week 4 smart book

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 $

12000

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

false

__________ accountants work extensively with their colleagues in many functional areas of the organization to support the organization's planning, control, and decision-making activities.

management

The contribution margin ratio is calculated by dividing contribution margin by:

revenue

A firm calculates the average contribution margin ratio when Blank

the firm sells more than one product

Which of the following are considered variable costs? (Check all that apply.) Multiple select question.

Maintenance materials Sales commissions

In managerial accounting, control is achieved by:

comparing planned activity to actual performance results

Another term used to describe a semivariable cost behavior pattern is:

mixed cost

If the total cost is planned to be $12,000, the total fixed costs are $4,000, and the variable cost per unit of activity is $4, the total activity being planned for is_________ units

2000

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

Sales commissions Hourly wages Production supplies

Which of the following are considered variable costs? (Check all that apply.)

Sales commissions Maintenance materials

Which of the following are considered fixed costs? (Check all that apply.)

Supervisory salaries

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

Revenues minus variable expenses equals:

contribution margin

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

a_________-_ can be used to forecast the total cost expected to be incurred at various levels of activity.

cost formula

An analytical technique that determines the impact on profit of volume and cost changes using knowledge about the behavior pattern of the costs involved is known as Blank_

cost profit volume analysis

As the volume of activity increases, fixed costs__________when expressed on a per unit basis.

decrease

As the volume of activity changes, a(n) ________cost changes when expressed on a per unit basis

fixed

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

operating loss will be 2500 Reason: This calculation is using the variable expense ratio. BE units is $150,000/$60 = 2,500 units. CM ratio is ($60-45 / $60) = 25%. FC = $150,000 * .25 = $37,500 at break even. $140,000 revenue / $60 = 2,333 units sold. 2,333 x $15 (CM) = $35,000 CM minus $37,500 FC = loss of $2,500 rounded.

At the breakeven point, operating income is equal to

0

How can a company eliminate the need to be concerned about changes in the sales mix? Multiple choice question.

By having a similar contribution margin ratio for all of its products

When a firm's sales mix includes products that range in quality, the highest quality products will have which of the following?

Higher contribution margin ratios

In Year 1, a company sold 4,000 units each of Product A and Product B. For products A and B, the selling prices were $10 and $15, respectively. Also, the variable expenses were $8 and $10, respectively. The fixed expenses of the company amounted to $20,000. The company's average contribution margin ratio was 0.28, and the operating income was $8,000. In Year 2, the company was able to sell 6,000 units of Product A and 2,000 units of Product B. There was no change in the selling price, variable expenses, and the fixed expenses in Year 1. Based on the scenario, identify a true statement about the company's average contribution margin ratio.

The company's average contribution margin ratio decreased by 0.04 in Year 2. Reason: Year 2: Company's average contribution margin ratio = Total contribution margin / Total revenue = (($2 × 6,000 units) + ($5 × 2,000 units)) / (($10 × 6,000 units) + ($15 × 2,000 units)) = 0.24 In Year 1, the company's average contribution margin ratio was 0.28 (given). Therefore, in Year 2, the company's average contribution margin ratio decreased by 0.04 (0.28 - 0.24).

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 cost

Which of the following elements are included in the contribution margin income statement format?

Variable expenses Revenues Fixed expenses Operating income

The relevant range assumption relating to fixed costs refers to:

a firm's range of activity

For a cost formula to forecast the total of fixed costs and variable costs expected to be incurred, it must be based on a specific level of

activity

Managerial accounting in contrast to financial accounting: Multiple select question.

is focused on the future supports internal planning decisions

Some costs include elements that are both fixed and variable. Costs that have this type of mixed behavior pattern are known as

semivariable costs

Expressing a fixed cost on a per unit basis of activity is misleading because

the fixed cost per unit decreases as the activity increases

If sales revenue is $25,000 and the contribution margin ratio is 40%, then variable expenses is $

15000

Managerial accounting helps support what kind of planning decisions made by an entity's management?

Internal forward-looking decisions

Which of the following best describes the management process?

The process of steering an organization's activities to best support its goals

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

its breakeven point

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

leverage

Managerial accounting provides information for:

planning, control, and decision-making

If a firm has revenues of $80,000, variable expenses of $25,000, operating income of $20,000, then its contribution margin is Blank______ and fixed expenses is_______

$55,000; $35,000 Reason: Contribution margin = Revenue - Variable expenses = $80,000 - $25,000 = $55,000; Fixed expense = Contribution margin - Operating income = $55,000 - $20,000 = $35,000

The following information exists for a firm: Selling price per unit = $50. Variable expenses = 20. Fixed expenses per month = $30,000. Desired operating income = $15,000. The volume necessary to earn the desired operating income is

1500

The following information exists for a firm: Selling price per unit = $50. Contribution margin ratio = 30%. Fixed expenses per month = $30,000. Desired operating income = $18,000. The total revenues necessary to earn the desired operating income is $

160000

During a year, ABC Company had monthly mixed costs that ranged between $5,000 and $15,000 and units produced ranged that between 1,000 and 1,500 for the same months. Using the high-low method, the variable rate per unit produced is

20

If ABC Company's sales revenue is $250,000, and its margin of safety is $25,000, ABC's breakeven sales revenue is

225000

If average contribution margin is $28 and fixed expenses per month are $67,200, the breakeven point volume is

