accout test 2

Sniffles, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be ______.

$1,520,000

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total ______.

$1,800,000

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______.

$2,200,000

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals ______.

$244,068

Given: Calculated variable cost per unit of $1.40 High level of activity: 2,500 units and $5,300 total cost The low level of activity was 1,000 units. Total cost at the low level of activity equals ______.

$3,200

A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals ______.

$400,000

Seth's Speakers had actual sales of $1,630,000. If break-even sales equals $935,000, Seth's margin of safety in dollars is ______.

$695,000

The formula used to calculate the sales volume needed to achieve a target profit is ______.

(Target profit + Fixed expenses)/Unit contribution margin

The level of activity over which cost behavior assumptions are true is known as the

.Relevant range

Using the high-low method, a company calculated the variable cost as $1.75 per unit. The high level of activity was 5,000 units and $10,000 of total cost. Total fixed costs equals $

1,250 or 1250

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is ______.

16%

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is

19

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK EVEN?

2,800

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______.

20%

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of

3

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ______.

4,800

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is

55

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit,------units have to be sold in order to break even.

6000

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to ______ units to break even.

9,375

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

The amount each unit sold contributes towards fixed costs and profit is the unit

Contribution margin

How much contribution margin is generated per dollar of sales revenue is the

Contribution margin ratio

Degree of operating leverage equals ______.

Contribution margin/Net operating income

CVP analysis is only used for break-even and target profit analysis.

False

True or false: The terms operating leverage and financial leverage refer to the same concept.

False

Setting two profit equations so that they yield the same profit allows managers to calculate the

Indifference

Managers should be willing to choose either alternative at the------------- because the profit is the same.

Indifference point

When is it profitable to continue processing a product instead of selling it as is?

It is profitable when the incremental revenue exceeds the incremental manufacturing cost.

A statistical technique for finding the best fitting line based on historical data is called

Least squares regression

Why is it important to analyze mixed costs?

Managers need to know how much of a cost is variable and how much is fixed. To make decisions, managers need to know how costs change.

Which of the following are assumptions of cost volume profit analysis?

Production volume is equal to sales volume. In multi-product companies, the sales mix is constant. All costs can be classified as either fixed or variable.

The measure of goodness of fit of a model is called

R square

The format used to prepare a contribution income statement is ______.

Sales - Variable expenses = Contribution margin - Fixed expenses = Net income

A useful first step in analyzing cost behavior is to prepare a(n)-------because it helps determine the nature of the relationship and whether the linearity assumption is valid.

Scattergraph or scaterplot

ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?

The pieces of unfinished lumber should be processed. The sawdust should be sold as is without being processed into Presto Logs.

True or false: A sunk cost may be used to evaluate the outcome of previous decisions.

True

True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.

True

True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.

True

Which type of cost changes in total, in direct proportion to changes in activity level?

Variable

The linearity assumption states ______.

a straight line approximates the relationship between cost and activity

When inventory increases, the ______ costing method generally results in higher net operating income.

absorption

The difference between break-even analysis and target profit analysis is the ______.

amount that profit is set to

When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision.

are not

A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.

avoidable

When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost.

avoidable incremental

A shift from product costing to a focus on cost__________ is the key to making most managerial decisions

behavior

How total costs changes as some level of activity changes is called cos

behavior

How total costs changes as some level of activity changes is called cost ______.

behavior

CVP ______.

can be used for "what-if" analysis allows managers to see how changing one variable can impact another can be used to make many different decisions

A measure of the limit placed on a specific resource is known as its

capacity

Full absorption costing can have a different bottom line (profit) than variable costing because of ______.

changes in inventory levels

When performing a keep-or-drop decision analysis,______ fixed costs should be excluded from the analysis.

common

When performing a keep-or-drop decision analysis,________________ fixed costs should be excluded from the analysis

common or irrelevant

When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)__________ resource.

constrained

The financial statement that organizes costs by their behavior instead of by their function is the ______.

contribution margin income statement

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

How much contribution margin is generated by every dollar of sales is shown by the ______.

contribution margin ratio

The contribution margin stated as a percentage of sales dollars is the ______.

contribution margin ratio

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will ______.

decrease

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

The formula to calculate the variable cost per unit using the high-low method is ______.

difference in total cost divided by difference in activity

A fixed cost that can be traced to a specific business segment is called a(n)----- fixed cost.

direct

A fixed cost that is relatively easy for a manager to change in the short-run, such as travel or advertising, is called a(n)

discretionary cost

When constructing a CVP graph, the vertical axis represents ______.

dollars

When a company has more than enough resources to satisfy demand it is operating with-------capacity

excess

When a company has more than enough resources to satisfy demand it is operating with-----capacity

excess or idle

When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.

excluded

When there is excess capacity, an analysis of a special order ______.

excludes fixed costs

Variable costing ______.

focuses on contribution margin instead of gross margin

A variable costing income statement ______.

focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin, while the absorption costing income statement calculates gross margin

Opportunity costs become relevant when a company is operating at

full capacity

Fixed costs ______.

generally include rent and supervisor salaries remain constant in total within the relevant range of activity should not be expressed on a per unit basis when making decisions

