Managerial Exam 2 SB

Cost estimation methods include the _______ ______ method and _____ analysis.

1. high-low 2. regression

Given a sales price of $250 per unit, variable cost of $100 per unit, and fixed costs of $60,000, the breakeven in dollars is $ _____ .

100,000

If fixed costs, F, are $500 per week, selling price per unit = $7.50, and variable cost per unit = $3.50, the break-even point, in units, is ______.

125

The amount of pretax profit, πB, that is the equivalent of an after-tax profit, πA, of $100 if the tax rate is 20% is ______.

125

A plan of action, expressed either in financial or non-financial terms, is a(n) ______.

Budget

Which of the following is NOT one of the five strategic decision making steps for CVP analysis?

Choose the option that has the lowest variable costs. Correct: -Identify the alternative actions. - Obtain information and conduct an analysis of the alternatives. - Provide an ongoing evaluation of the implementation.

The calculation of an amount given different levels of a fact that influences that amount is ______ analysis.

What-if

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to as ______.

a decision tree (or decision table)

The first step in cost estimation is ___ .

define the cost object

Machine hours, labor hours, and miles driven are all examples of cost _____

drivers

Margin of safety (MOS) is ______.

equal to sales above the break-even point

The end product (information) obtained from a decision table/decision tree is a set of ______.

expected values for each decision option

Operating leverage refers to the ______.

extent to which fixed costs exist in the cost structure of an organization

True or false: In practice, the planning horizon for most firms (for budgeting purposes) is a single year.

false

The main objective of graphing the data is to ______.

identify unusual patterns

The break-even point is defined as the point where ______. Multiple choice question.

operating profit is zero

A time-series regression model is used to ______.

predict future costs

The final step of the master budgeting process is budgeted ______.

pro forma financial statements

A statistical method for obtaining the unique cost-estimating equation that best fits a set of data points is called ______ _______.

regression analysis

By definition, a firm with high operating leverage has ______.

relatively high fixed costs

A regression analysis produces the following equation: Y = $15,843 + $2.02 × operating hours and statistical measures of R-squared = .461 t-value = 2.07 (p =.09) Standard error of the estimate = $221.71 This indicates that reliability is ______.

reliability is poor and precision is good

Skender Company uses the regression method to estimate plant costs based on labor hours. The result of the regression is: Plant cost = $0 + $2.40 x labor hours. The regression for Skender has an R-squared 0f .969, a standard error of the estimate of 4.472 (which is approximately 10% of the mean of the dependent variable), and a t-value of 7.937 (p=.01). This indicates that reliability is _____.

reliability is very good and precision is good

The budget committee ______.

resolves budget preparation conflicts sets overall budget goals monitors operations during the year reviews operating results at the end of the period

A key assumption of conventional CVP (cost-volume-profit) analysis is that ______.

revenue and cost functions are linear This implies a competitive market (i.e., the absence of a downward-sloping demand curve) and no changes in efficiencies/productivity as total volume changes.

At the break-even point total ______.

revenue equals total cost

The allocation of the overall break-even point for a multi-product firm, expressed in terms of sales dollars, to individual products A and B is based on the ______.

sales mix percentage of each product, based on sales dollars (not units)

The name for a variety of methods that examine how an amount changes in response to changes in one or more factors used to predict that amount is _____ _____.

sensitivity analysis

The name given to a variety of approaches that examine how a given variable of interest (e.g., profit) changes in response to changes in one or more factors used to predict that variable is ______.

sensitivity analysis

Cost-volume-profit analysis is best described as a ______.

short-term profit-planning tool

The time period selected for estimating cost ______.

should be the one that best satisfies the objective of accuracy

A CVP graph ______.

shows how costs, revenues, and profits change in response to changes in volume (output)

Even though it is extremely important for planning and budgeting, many organizations fail to link their budget to their _______ .

strategy

t-value

t-value should be more than 2. measure of precision. is the degree to which an independent variable has a value, stable, long-term relationship.