2400

If a firm has revenues of $50,000, variable expenses of $25,000, and fixed expenses of $10,000, then the contribution margin is $________and the operating income is $___________

25000 15000

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%

If sales revenue is $10,000 and variable expenses is $6,000, the contribution margin ratio is

40%

Company A has fixed expenses of $100,000 and variable expenses of $50 per unit. Company B has fixed expenses of $200,000 and variable expenses of $25 per unit. The indifference point sales volume for Company A and Company B is

4000

A firm has two products, Product A and Product B. The firm's average contribution margin ratio is 50 percent and fixed expenses is $200,000. Based on the scenario, the firm's total revenue at breakeven is

400000 Reason: Total revenues at breakeven = Fixed expenses / Average contribution margin ratio = $200,000 / 50% = $400,000

Following is the information of a product of a firm: Selling price per unit = $50. Variable expense ratio = 40%. Fixed expenses per month = $30,000. The breakeven point in total revenue is

50000

A firm's sales revenue amounts to $200,000, fixed expenses amount to $50,000, and variable expenses amount to $100,000. If the breakeven sales revenue is $150,000, the firm's margin of safety is Blank

50000 Reason: Margin of safety = Sales revenue - Break-even sales = $200,000 - $150,000 = $50,000

During a year, ABC Company had monthly mixed costs that ranged between $6,000 and $12,000 and units produced that ranged between 800 and 1,800 for the same months. Using the high-low method, the variable rate per unit produced is $

6

Following is the information of a product of a firm: Selling price per unit = $60. Variable expenses per unit = $25. The breakeven point volume is 2,000 units. Fixed expenses per month =

70000

Identify the relationships that the expanded contribution margin model shows.

Contribution margin must cover fixed expenses before an operating income is earned. Total contribution margin depends on the volume of activity. Contribution margin divided by revenue is equal to contribution margin ratio. Revenue minus variable expenses is equal to contribution margin.

Which are true statements about cost-volume-profit (CVP) analysis?

It is an analytical technique that explains the impact on profit for any changes in revenues, costs, or the volume of activity. It is useful for planning and for evaluating the results of actual operations as it emphasizes the cost behavior pattern of various costs.

Which of the following is a true statement about the contribution margin ratio?

It shows the portion of each sales dollar that remains after covering the variable costs.

In Year 1, a company sold 4,000 units each of Product A and Product B. For products A and B, the selling prices were $10 and $15, respectively. Also, the variable expenses for products A and B amounted to $8 and $10, respectively. The fixed expenses of the company amounted to $20,000. The company's average contribution margin ratio was 0.28, and the operating income was $8,000. In Year 2, the company was able to sell 6,000 units of Product A and 2,000 units of Product B. There was no change in the selling price, variable expenses, and the fixed expenses in Year 2. Based on the scenario, identify a true statement about the company's operating income in Year 2.

The company's operating income decreased by $6,000 in Year 2. Reason: Year 2: Company's operating income = Total revenue - Variable expenses - Fixed expenses =$90,000 - $68,000 - $20,000 = $2,000 In Year 1, the company's operating income was $8,000 (given). Therefore, in Year 2, the company's operating income decreased by $6,000 ($8,000 - $2,000).

When the number of units sold is

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

n the planning and control cycle, feedback is obtained by comparing planned activity with ____________ results

actual

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

To calculate the volume in units at breakeven, fixed expenses are divided by the:

contribution margin per unit

To calculate total revenues at breakeven, fixed expenses are divided by the:

contribution margin ratio

In managerial accounting, planned activity is compared to actual performance results in order to___________the activities of the organization

control

The term to describe the concept that costs increase or decrease with changes in the volume of activity is known as:

cost behavior

Which of the following is responsible for the fact that operating income changes to a greater degree than revenue when there is a change in the volume of activity?

fixed expenses

When analyzing variable costs, it is assumed that cost behavior pattern is_________but in reality, because of other factors such as economies of scale and quantity purchase discount, per unit variable costs will typically change slightly.

linear

The simplifying assumption made when using variable cost behavior pattern data is:

linearity

_______ accounting is focused on the future while _______ accounting is focused on the past

managerial financial

A relative measure of risk that describes a company's current sales performance in relation to its breakeven sales is called the

margin of safety

What is the term for the magnifying effect a change in revenue has on operating income?

operating leverage

The need for management accountants to have a breadth of knowledge and interest about the organization and its operating environment in order to support planning, control, and decision making also suggests:

people in other functional areas of the organization should have a general understanding of managerial accounting

When analyzing fixed costs, a fundamental assumption about the range of activity over which the fixed cost behavior pattern exists is known as the_____________assumption

relevant range

The linearity assumption suggests that the cost behavior pattern will graph as a straight line within the

relevant range

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

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

The expanded contribution margin model provides a structure for explaining the effect on operating income of changes in:

selling price fixed expenses variable expenses the volume of activity

Expressing a fixed cost on a per unit basis of activity is misleading because:

the fixed cost per unit decreases as the activity increases

The management process is illustrated through a series of key management activities referred to as: Multiple choice question.

the planning and control cycle

The indifference point is found between alternative cost structures when Blank______ are equal for both alternatives.

total costs

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

As the volume of activity changes, a(n__________ cost changes in total

variable

if total cost is $12,000 and total fixed cost is $4,000, then:

variable costs total $8,000

Contribution margin is defined as revenues minus:

variable expenses