Segment margin ______.

includes both variable and direct fixed costs

In the long term, companies can manage constrained resources by ______.

increasing capacity hiring more workers

Comparing the costs and benefits of decision alternatives is done using------ analysis because it focuses on the factors that will change between the decision alternatives

incremental or differential

Comparing the relevant costs and benefits of alternative decision choices is called------analysis.

incremental or differential

When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ______ costs.

irrelevant

Determining decision alternatives ______.

is a critical step in the decision-making process

The process of making a decision ______.

is basically the same for all decisions

The high-low method ______!

is easy to apply may produce inaccurate results

Continue-or-discontinue decisions are commonly known as_________ or _______

keep or drop

The margin of safety percentage is ______.

margin of safety in dollars divided by total budgeted (or actual) sales in dollars

Step costs ______.

may be either step-fixed or step-variable are fixed over some range of activity

Incremental analysis ______.

may be referred to as relevant costing is also called differential analysis

R square ______.

measures goodness of fit is usually provided by least-squares regression software.

Nonmanufacturing costs are ______.

never reported as inventory

Relevant costs ______.

occur in the future differ between alternatives

Opportunity costs are ______.

only relevant when capacity is limited

When considering a keep-or-drop decision, it is important to consider-----------, such as whether the elimination of the segment will free resources that could be used in another way.

opportunity cost

When evaluating a make-or-buy decision, managers should consider ______.

opportunity costs all variable production costs qualitative factors

The forgone benefit of choosing one decision alternative over another is its

opporunity cost

Make-or-buy decisions are also referred to as------decision

outsourcing

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

price

At the break-even point, ______.

profit is zero total revenue equals total cost

A cost that can be eliminated by choosing one alternative over another is called a(n)

relevant

When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost.

relevant

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

relevant

When making a decision a company should consider ______.

relevant costs and benefits

Variable costs ______.

remain constant per unit and vary in total

Contribution margin is ______.

sales revenue minus variable costs

A limitation of ______ is that it is (they are) subjective and inexact.

scattergraphs

Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.

segment margin

Deciding what to do with a product that is salable or could be enhanced is a ______ decision.

sell-or-process-further

Mixed costs are also commonly known as___________cost.

semivariable

Deciding to accept a sales request that is outside the scope of normal sales is called a(n)

special order

Irrelevant costs include ______.

sunk costs future costs that do not differ between alternatives

The distance between the total revenue line and the total cost line a on a cost-volume-profit graph represents the ______.

total amount of either profit or loss

In the equation Y= a + bX, Y is the ______.

total cost

In the equation Y = a + bX, a denotes the ______.

total fixed cost intercept

Using the high-low method, the fixed cost is calculated ______.

using either the high or low level of activity after the variable cost per unit is calculated

For internal decision making, it is best to use ______ costing.

variable

Common fixed costs ______.

will be incurred even if a segment is eliminated

The goal of break-even analysis is to find the level of sales where profit is equal to ______.

zero

The high-low method may provide a reasonable estimate of fixed and variable costs as long as the high and low data points fall ______ the relevant range.

within

CVP analysis can help answer the question of _____.

how net income can be increased

Variable costs vary ______ within the relevant range of activity.

in total

The best-fitting line minimizes the sum of the squared errors when using ______.

least-square regression

When using ______, proper interpretation of the results is critical.

least-squares regression

Decisions about whether to use fixed or variable costs to run a business affects a company's--------- Leverage

operating

Decisions about whether to use fixed or variable costs to run a business impact a company's ______.

operating leverage

The unit contribution margin ______.

tells how much each additional unit contributes to profit

A simple approach that uses the two most extreme activity observations is ______.

the high-low method

When using the high low method, the difference in cost divided by the difference in activity is ______.

the variable cost per unit

Contribution margin ratio is ______.

unit contribution margin/unit sales price

Methods that can be used to model the relationship between revenues, costs, profit and volume include the------- , contribution margin method and the contribution--------

unit margin ratio

When preparing a CVP graph, the slope of the total cost line represents ______.

variable cost per unit

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans that must be sold to meet the company's goal is ______.

21,645

In the profit equation, total ______ is a function of the number of units sold (Q).

variable costs sales revenue

Contribution margin equals sales minus ______.

variable manufacturing costs variable selling and administrative costs

Within the relevant range of activity, variable costs ______.

vary in total remain constant per unit

True or false: Cost structure refers to how a company uses product and period costs in an organization.

False

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.

higher than

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called----

Target Profit

The equation for the profit equation method is ______.

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.

True

To prepare a CVP graph, lines must be drawn representing total revenue, _____

and total cost

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______.

both increase

Margin of safety in dollars is ______.

budgeted (or actual) sales minus break-even sales

The high-low method ______.

calculates the line based on the most extreme activity data points only uses two data points provides a reasonable estimate as long as the data points are within the relevant range

A fixed cost, such as a long-term lease, that is difficult for a manager to change in the short-run is called a(n)_____________ fixed cost.

committed

To calculate the degree of operating leverage, divide total----------by net operating income

contribution margin

Once you have identified a problem, the next step is to determine the possible solutions, which are called-----

decision alternatives