5.

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Question 1 of 20
The concept of operating leverage involves the use of __________ to magnify returns at
high levels of operation.

A. fixed costs

B. variable costs

C. marginal costs

D. semi-variable costs
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Answer: A. Fixed Cost

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Question 2 of 20
Which of the following questions does break-even analysis attempt to address?

A. How much do changes in volume effect costs and profits?

B. At what point does the firm break even?

C. What is the most efficient level of fixed assets to employ?

D. all of the above

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Answer: D. all of the above

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Question 3 of 20
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.

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Answer: B. an operating profit

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Question 4 of 20
The break-even point can be calculated as:

A. variable costs divided by contribution margin.

B. total costs divided by contribution margin.

C. variable cost times contribution margin.

D. fixed cost divided by contribution margin.

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Answer: D. fixed cost divided by contribution margin

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Question 5 of 20
A highly automated plant would generally have:

A. more variable than fixed costs.

B. more fixed than variable costs.

C. all fixed costs.

D. all variable costs.

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Answer: B. more fixed than variable costs

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Question 6 of 20
If a firm has fixed costs of $30,000, a price of $4, and a breakeven point of 15,000
units, the variable cost per unit is:

A. $5.

B. $2.

C. 50 cents.
 D. $4.
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Answer: B. $2
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Question 7 of 20
If a firm has fixed costs of $20,000, variable cost per unit of 50 cents, and a breakeven
point of 5,000 units, the price is:

A. $2.50.

B. $5.

C. $4.

D. $4.50.
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Answer: D. $4.50
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Question 8 of 20
If a firm has a price of $4, variable cost per unit of $2.50, and a breakeven point of
20,000 units, fixed costs are equal to:

A. $13,333.

B. $10,000.

C. $30,000.

D. $50,000.
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Answer: C. $30,000
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Question 9 of 20
A firm’s break-even point will rise if:
 A. fixed costs decrease.

B. contribution margins increase.

C. price per unit rises.

D. variable cost per unit rises.

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Answer: D. variable cost per unit rises

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Question 10 of 20
Which of the following is concerned with the change in operating profit as a result of a
change in volume?

A. Financial leverage

B. Break-even point

C. Operating leverage

D. Combined leverage
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Answer: C. operating leverage

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Question 11 of 20
Cash breakeven analysis:

A. is helpful in analyzing the short-term outlook of the firm, particularly when

it is in trouble financially.

B. is important when analyzing long-term profitability.

C. includes depreciation expense as a fixed cost when calculating the degree
of financial leverage.
D. none of the above
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Answer: A. is helpful in analyzing the short-term outlook of the firm, particularly

when it is in trouble financially.
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Question 12 of 20
The degree of operating leverage may be defined as:

A. the percent change in operating income divided by the percent change in

unit volume.

B. Q (P-VC) divided by Q (P-VC) - FC.

C. S - TVC divided by S - TVC - FC.

D. all of the above.

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Answer: D. all of the above

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Question 13 of 20
The degree of operating leverage is computed as:

A. percent change in operating profit divided by percent change in net

income.

B. percent change in volume divided by percent change in operating profit.

C. percent change in EPS divided by percent change in operating income.

D. percent change in operating income divided by percent change in volume.

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Answer: D. percent change in operating income divided by percent change in

volume
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Question 14 of 20
Financial leverage deals with:

A. the relationship of fixed and variable costs.

B. the relationship of debt and equity in the capital structure.

C. the entire income statement.

D. the entire balance sheet.

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Answer: B. the relationship of debt and equity in the capital structure

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Question 15 of 20
A conservative financing plan involves:

A. heavy reliance on debt.

B. heavy reliance on equity.

C. high degree of financial leverage.

D. high degree of combined leverage.

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Answer: B. heavy reliance on equity

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Question 16 of 20
If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial
leverage?

A. 5.33x

B. 1.23x

C. 0.8125x

D. 4.33x
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Answer: B. 1.23x
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Question 17 of 20
The degree of financial leverage is concerned with the relation between:

A. changes in volume and changes in EPS.

B. changes in volume and changes in EBIT.

 C. changes in EBIT and changes in EPS.

D. changes in EBIT and changes in operating income.

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Answer: C. changes in EBIT and changes in EPS

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Question 18 of 20
When a firm employs no debt:

A. it has a financial leverage of one.

B. it has a financial leverage of zero.

C. its operating leverage is equal to its financial leverage.

D. it will not be profitable.

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Answer: B. it has a financial leverage of zero

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Question 19 of 20
Combined leverage is concerned with the relationship between:

A. changes in EBIT and changes in EPS.

B. changes in volume and changes in EPS.

C. changes in volume and changes in EBIT.

D. changes in EBIT and changes in net income.

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Answer: B. changes in volume and changes in EPS

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Question 20 of 20
If the business cycle were just beginning its upswing, which firm would you anticipate
would be likely to show the best growth in EPS over the next year? Firm A has high
combined leverage, and Firm B has low combined leverage.
 A. Firm A

B. Firm B

C. Indifferent between the two

D. It depends on how much financial leverage each firm has.

Answer: A. Firm A