Managerial Accounting Test 1
Inventoriable costs is another term for _____ costs
product
non manufacturing costs
sellign costs, administative costs
IN the equation Y = a+bX, b denotes
slope of the line and variable cost per unit of activity
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
Mixed costs are also commonly known as semi-
variable costs
Profit = (selling price per unit x quantity sold) - (_____ expense per unit * quantity sold) - ____ expenses
variable; fixed
Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by: Multiple choice question. $0.65
$.35
To convert the formula for sales dollars required to attain a target profit to sales dollars required to break-even, set the target profit to $
$0
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
Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be:
$130,000- net income = (25,000-15000)*(25-12)
A company sold 20,000 units of its product at a selling price of $20. The variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is:
$180,000- cm = 20k*(20-11)=180k
A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements: a) $1,200 is reported as an asset b) $300 is reported as a expense and $900 is reported as a liability c) $1,200 is reported as an expense $300 is reported as a expense and $900 is reported as an asset d) $1,200 is reported as a liability
$300 is reported as a expense and $900 is reported as an asset
A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is:
$301100
Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is:
$380,000[net operating income= 30,000 x (40-19) - 25,000]
Sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit = $_____
$40,000(500,000 x 68% - 300,000 = 40,000
A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on net income would be a
$450 increase( The current contribution margin is $39 per unit ($80 - $41) or $19,500 (500 units × $39) total. The new contribution margin would be $35 per unit ($39 - $4 new cost) or $19,950 (570 units × $35), an increase of $450 )
Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is:
$55- 90-35=55
Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals:
$909,677Dollars to break even = fixed expenses / CM ratio = 564,000 / 0.62 = 909,677
Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is:
$982,000 - $932,000 = $49,800
Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is:
$99,000- Reason: Net operating income = $184,000 - $85,000 = $99,000
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:
(564,000 + 800,000) / 0.62 = 2,200,000
Profit equals:
(P x Q) - (V x Q) - fixed expenses
when a company produces and sells multiple products
- each product most likely has a unique contribution margin- each product most likely creates a unique total of fixed costs- a change in sale mix will most likely change the break-even point
Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by the end of the year, net operating income for the year will increase by:
137,500 (250,000 x 55%)
Within the relevant range, fixed costs - should not be expressed on a per unit basis when making decisions - remain constant in total regardless of changes in activity - per unit become progressively larger as the level of activity increases - generally include rent and supervisor salaries
- should not be expressed on a per unit basis when making decisions - remain constant in total regardless of changes in activity - generally include rent and supervisor salaries
Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is:
1. 34% [(1,452,000-958,320)/1452000]
The break-even point calculation is affected by:
1. costs per unit 2. sales mix 4. selling price per unit
The single point where the total revenue line crosses the total expense line on the CVP graph indicates:
1. the break-even point 2. profit equal zero
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:
144,000 / .59 = 244,068
Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by:
174000
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[98,000 / (50-15)]
If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase
20%; 5%*4
If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by:
20%; 5%*4
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 required to meet the company's goal is:
21,645
Spice sells paprika for $9.00 per bottle. Each bottle incurs $2.43 in variable cost. Spice incurs annual fixed costs of $825,000. The variable expense ratio for paprika is:
27%
The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is:
29%
A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:
300 is reported as an expense, and 900 is reported as an asset
A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is:
36000- Net operating income = (750 - 450) x $120 = $36,000.
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(4,000 + 3,200) / (15.00 - 13.50) = 4,800 bottles
Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is:
40000
A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $_____
5000- Net operating income = (Sales- variable expenses) - fixed expenses
Gifts Galore had $189,000 of Sales Revenue from wrapping paper sales last year. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was:
53%- 100170/189000
A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. What is the BREAK-EVEN point in unit sales?
7,625 Units
A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is:
8,400 (sales volume = [$320,000 +$200,800]/[$90-$28] = 8,400 units)
Product cost
= Direct Labor+ Direct Materials + Manufacturing overhead
Net income =
=Sales - cost of goods sold = gross margin Gross margin- administrative costs = net income
Period Cost
=Selling Expenses + Administrative expense
A change in profits that occurs due to a change in sales and fixed expenses may be calculated as:
CM ratio x Change in sales - Change in fixed expenses
A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage?
Company B
Nonmanufacturing costs include:
Company president's salary; sales commission
After reaching the break-even point, a company's net operating income will increase by the __________ __________ per unit for each additional unit sold. (Enter only one word per blank.)