The calculation of an amount given different levels of a fact that influences that amount is called _____ - ____ analysis.

what-if

he process of evaluating, selecting, and financing major projects of an organization is referred to as ______ budgeting.

capital

The term that refers to the proportion of each sales dollar available for the recovery of fixed costs is ______.

contribution margin ratio

The causal factors used in the estimation of a cost are called

cost driver

Cost estimation can be used to play either a discovery or collaborative role in the identification of _______ _____.

cost drivers

A model representing how costs and revenues change in response to changes in volume (output) is referred to as ______.

cost-volume-profit (CVP) analysis

Product A has a contribution margin per unit of $12 and Product B has a contribution margin per unit of $6. Given a sales mix of 25:75, the weighted-average contribution margin per unit is ______.

$12 × 25% + $6 × 75% = $7.50

The contribution margin per unit for Products A, B, and C, respectively, are as follows: $24; $60; $180. A standard sales mix consists of 1 unit of A, 2 units of B, and 3 units of C. The weighted-average contribution margin per unit for this firm is ______.

((1÷6) × $24) + ((2÷6) × $60) + ((3÷6) × $180) = $114

The required sales volume in units, Q, needed to generate a given amount of pre-tax profit, πB, is ______.

(F + πB)÷(contribution margin per unit)

When families of products are grouped into _____ ______ in lean accounting, there is an opportunity to use CVP for the product group rather than for a single product or multiple products.

* value stream

CVP analysis ______.

*-identifies risks in increasing fixed costs if volume falls - can help a firm execute its strategy

A regression based on data from a single time period and several cost objects in that time period is ______ regression.

*Cross-sectional

True or false: When choosing a cost estimation method, regression analysis should always be chosen over high-low.

*False

True or false: CVP analysis can be used to determine the most cost-effective trade off between different types of costs. True false question.

*True

The weighted-average contribution margin for a multi-product organization is calculated by weighting the contribution margin of each individual product by that product's ______.

*sales mix % based on physical units

Cost estimation can ______.

- can confirm the usefulness of cost drivers selected -help identify cost drivers

Cost estimation is the ______.

- development of a well-defined relationship between a cost and a cost driver for the purpose of predicting the cost. -prediction of future costs based on past relationships among costs drivers, cost objects, and other data

Cost estimation methods available to the management accountant include ______.

- high-low method - regression analysis

Data relationships may be non-linear due to ______.

- outliers in the data - trends or seasonality in the data - a shift in the data at a point in time*

The strategic role of cost estimation includes ______.

- prediction of future costs -application of the cost estimation model in planning and decision making - identification of key cost drivers

The two best ways to assess the accuracy of the cost estimate are ______.

- regression analysis - MAPE

Steps in cost estimation include ______.

- select and employ the estimation method* - Collect consistent and accurate data - graph the data - define the cost object

Given a sales price of $300 per unit, variable cost of $180 per unit, and fixed costs of $150,000, the breakeven point in units is ______.

1250

The required sales volume in units, Q, needed to generate an after-tax income of $10,000, given a combined tax rate, t, of 20%, fixed costs, F, of $5,000, and a contribution margin per unit of $50 is ______ units. Multiple choice question.

350

Given fixed costs, F, of $10,000, a selling price per unit, p, of $25, and variable cost per unit, v, of $10, how many units, Q, must be sold to generate a pretax profit of $50,000?

4,000

Given a sales price of $375 per unit, variable cost of $125 per unit, and fixed costs of $100,000, the breakeven point in units is .

400

The overall break-even point for XZY, which produces two products (A and B), is 150 units. The standard sales mix is 1 unit of A for every 2 units of B. At the overall break-even point for the firm, the number of units of Product A is ______.

50 (1÷(1 + 2)) × 150 units = 50 units

The overall break-even point for a firm with two products, A and B, is $800,000. In terms of physical units, Product A is 80% of the total. In terms of total sales dollars, Product A is 50% of the total. The relative contribution margins per unit are 60% and 40%. The contribution margin ratio is 30% for Product A and 20% for Product B. The overall break-even point associated with Product A is ______.

