Chapter 3 Costos

3687 Words Feb 23rd, 2013 15 Pages
3 costoReview Questions:
CHAPTER 3; Cost Volume Profit
True/False
1.
Determining the number of units that must be produced in order to generate enough profit to cover total fixed costs is one reason for using a break-even analysis.
2.
An expected value is the w eighted average of the outcomes, based on the percentage combinations of the incomes.
3.

Which of the following statements about net income (NI) is TRUE?

a.
b.

NI = operating income plus income taxes.
NI = operating income plus operating costs.

c.
d.

NI = operating income less income taxes.
NI = the absolute (positive) value of income taxes less operating income. 3. paying 25% of her revenue made at the convention.
What would the indifference point
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The product sells for $150 per unit. She is able to purchase the units for
$50.00 each.
Which option should Joan choose in order to maximize income, assuming there is a 40% probability that 70 units will be sold and a 60% probability that
40 units will be sold?
a.
Option one with expected income of $1,200
b.
Option two with expected income of $1,810
c.
Option three with expected income of $3,640
d.
Option three with expected income of $4,060

$15. A new mall is opening where Nevada Flower Creations wants to locate a store, but the location manager is not sure about the rent method to accept.
The mall operators offer three options for its retail store rentals as follows:
1.
paying a fixed rent of $12,500 a month,
2.
paying a base rent of $10,000 plus 8% of revenue received, or
3.
paying a base rent of $5,000 plus 20% of revenue received up to a maximum rent of $20,000.
R equired:
a.
C ompute the break-even sales of each option and the monthly rent paid at break-even.
b.
At what sales level is the manager indifferent between Options 2 and
3?
c.
Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.
15.
Seamless Gutter sells 10 foot sections of gutter for $12. The unit variable cost per section is $8.80. Fixed costs t otal $4,800.
R equired:
a.
b.
c.
d.

W hat is

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