Contribution Margin
To calculate the degree of operating leverage, divide _________ _________ by net operating income
Contribution Margin
An income statement constructed under the ____________ approach allows users to easily judge the impact on profits of changes in selling price, cost or volume
Contribution margin
Bluin Corporation pays its salesperson a flat salary of $5,750 per month and is considering paying her $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase unit sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will:
Increase by $7,000 per month current net operating income=(100x250)-5750=19250. with the change salary becomes a variable cost and net operating income would be : (100-30)x250x150%=26250 an increase of 7000 per month
A company with a high ratio of fixed costs:
Is more likely to experience greater profits one sales are up in a company with mostly variable costs, is more likely to experience a loss when sales are down then I company with mostly variable costs
Which of the following statements are true? Multiple select question. a) All costs in a merchandising company are period costs. b) Period costs are expensed when incurred. c) Period costs do not flow through the inventory accounts. d) Inventoriable costs are expensed in the period in which they are incurred.
Period costs are expensed when incurred, period costs do not flow through the inventory accounts
The term used for the relative proportion in which a company's products are sold is:
Sales mix
Selling costs include:
Sales salaries, advertising, sales commissions
A company is currently selling 10,000 units of product monthly for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. Which of the following statements is true?
The company should accept the idea bc profit will increase by $24,000*An increase in the SP of $5 will increase the CM by $5 (from 27 to 32). The increased CM of $74,000 (10,750 x 32) - (10,000 x 27) - the additional fixed costs of 50,000 = a profit increase of 24,000.
Water World sells wake boards and water skis and pays sales commissions based on product sales price. The wake boards sell for a higher price than the skis and the skis have a higher contribution margin per unit than the wake boards. Which of the following are true? The company would rather see more skis sold as it creates the higher profit per unit for the company. Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them. Sales commissions based on sales price would be ideal to use under these circumstances. The company should not pay sales commissions on these products.
The company would rather see more skis sold as it creates the higher profit per unit for the company. Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them.
Which of the following are differences between the traditional and contribution format to income statements?
Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.
Which of the following is needed to calculate profit?
Unit contribution margin, unit sales, and total fixed costs
Common activity bases include: Multiple select question. units sold machine hours scrapped units direct labor hours
Units sold, machine hours, direct labor hours
The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit.
Volume, cost, selling price
Which of the following statements are true? (select all that apply)a. The relevant range of activity is approximated by a straight line. Within the relevant range of activity, fixed costs remain constant in totalc. Within the relevant range of activity total variable costs do not change
a. The relevant range of activity is approximated by a straight line. b. Within the relevant range of activity, fixed costs remain constant in total
When making a decision using incremental analysis consider the:
a. change in sales dollars resulting specifically from the decision b. change in cost resulting specifically from the decision
Discretionary fixed costs include:
advertising management training programs
manufacturing overhead
all manufacturing costs except direct materials and direct labor
Cost Object
anything for which cost data are desired- including products, customers, and organizations subunits
matching principle
based on the accrual concept that costs incured to generate a particular revenue should be recognized as expenses in the same period that revenue is recognized
How individual costs react to changes in activity level is referred to as cost
behavior
Solving for the sales level needed to achieve a profit of zero is the same process as
breaking even
Margin of safety in dollars is:
budgeted (or actual) sales minus break-even sales
Cost behavior: Multiple select question. a) is a detailed analysis technique used to determine whether costs are fixed or variable b) is the relative proportion of each type of cost in an organization c) categorizes costs as fixed, mixed and variable d) refers to how a cost will change as activity level changes
c) categorizes costs as fixed, mixed and variable d) refers to how a cost will change as activity level changes
Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are _________ fixed costs.
committed
To calculate profit, multiply the ______ per unit by sales volume and subtract total fixed cost.
contribution margin
The break-even point can be affected by:
contribution margin per unit; total fixed costs; sales mix
Contribution margin ratio is equal to _____ _______ divided by _______
contribution margin, sales
The calculation of contribution margin (CM) ratio is:
contribution margin/sales
Direct cost
cost that can be easily and convenietly traces to a specified cost object
Indirect cost
cost that cannot be easily and conveniently traced to a specified cost object
common cost
cost that is incurred to support a number of cost objects but cannot be traced to them individually
administrative costs
costs associated with the general management
Product costs
costs that are incurred to acquire or make something that will eventually be sold
Differential costs, opportunity costs and sunk costs are all cost classifications used in
decision making
Differential costs, opportunity costs and sunk costs are all cost classifications used in:
decision making
Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit
decrease
Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to increase advertising and reduce the selling price. The advertising would increase fixed costs by $60,000. Management believes the advertising along with a $2 reduction in the selling price per box will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to ______.
decrease by $16000
A change in revenues between two alternatives is known as _____ revenue or incremental revenue
differential
For manufacturing companies, product costs include
direct materials, direct labor, and manufacturing overhead
three manufacturing costs
direct materials, direct labor, manufacturing overhead
Selling and administrative costs are _______ costs.
direct or indirect
Fixed costs that usually arise from annual spending decisions by management are _________ fixed costs.