50% × $800,000 = $400,000

Defining the cost object, determining cost drivers, and collecting consistent and accurate data are the first three steps of ____ ____ .

Cost Estimation

Cost estimation is particularly important for firms competing on the basis of ______.

Cost Leadership

True or false: Both the high-low method and regression analysis can be modified for nonlinearity.

False. regression analysis can be modified for nonlinearity but the high-low method cannot

CVP can be used to determine the required change in ___ or ___ cost, given a known change in the other cost component.

Fixed; variable

To identify unusual patterns, it is important to ______.

Graph the data

The most accurate data is likely to be produced by ______.

Internal sources monitored by management policies and procedures

The collection of all short-term budgets is called the ______ budget.

Master

Regression analysis fits the data by ______.

Minimizing the sum of the squares of the estimation error

On a CVP graph, the slope of the total revenue line equals ______ per unit.

Selling price

The name given to a variety of approaches that examine how a given variable of interest (e.g., profit) changes in response to changes in one or more factors used to predict that variable is ______. Multiple choice question. uncertainty analysis regression analysis linear optimization sensitivity analysis Pareto optimality analysis Need help? Review these concept resources.

Sensitivity Analysis

Managers commonly use cost estimation to assess the cost impact of different product designs or product enhancements in _____.

Target costing and pricing

In the estimation equation, Y = a + (b x X), b represents ______.

The Slope of the estimation equation

T/F The cost object defined in cost estimation is impacted by the goal for such estimation.

True

True or false: An important component of strategic decision making for CVP analysis is an ongoing evaluation of the effectiveness of implementation of the desired alternative.

True

True or false: An organization's capacity is a result of capital investments made in prior budgeting period.

True

True or false: CVP analysis can be used to determine the most cost-effective trade off between different types of costs.

True

A structured approach to uncertainty/risk analysis that incorporates managerial actions, events, and outcomes (for example, the amount of profit generated during a period), is referred to as ______. Multiple choice question.

a decision tree (or decision table)

In the estimation equation, Y = a + (b × X), a represents ______.

a fixed quantity

R squared

a number between 0 and 1. the higher the R-squared the more reliable the regression model is

The mean absolute percentage error (MAPE) is used to ______. Multiple choice question.

assess the accuracy of the cost estimate

Break-even point in units multiplied by the selling price per unit equals ______.

break-even in sales dollars

Both financial and non-financial aspects of planned operations and project are included in a(n) ______.

budget

The group within an organization that typically has ultimate responsibility for the budgeting process is the ______ committee.

budget

In a traditional budgeting process, the ______ is (are) responsible for providing initial budget guidelines that set the tone for the budget and govern its preparation.

budget committee

The process of preparing one or more budgets is called ______.

budgeting

CVP analysis ______.

is a model of the short-term profit structure of an organization

The construction of a profit-planning (i.e., CVP) model in conjunction with value-stream accounting ______.

is simplified because the analysis is performed at the product-group level

When comparing high-low to regression analysis, the high-low method is ______ costly to apply.

less accurate and less costly

The planned or actual sales above the break-even point, measured in dollars or units is referred to as the ____ of ____ .

margin of safety

The break-even point in dollars equals ______.

the break-even point in units x the selling price per unit

If selling price per unit is $10 and variable cost per unit is $7, then ______.

the contribution margin ratio = 30%

One primary fault or limitation of traditional budgeting systems is ______.

the failure to link budgets to organizational strategy and goals

The concept that is relied upon to justify linear cost and revenue functions in a conventional CVP model is ______.

the relevant range

To budget expenses for the coming year and predict various expense categories such as maintenance expense, a ______ regression is appropriate.

time-series

At the break-even point ______.

total contribution margin (CM) equals total fixed costs, F