SB6a, SB6b, CQ6
ABC Company produces a product that currently sells for $72 per unit. Current production costs per unit include the following: Direct materials = $20 Direct labor = $24 Variable overhead = $10 Fixed overhead = $10 Product engineering has determined that certain production changes could refine the product quality and functionality. These changes would increase material and labor costs by 25 percent per unit. ABC could sell the refined version of its product for $84 per unit. Identify the following relevant costs to process further: Difference in selling price = $_______ per unit Difference in processing costs = $_______ per unit Difference in profit/(loss) = $_______ per unit Decision to process further = _________ (Yes/No)
12 11 1 yes
ABC Company produces a product that currently sells for $72 per unit. Current production costs per unit include the following: Direct materials = $20 Direct labor = $24 Variable overhead = $10 Fixed overhead = $10. Product engineering has determined that a certain portion of the product conversion could be outsourced. Direct labor and variable overhead would be reduced by 50 percent. Raw material would not be affected and no other alternative use for any idle production capacity is apparent. The outsourcing supplier would charge ABC $15 to provide this product conversion. Identify the following relevant costs to process further: Avoidable cost if outsourced = $ ______ per unit Cost to buy = $ ______ per unit Difference in conversion cost = $ ______ per unit Decision to make or buy = ______ (Make/Buy)
17 15 2 Buy
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 $_________.
2000
ABC Company is considering an opportunity to produce and sell Product Z that currently sells for $50 in the marketplace. ABC wants to earn a 20 percent profit margin on the sales of Product Z, and product engineering has estimated production costs for product Z will be $45. Should ABC enter the market to produce Product Z? Target cost = $______. Estimated profit margin for Product Z = _____ % Decision to produce Product Z = ______ (Yes/No)
40 10 no
ACB Company sells Product X for $20 per unit, but if the product is enhanced, it can be sold for $26 per unit. The enhancement process will cost $80,000 for the 10,000 units that are currently sold. If sales of Product X remain the same, identify the following relevant costs to process further: Difference in selling price = $ _______ per unit Difference in processing costs = $ ______ per unit Difference in profit/(loss) = $ ______ per unit Based on the relevant costs information identified above, should ACB Company sell Product X as-is or process further? Decision to process further = ________ (Yes/No)
6 8 -2 no
The following information exists for ABC Company: Selling price per unit = $60 Variable expenses per unit = $40 If ABC's breakeven point is 5,000 units and it sells 5,750 units in March, its operating income will be $______
CM = 60-40 = 20 Fixed expenses = 5000*20 = 100000 income = (5750*20)-100000 = 15000
T or F: Cost behavior implies that people accountable for costs would react negatively to increases in the cost.
False
Which of the following elements are included in the contribution margin income statement format? Fixed expenses Operating income Cost of goods sold Operating expenses Revenues Contribution margin Variable expenses Gross profit
Fixed expenses Operating income Revenues Contribution margin Variable expenses
Select all that apply From the following cost examples, identify those that are variable costs. Multiple select question. Hourly wages Building rent Manager salaries Sales commissions Real estate taxes Production supplies
Hourly wages Sales commissions Production supplies
Which of the following statements does not describe a characteristic of management accounting? Approximate amounts rather than accurate amounts or refined estimates are often used in management accounting. Management accounting is more concerned with units of the organization rather than with the organization as a whole. Management accounting must conform to GAAP. Management accounting places a great deal of emphasis on the future.
Management accounting must conform to GAAP.
As compared to a traditional income statement format, which of the following terms do not appear on the contribution margin format income statement? Operating expenses. Variable expenses. Operating income. Contribution margin.
Operating expenses.
Which of the following equations describes the breakeven point? Operating income = Zero Contribution margin = Variable expenses Contribution margin = Fixed expenses Total revenue = Total expenses Operating income = Total revenues Total revenue = Contribution margin
Operating income = Zero Contribution margin = Fixed expenses Total revenue = Total expenses
To which function of management is an understanding of Cost-Volume-Profit relationships most relevant? Organizing. Planning. Directing. Managing.
