Problem 1. Clare Company currently sells 19,000 units. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Clare's tax rate is 40%. The margin of safety in units is:
a)3,000 units
b)5,000 units
c)7,500 units
d)14,000 units
Problem 2. Number of engineering hours is a likely cost driver for which value chain function?
a)The research and development function has number of engineering hours as a likely cost driver.
b)The design function has number of engineering hours as a likely cost driver.
c)The marketing function has number of engineering hours as a likely cost driver.
d)The production function has number of engineering hours as a likely cost driver.
Problem 3. An increase in total variable cost usually indicates:
a)the cost-driver activity level is decreasing
b)the cost-driver activity level is increasing
c)variable costs per unit is decreasing
d)variable costs per unit is increasing
Problem 4. Which of the following statements about highly leveraged companies is true?
a)Fixed costs are high and variable costs are low.
b)Large changes in sales volume result in larger changes in net income.
c)There is a higher possibility of net income or net loss and therefore more risk than a highly leveraged firm.
d)All of these answers are correct.