Exam 2 ACC

fixed costs

When making a volume-trade off decision, managers should ignore Blank______.

*Traceable fixed expenses are deducted from contribution margin *Cost of goods sold consists of only variable manufacturing costs

When preparing a segment margin income statement______

CM ratio x change in sales - change in fixed expenses

A change in profits that occurs due to change in sales and fixed expenses may be calculated as______.

* Cannot cover its own costs * Has a contribution margin that cannot cover traceable fixed costs

A segment should probably be dropped when the segment _______

Is incurred because of the existence of the segment

A traceable fixed cost_______

Net operating income = 30,000 x ($40-$19) -$250,000=. $380,000

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ___

sell or process further decision

Deciding what to do with a joint product at the split-off point is a Blank______ decision.

sell or process further decision.

Deciding what to do with a joint product at the split-off point is a(n) or decision.

F. The opposite is true. Operating leverage acts as a multiplier so with a high operating leverage, a small percentage increase in unit sales can produce a much larger percentage increase in net operating income.

If operating leverage is low, a small percentage increase in unit sales can produce a much larger percentage increase in net operating income. T/F?

irrelevant

future costs and benefits that do not differ between alternatives are _____ costs to the decision-making process.

irrelevant

future costs and benefits that do not differ between alternatives are_____ costs to the decision-making process.

$2.43 / $9.00 = 27%

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and spice's annual fixed costs are $825000. The variable expense ratio for paprika is ___

559,740/2,946,000 = 19%

Steel Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ____%

Contribution margin /Net operating income

The degree of operating leverage= ____

define the alternatives

The first step in decision making is to _______

product mix that maximizes total contribution margin

When a constraint exists, companies need to focus on identifying the Blank______.

increased the capacity of the bottleneck

When there is a constrained resource, the best way to increase profits is to Blank_____

relaxing the constraint

Which of the following involves increasing the capacity of a bottleneck?

CVP analysis

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

avoidable/incremental cost

a cost that can be eliminated by choosing one alternative over another is a(n) _____ cost.

sunk

a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) _______ cost.

constraint

a limited resource of some type that restricts the company's ability to satisfy demand is a(n)______.

bottleneck

a step that limits total output because it has the smallest capacity is the_____

incremental, avoidable

synonyms for differential costs include_______cost.

opportunity

the potential benefit given up when selecting one alternative over another is a(n) ______ cost.

contribution margin per unit of constraint resource

If some products must be cut back because of a constraint, produce the products with the highest Blank______.

Only traceable

Segment break-even calculations include _______ fixed expenses.

Traceable fixed costs from its contribution margin

Segment margin is obtained by deducting each segment's ______

May be prepared for activities at many levels in a company

Segmented income statements ______

special order

a one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _____ _______ decision.

differential analysis

focusing on future costs and benefits that are not the same between the choices is_______.

the segment margin form the best alternative use if the resource

if a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is ______

isolate relevant costs from irrelevant costs

in order to prevent confusion and keep attention focused on critical information, it is desirable to ______

avoidable or relevant

a cost that can be eliminated by choosing one alternative over another is a(n)_______ cost.

avoidable

a cost that can be eliminated in whole or in part by choosing one alternative over another is a(n)____ cost.

sourcing

a decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is called a(n)_______ decision.

differential

a future cost that is not the same between any two alternatives is known as a(n)_______, incremental or avoidable cost

Variable

The contribution margin equals sales minus all ___ expenses

Operating Leverage

A measure of how sensitive net operating income is to a given percentage change in unit sales is known as operating____

special

A one-time order that is not considered part of the company's normal ongoing business is called a Blank______ order.