Planning
Capital expenditure analysis attempts to measure the impact of a proposed capital investments on the organization's overall ________ (ROI/NPV) objectives.
ROI
Select all that apply Which of the following items are relevant in a decision to continue or discontinue a segment of an organization? Corporate common fixed expenses allocated to the segment Segment direct fixed expenses Segment contribution margin Segment sales Segment variable expenses
Segment direct fixed expenses Segment contribution margin Segment sales Segment variable expenses
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 $
Selling Price per Unit = 30 CM per unit = 30 -21 = 9 Income = (10000*9)-60000 = 30000
Select all that apply Which of the following capital budgeting techniques use present value analysis? The internal rate of return method The accounting rate of return method The payback method The net present value method
The internal rate of return method The net present value method
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 x Variable rate Total cost = Fixed cost + (Variable rate x Volume of activity) Total cost = Fixed cost x Volume of activity Total cost = Fixed cost - Variable cost
Total cost = Fixed cost + Variable Cost = Fixed Cost + (Variable rate x Volume of activity)
T or F: Managerial accounting provides information for use within an organization.
True
T or F: 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
The relevant range assumption relating to fixed costs refers to: a firm's range of activity a firm's range of sales a firm's range of rates of return a firm's range of profitability
a firm's range of activity
Select all that apply When the number of units sold is _____. below the breakeven point, profit equals each unit sold below the breakeven point multiplied by the contribution margin per unit. above the breakeven point, loss equals each unit sold below the breakeven point multiplied by the contribution margin per unit. above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit. below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit.
above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit. below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit.
A cost behavior pattern describes the relationship of total cost to volume of ____________.
activity
The principal ________ (advantage/disadvantage) of the internal rate of return method for evaluating proposed capital investments is that it _________ (considers/ignores) the time value of money.
advantage, considers
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
In capital budgeting, the cash receipts and disbursements associated with a capital expenditure over its life is known as ______ ______.
cash flow
When analyzing capital expenditure decisions, the key factor used to equate the value of money over varying lengths of time is: compound interest international exchange rates annual profit margin cumulative net income
compound interest
Alpha & Omega Inc. produces laptops and the selling price per laptop is $300. Currently, the company has a separate division that produces the internal hard drive used in the laptop. To produce one such hard drive, it spends $10 in the raw materials, $15 in direct labor, $5 in variable manufacturing overhead, and $10 in fixed manufacturing overhead. If the company decides to purchase the internal hard drive from outside, then it will cost $35 per hard drive. Also, 20 percent of the fixed cost is avoidable if the division is outsourced. Based on the scenario, Alpha & Omega Inc. should _____.
continue to produce the hard drives as the company will save $3 by producing them
When considering the decision for solving product mix problems involving multiple products and scarce production resources, the decision should focus on: contribution margin of each product variable and fixed cost of each product contribution margin per unit of scarce resource operating income of each product
contribution margin per unit of scarce resource
In managerial accounting, the term __________ means different things depending on the situation.
cost
A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized by _______ ________ pattern.
cost behavior
As compared to a traditional income statement format, an income statement organized by cost behavior does not include: operating income. cost of goods sold. contribution margin. revenues
cost of goods sold.
The management activity that occurs in each phase of the planning and control cycle is: controlling decision making managing planning
decision making
When considering two decision alternatives, _____________ costs are those costs that would result from selecting one alternative instead of the other. sunk irrelevant allocated differential
differential
When considering the decision to continue or discontinue a segment of the organization, ___________ (common/direct) fixed expenses will always be relevant to the decision and __________ (common/direct) fixed expenses will never be relevant to the decision.
direct, common
As the volume of activity changes, a(n) _____ cost remains constant in total.
fixed
Relevant costs in short-run decisions are: costs that result from past decisions costs that do not influence the decision common costs arbitrarily assigned to products or activities future costs that represent differences between decision alternatives
future costs that represent differences between decision alternatives
A cost is considered relevant if: it is sunk. if it can't be changed. it makes a difference. it is positive.
it makes a difference.