discretionary
When constructing a CVP graph, the vertical axis represents:
dollars
Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is _______ the increase in net operating income.
equal to
Administrative costs include:
executive compensation and public relations costs
costs are recognized as
expenses on the income statement in teh period that benefits from the costs
True or false: Cost structure refers to the relative portion of product and period costs in an organization.
false
True or false: Labor costs that can be specifically traced to a product are indirect labor costs.
false
True or false: When a company sells multiple products, an increase in total sales always results in an increase in total profits.
false a shift from high margin items to low margin items may cause total sales to increase at the same time s causing total profit to decrease
Within the relevant range of activity, ______ costs remain constant in total.
fixed
Total contribution margin equals:
fixed expenses plus net operating income
A change in sales mix: Multiple select question. resulting in a decrease in total sales will always result in a decrease in profits 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 resulting in an increase in total sales will always result in an increase in profits
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
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
Which of the following statements is correct? Multiple choice question. The higher the margin of safety, the lower the risk of incurring a loss. The risk of loss is not impacted by the margin of safety. The higher the margin of safety, the higher the risk of incurring a loss.
higher the margin of safety, lower the risk of incurring a loss
A company's current sales are $300,000 and fixed expenses total $225,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will
increase by $6,000 ($70,000 x 30% - $15,000 = $6,000 increase) 2. decrease, 3000 ([1,500 x (25 - 19) ] - [1200 x (25-15)] = (3,000))
Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will:
increase by $7,000 (current income = ($80 x 200) - $5,000 = $11,000. With the change in salary becomes a variable cost: ($80 - $20) x 200 x 150% = $18,000, an increase of $7,000 per month)
When a company sells one unit above the number required to break-even, the company's net operating income will:
increase or decrease depending on total fixed costs
When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using ___ analysis
incremental
Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs
indirect
Which of the following is not a COST CLASSIFICATION associated with decision making?
indirect costs
indirect labor
janitors, supervisors, etc that play essential role in running a manufacturing facility that aren't traced to the product
direct labor
labor costs that can be easily traced to individual units of product
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating
leverage
Two broad categories to cost
manufacturing and non manufacturing costs
Factory materials, such as cleaning supplies, that are not components of finished products are classified as:
manufacturing overhead
The amount by which sales can drop before losses are incurred is the
margin of safety
The margin of safety percentage is:
margin of safety in dollars divided by total budgeted (or actual) sales in dollars
The revenue obtained from selling one additional unit of product is called
marginal revenue
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue are expensed in the same period the revenue is recognized is known as the ____ principle
matching
raw materials
materials that go into the final product
an activity base
measures whatever causes costs to vary is sometimes called a cost driver
A cost that contains both variable and fixed cost elements is a(n) ______ cost.
mixed
Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.
net operating income
At the break-even point
net operating income is zero; total revenue equals total cost
Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. For each $1 increase in sales:
net operating income will increase by $.70; total contribution margin will increase by $.70
Direct materials, direct labor, and manufacturing overhead are all ______ costs.
product
Direct materials, direct labor, and manufacturing overhead are all ______ costs. a) direct b) variable c) conversion d) product e) period
product
The vertical distance between the total revenue line and the total expense line on a CVP graph represents the total:
profit or loss
indirect materials
raw materials like solder and glue
direct materials
raw meterials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has:
reached the break-even point,contribution margin equal to fixed costs
The level of activity within which variable and fixed cost assumptions are valid is known as
relevant range
The equation used to calculate the variable expense ratio using total values is total variable expenses divided by total:
sales
The variable expense ratio is the ratio of variable expense to:
sales
Nonmanufacturing costs include
sales commissions; company president's salary
The relative proportions in which a company's products are sold is referred to as
sales mix
When preparing a multi-product break-even analysis, the assumption is ordinarily made that the _______ will not change.
sales mix
contribution margin =
sales revenue - variable expenses
Which of the following items are found above the contribution margin on a contribution margin format income statement?
sales, variable expenses
Differential cost is:
the difference in cost between two alternatives; also known as incremental cost
Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information:
the sale of 12,000 putters results in net operating income of $380,000 the contribution margin per putter is $65.
Period costs are always expensed on the income statement in the period in which:
they are incurred
Committed fixed costs include:
top management salaries, real estate taxes
To prepare a CVP graph, lines must be drawn representing total revenue,
total expense, and total fixed expense
The break-even point is reached when the contribution margin is equal to:
total fixed expenses
In the equation Y = a+b, Y is the
total mixed cost
In the equation Y= a + bX, Y is the:
total mixed cost
True or false: Presenting fixed costs on an average per unit basis makes them look like they are variable costs.
true
True or false: The finished product of one company can become raw materials for another company.
true
True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.
true
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
the term "cost structure" refers to the relative proportion of ____________ and ____________ costs in an organization
variable and fixed
