SB Chapter 12

From the following cost examples, identify the fixed costs.

1.) Building depreciation 2.) Executive salaries 3.) Property taxes

Arrange the following items on the contribution margin income statement in the correct order.

1.) Revenue 2.) Variable expenses 3.) Contribution margin 4.) Fixed expenses 5.) Operating income

From the following cost examples, identify those that are variable costs.

1.) Sales commissions 2.) Hourly wages 3.) Production supplies

The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000 If advertising of $15,000 is spent to increase sales volume by 2,000 units, operating income will increase by $_________.

3,000

The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000 Based on the information given above, ABC Company's contribution margin ratio will be %_________.

30

The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000 Based on the information given above, the operating income of ABC Company will be $.

30,000

________ accounting provides information to support an organization's planning, control and decision-making needs.

Managerial OR Management

Managerial accounting provides information for use within an organization.

True

The concept of different costs for different purposes means that costs must be viewed differently depending on the planning, control, or decision-making situation.

True

True or false: Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.

True

A cost behavior pattern describes the relationship of total cost to volume of .

activity

When a company has different products with different contribution margin ratios, the relationship of total company contribution margin to total company sales revenue is known as the ________ contribution margin ratio.

average

The relevant range assumption is about the level of production _______ and suggests that the level of fixed costs will remain constant only within certain ranges of activity.

capacity

When classifying costs for managerial accounting purposes, it is important to recognize that each cost must be viewed __________ for each planning, control, or decision-making situation.

differently

As the volume of activity changes, a(n) _______ cost remains constant in total.

fixed

A company's margin of safety calculation is an indication of how closely the company is operating relative to __________.

its breakeven point

The higher a firm's contribution margin ratio, the greater its operating:

leverage

A relative measure of risk that describes a company's current sales performance in relation to its break-even sales is called the _____.

margin of safety

The logical sequence of the activities performed in the management planning and control cycle is:

planning, managing, controlling

If the selling price and variable expense per unit were to drop $2 and fixed expenses remain the same, the breakeven point would __________.

remain the same

The high-low method of analyzing the cost behavior of a mixed cost uses a(n) _________ to illustrate cost and volume data relationships.

scattergram

A firm calculates the average contribution margin ratio when _____.

the firm sells more than one product

The management process is illustrated through a series of management key activities referred to as:

the planning and control cycle

At the breakeven point, operating income is equal to _________.

zero OR 0

The following information exists for ABC Company: Selling price per unit = $60 Variable expenses per unit = $45 If ABC's break-even sales revenue is $150,000 and sales revenue for April totals $140,000, then for April, the company's __________.

operating loss will be $2,500

A firm has revenues of $240,000, a contribution margin ratio of 30%, and fixed expenses that total $112,000. If revenues increase by $40,000, then operating income will increase by $_________.

12,000

The relevant range assumption relating to fixed costs refers to:

a firm's range of activity

When the number of units sold is _____.

1.) below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit. 2.) above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit.

Cost behavior implies that people accountable for costs would react negatively to increases in the cost.

False

Using the high-low method produces a cost formula for expressing the total of a mixed cost at any level of activity, which is:

Total cost = Fixed cost + (Variable rate x Volume of activity)

A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized by _______ _______ pattern.

cost behavior