A company's margin of safety calculation is an indication of how closely the company is operating relative to __________. its operating income its sales performance its breakeven point its fixed expenses
its breakeven point
The higher a firm's contribution margin ratio, the greater its operating: loss expenses income leverage
leverage
Simplifying assumptions identified for the use of cost behavior pattern data include: fixed range and variability. linearity and relevant range. fixed activity and linearity. relevant range and liquidity.
linearity and relevant range.
_______ accounting provides information to support an organization's planning, control and decision-making needs.
management
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 breakeven point DuPont point operating leverage
margin of safety
Beta and Gama Inc. produces a product that currently sells for $250 per unit. Current production costs per unit includes direct materials of $30, direct labor of $25, variable overhead of $15, fixed overhead of $20, and total production costs of $90. Beta and Gama Inc. has received a special pricing offer from a nonprofit organization to buy 1,000 units at $200 per unit. Beta and Gama Inc. is currently operating at its full production capacity. Based on the scenario, Beta and Gama Inc. should _____.
not accept the special order as the company will lose $50,000 if it accepts the special order Reason: Per unit the company will lose = $250 - $200 = $50 per unit For 1,000 units, the company will lose = 1,000 units × $50 per unit = $50,000
An organization's ____________ (operating/capital) budget reflects its plans to achieve short-term profitability goals, while the organization's ______________ (operating/capital) budget reflects its plans to achieve long-term profitability goals.
operating, capital
The logical sequence of the activities performed in the management planning and control cycle is:
planning, managing, controlling
Capital budgeting procedures should involve the use of _____ _____ analysis because an investment is made today in expectation of returns far into the future
present value
After the results of a present value analysis has been obtained for a capital investment opportunity, overriding ________ factors should also be considered before a final decision is mad
qualitative
Sometimes when management decisions are reached, the investment project with the highest NPV or IRR is not selected because _________ (qualitative/quantitative) factors override __________ (qualitative/quantitative) analysis.
qualitative, quantitative
Future costs that represent differences between decision alternatives and are the key to effective decision making are called ________ costs.
relevant
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 increase decrease
remain the same (CM remains the same)
When considering the product mix decision and the allocation of scarce production capacity resources, the objective is to maximize contribution margin in terms of the ______ ________.
scarce resource
The high-low method of analyzing the cost behavior of a mixed cost uses a(n) _________ to illustrate cost and volume data relationships.
scattergram
Which of the following qualitative factors favors the buy option in the make or buy decision? utilization of idle capacity. production scheduling. ability to control quality. technical expertise of supplier.
technical expertise of supplier.
The discount rate used in the present value calculations of a capital budgeting expenditure decision is known as: the cost of cash inflow the cost of capital the return on equity the return on liabilities
the cost of capital
Knowing the behavior pattern of a cost is important to determine the effect on net income of a change in sales volume because as sales volume increases or decreases: variable costs will not change. fixed costs will rise proportionately. net income will change proportionately. the effect on net income will depend on the behavior pattern of various costs.
the effect on net income will depend on the behavior pattern of various costs.
A firm calculates the average contribution margin ratio when _____. the firm sells more than one product the firm's average revenue is more than the total current liabilities the firm's going concern becomes an issue the firm incurs more expenses than revenues
the firm sells more than one product
The term "relevant range" is used to describe: the range of activity where a particular relationship between fixed and variable costs stays valid. the range of activity where total variable cost remains unchanged as activity changes. the range of activity where costs will always fluctuate. the range of activity where fixed costs change proportionately as activity changes.
the range of activity where a particular relationship between fixed and variable costs stays valid.
ABU Co. has several products, each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed: fixed expenses in July would be in a different relevant range than in June. operating income would be the same in June and July. the company's overall contribution margin ratio would be the same in June and July. total contribution margin in July would be different from that in June.
total contribution margin in July would be different from that in June.
As the volume of activity changes, a(n) __________ cost remains constant when expressed on a per unit basis.
variable
