will always be higher
19.What is the break-even point for the XYZ Company, if fixed costs are $1,000, the per-unit variable cost is $1.00, and each unit sells for $2.00?
A. $2,000B.$1,000C.$5,000D.$500
Unit Contribution Margin = $2 - $1 = $1
Contribution Margin Ratio = $1/$2 = 0.5
Breakeven Point = $1,000 / 0.5
= $2,000
Answer A
20. Which of the following is an advantage of a corporation?
;A.PermanenceB.Ease of formation
C.Elimination of double taxationD.Dilution of ownership