CH12 SB

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 Blank______.

$400,000

At the breakeven point, operating income is equal to

0

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 selling price is reduced by $2 and sales volume increases by 3,000 units, total contribution margin will increase by

1000

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

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

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

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. If advertising of $15,000 is spent to increase sales volume by 2,000 units, operating income will increase by $.

3000

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

40

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

False

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

Internal forward-looking decisions

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

Maintenance materials Sales commissions

Which of the following best describes the management process?

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

The relevant range assumption relating to fixed costs refers to:

a firm's range of activity

The principal characteristic that distinguishes managerial accounting from financial accounting is its emphasis on the _____

future

Managerial accounting in contrast to financial accounting:

is focused on the future supports internal planning decisions

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

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

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

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

remain the same

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

total costs

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______.

$50,000

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 Blank______. Multiple choice question.

$55,000; $35,000

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 $

15000

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

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

2,000

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

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

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

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

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

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.

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

Managerial

____ accounting is focused on the future, whereas ____ accounting is focused on the past.

Managerial financial

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

Operating leverage

Which of the following cost examples are fixed costs? Multiple select question.

Property taxes Executive salaries Building depreciation

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

Raw materials Supervisory salaries

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

Total cost = Fixed cost + Variable cost

Contribution margin represents the amount of revenue left over after covering variable expenses from the sale of products or services available to cover fixed expenses and provide for operating income. True false question.

True

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

When the number of units sold is Blank______. Multiple select question.

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

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 managerial accounting, control is achieved by: Multiple choice question.

comparing planned activity to actual performance results

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: Multiple choice question.

contribution margin ratio

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

control

A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized b

cost behavior

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

cost formula

The management activity that occurs in each phase of the planning and control cycle is: Multiple choice question.

decision making

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

differently

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

margin of safety

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

mixed cost

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 Blank______.

operating loss will be $2,500

Managerial accounting provides information for:

planning, control, and decision-making

The contribution margin ratio is calculated by dividing contribution margin by: Multiple choice question.

revenue

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

scattergram

As the volume of activity changes, a(n) ____ cost remains constant when expressed on a per unit basis.

variable

As the volume of activity changes, a(n) ____cost changes in total.

variable

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

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

fixed

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

cost behavior

A firm calculates the average contribution margin ratio when Blank______.

the firm sells more than one product

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

Which of the following characteristics apply to managerial accounting as opposed to financial accounting?

Breadth of concern is on individual units of the organization plans and activities. Time frame involved is present and future for planning and control.

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

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

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

Fixed expenses Revenues Variable expenses Operating income

n 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. Multiple choice question.

The company's average contribution margin ratio decreased by 0.04 in Year 2.

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.

Identify the relationships that the expanded contribution margin model shows.

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

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

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

fixed expenses variable expenses the volume of activity selling price

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

semivariable

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

the planning and control cycle

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