ACCT 2020 Test 2
When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity, choose the periods with the highest and lowest ___
Activity
After fixed costs have been covered, ___ ___ becomes net operating income
Contribution margin
Sales revenue minus variable costs equals ___
Contribution margin
How much contribution margin is generated by every dollar of sales is shown by the ___
Contribution margin ratio
Degree of operating leverage equals
Contribution margin/Net operating income
The formula used to calculate the sales volume needed to achieve a target profit is ______.
Target profit + Fixed expenses)/Unit contribution margin
When using the high low method, the difference in cost divided by the difference in activity is ___
The variable cost per unit
The equation for the profit equation method is ______.
Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit
effect on profit =
change in sales * degree of operating leverage
Both the total cost and the per-unit cost of mixed costs change with ___
changes in the level of activity
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
net operating income =
contribution margin - fixed costs
The contribution margin stated as a percentage of sales dollars is the ______.
contribution margin ratio
Outside of the relevant range, ___ may not be valid
cost behavior conclusions
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
According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.
price
The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______
profit equals zero and the break even point
Range of activity within which assumptions about variable and fixed cost behavior are valid.
relevant range
unit contribution margin =
sales price per unit - variable cost per unit
The relevant range of activity is approximated by a ____
straight line
The equation for a straight line can be used to express ___
the relationship between mixed costs and the level of activity
At the break-even point, ______.
total revenue equals total cost and profit is zero
The term cost structure refers to how a company uses ___ costs versus ___ costs in its operations.
variable; fixed
The goal of break-even analysis is to find the level of sales where profit is equal to ______.
zero
Contribution margin is
sales revenue minus variable costs
The unit contribution margin
tells how much each additional unit contributes to profit
margin of safety=
current sales - break even sales
Breakeven units =
fixed costs / CM per unit
Decisions about the use of debt versus equity affects a company's __ __
financial leverage
target sales =
(fixed cost + target profit)/ CM per unit
Which of the following are assumptions of cost volume profit analysis?
1. All costs can be classified as either fixed or variable. 2. Production volume is equal to sales volume. 3. In multi-product companies, the sales mix is constant.
CVP analysis can be useful in deciding ______.
1. which services to offer 2. what price to charge for goods or services 3. what cost structure to implement 4. what marketing strategy to use 5. which products to offer
NOT a method used for basic CVP analysis
Breakeven analysis
degree of operating leverage =
CM / Net Operating Income
Contribution margin first goes to cover ___
Fixed costs
The format used to prepare a contribution income statement is ___
Sales - Variable expenses = Contribution margin - Fixed expenses = Net income
contribution margin =
Sales price - Variable Costs
What methods can be used to estimate the fixed and variable portions of mixed costs?
Scattergraph plot, High-low method, and Least-squares regression
Contribution margin equals sales minus ______.
all variable costs
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 is relatively easy for a manager to change in the short-run, such as travel or advertising, is called a(n) ___ fixed cost
discretionary
If operating leverage is high, a small percentage increase in sales produces a (higher/lower) percentage increase in net operating income than if operating leverage is low.
higher
CVP analysis can help answer the question of _____.
how net income can be increased
Managers should be willing to choose either alternative at the __ __ because the profit is the same.
indifference point
Setting two profit equations so that they yield the same profit allows managers to calculate the
indifference point
Fixed costs should not be expressed on a per -nit basis because ___
it may make managers believe they can reduce costs by producing more
Margin of Safety Percentage =
margin of safety in dollars / total budgeted (or actual) sales in dollars
The margin of safety percentage is ______.
margin of safety in dollars divided by total budgeted (or actual) sales in dollars
The amount that each unit sold contributes to fixed costs and profit is ______.
unit contribution margin
contribution margin ratio =
unit contribution margin / unit sales price
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 ___ ___ method
unit; margin ratio
Mixed costs ___
change both in total and per unit as activity changes
When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity, ___
choose the periods with the highest and lowest levels of activity and their associated costs
The financial statement that organizes costs by their behavior instead of by their function is the __
contribution format income statement
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
To prepare a CVP graph, lines must be drawn representing total revenue, ______.
and total cost
Step costs ___
may be either step-fixed or step-variable and are fixed over some range of activity
The high-low method ___
may produce inaccurate results and is easy to apply
The high-low method ___
only uses two data points, provides a reasonable estimate as long as the data points are within the relevant rang, and calculates the line based on the most extreme activity data points
Step-___ costs have a fairly narrow range and rise in multiple steps across the relevant range.
variable
In the profit equation, total ______ is a function of the number of units sold
variable costs and sales revenue
Using the high-low method, the fixed cost is calculated ___
after the variable cost per unit is calculated and by using either the high or low level of activity
Fixed cost per unit is ___
asymptotic (approaches 0 but never gets there)
A shift from product costing to a focus on ___, is the key to making most managerial decisions.
behavior
How total costs changes as some level of activity changes is called cost ___
behavior
Mixed costs contain ___
both fixed and variable cost elements.
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
When constructing a CVP graph, the vertical axis represents ______.
dollars
Fixed costs should not be
expressed on a per unit basis when making decisions
The level of activity over which cost behavior assumptions are true is known as the ___ ___
relevant range
Within the relevant range of activity, fixed costs ___
remain constant in total
A cost that changes in direct proportion to changes in the activity level is a ______ cost
variable
When preparing a CVP graph, the slope of the total cost line represents ______.
variable cost per unit
Why is it important to analyze mixed costs?
1. Managers need to know how much of a cost is variable and how much is fixed. 2. To make decisions, managers need to know how costs change.
Decisions about whether to use fixed or variable costs to run a business affects a company's ___ leverage.
operating
An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called ___ ___ analysis
target profit