Managerial Accounting: Chapter 6,7,8,&9 (Conceptual)

An otherwise profitable segment may appear to be unprofitable if ________ fixed costs are allocated to it.

common

CVP Primary Purpose is to estimate how profits are affected by the following factors...

1. selling prices 2. sales volumes 3. unit variable costs 4. total fixed costs 5. mix of products sold

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

The vertical axis represents dollars. Sales, variable costs, and fixed costs are all measured in dollars.

On an absorption costing income statement, selling and administrative expenses ______.

equal the amounts reported on a variable costing income statement are reported as a single amount

The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total ______.

sales

The break-even point calculation is affected by ______.

sales mix costs per unit selling price per unit

Costs that can be traced directly to a segment ______.

should not be allocated to other segments

Discontinuing a profitable segment results in ______.

the loss of the segment's revenues a reduction in the overall profits of the company

The break-even point is reached when the contribution margin is equal to ______.

total fixed expenses

if the sales mix shifts toward products with a lower contribution margin ratio, then more _______ ________ are required to attain any given level of profits

total sales

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n) ______.

decrease in the variable unit cost

A company has reached its break-even point when the contribution margin (-----) fixed expenses.

equals

A change in sales mix ______.

from low-margin to high-margin items may cause total profits to increase despite a decrease in total sales from high-margin to low-margin items may cause total profits to decrease despite an increase in total sales

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing.

higher than

Profit equals...

(P × Q) - (V × Q) - fixed expenses

Net operating income equals ______.

(unit sales - unit sales to break even) × unit contribution margin

Absorption vs. Variable Costing

When inventory decreases, cost of goods sold under absorption costing will generally be more than cost of goods sold under variable costing. Net income will be less under absorption costing than under variable costing. Cost of goods sold will be higher. Absorption and variable costing cost of goods sold can only be equal when inventory levels do not change.

When a company produces and sells multiple products ______.

each product most likely has a unique contribution margin each product most likely has different costs a change in the sales mix will most likely change the break-even point

if operating leverage is high

a small percentage increase in sales can produce a much larger percentage increase in net operating income

In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.

absorption

if sales mix changes, then the break-even point will...

also usually change

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to ______.

break even

Margin of safety in dollars is ______.

budgeted (or actual) sales minus break-even sales

The company-wide break-even sales will always be ______ the sum of the segment break-even sales.

higher than

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______.

traceable; contribution margin

Using absorption costing for segmented income statements can lead to ______.

under-costing of segments omission of upstream and downstream costs

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

In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

same amount

Incorrectly or arbitrarily assigning common costs to segments ______.

could reduce the overall profits of the company holds managers responsible for costs they cannot control distorts the profitability of segments

GAAP and IFRS rules ______.

1. Require segmented financial data be included in annual reports. 2. Require that the same method be used for both internal and external segment reporting. 3. Create problems in reconciling internal and external reports

Assumptions to simplify CVP calculations...

1. Selling price is constant. Price of product will not change as volume changes. 2. Costs are linear and can be divided into variable and fixed components. Variable costs are constant per unit and fixed costs are constant in total over the entire relevant range 3. In multiproduct companies, the mix of products sold remains constant.

When making a decision using incremental analysis consider the ______.

change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______.

change in sales dollars × contribution margin ratio

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit...

contribution margin

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

contribution margin

The calculation of contribution margin (CM) ratio is ______. Multiple choice question.

contribution margin ÷ sales

The contribution margin statement is primarily used for ______.

internal decision making

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.

more than

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

net loss

When a segment cannot cover its own costs, that segment should ______.

probably be dropped