Break-even point= $305,000/$40= 7,625

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is_____

variable overhead, outside purchase price

A company is considered buying a component part that they currently make using some existing equipment. Relevant costs to this sourcing decision include________

3250

A company's current profit is $25,000 for a product that sells for $100 and has a unit contribution margin of $65. Fixed costs are $40,000. Of the company increases sales by 50 units, total profit will increase by $____

Sales volume= ($320,000+$200,800)/($90-$28)=84,000 units

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800

Common

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) ________ fixed cost.

Depreciation on equipment used to manufacture Corvettes

An example of a traceable fixed cost for General Motor's Corvette Division is the _______

the total savings is $60,000 ($18 buy price-$12 variable cost-$3 supervisor salary = $3 advantage to make * 20,000 units) A: continue to make the part----$60,000 advantage

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______.

Segment margin only.

Assigning common fixed costs to segments impacts______

Traceable fixed cost for the store and a common fixed cost for

Bart's Inc. operates retail stores i various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax of a store is a _____ the product lines.

Volume, product mix, selling price

CVP analysis allows companies to easily identify the change in profit due to changes in___

Mix of products sold, sales volume, total fixed costs, selling price, unit variable cost

CVP analysis focuses on how profits are affected by

Cost-Volume-Profit

CVP is the acronym for

Contribution

Costs are separated into variable and fixed categories when using the—- approach.

(Traceable fixed expenses + Common fixed expenses) / Overall CM ratio

Dollar break-even for a company is calculated as ______

Target profit

Estimating the sales volume required to earn a given amount of net income is known as_____ ______ analysis.

Not change

If a segment is entirely eliminated, common fixed costs will _______

never

Joint costs incurred prior to the split-off point are Blank______ relevant in decisions regarding what to do from the split-off point forward.

Margin of safety in dollars = total budgeted (or actual) sales- break even sales

Margin of safety in dollars is ______

Traceable

Only costs that would disappear over time if a segment disappeared should be treated as ______ fixed costs.

($4000+$3200)/($15.00-13.50)=4800 bottles

Paula's Perfume has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is_____.

3

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor time, the contribution margin per unit of constraint for Product XYZ is $_______per minute

ABC

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for Product Blank______.

Decrease ( 1200-1500=3000)

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from $1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n)_______ (increase/decrease) of $______.

Estimates sales needed to earn a given profit and is similar to break-even analysis

Target profit analysis____

$245,050 / $845,000 = 29%

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ___

Contribution margins / sales

The calculation of contribution margin (CM) ratio is ___

Margin of safety in dollars = total budgeted (or actual) sales- Break-even sales

The margin of safety percentage is_____

Break-even point

The sales volume level at which profits equal zero is the _____

Margin available after a segment has covered all of its own costs.

The segment margin represents the______

Sales

The variable expense ratio is the ratio of variable expenses to ___

Formula

To calculate the break-even point (in unit sales and dollar sales), managers can use the equation method or the_____ method.

highest contribution margin per unit of the constrained resource

To maximize total contribution margin when a constrained resource exists, produce the products with the Blank______.

joint

Two or more products that are produced from a common input are known as______ products.

Variable expense

Variable expenses / sales is the calculation for the ____ _____ ratio.

Net operating = $184,000 - $85,000= $99,000

Vivian's Violin has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ___.

Net Operating Income= $184,000-$85000=$99,000 (CM-Fixed cost)

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is____.

irrelevant

costs and benefits that should be ignored when making decisions are called _____ costs and benefits

sunk

costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ____ costs.

may be qualitative or quantitative

differential costs and benefits that should be considered in a decision _______.

*critical information may be overlooked with the total cost approach *irrelevant costs may be used incorrectly in the analysis *all information needed for the total cost approach is rarely available

isolating relevant costs is desirable because_______.

irrelevant in decisions regarding what to do with a product after split-off

joint costs are ________

vertical interference

less dependence on suppliers is an advantage of________

1. define alternatives 2. identify relevant costs and benefits 3. perform a differential analysis

list the three steps in decision making in order :

less dependence on outside suppliers, a smoother flow of parts and materials for production

what may be some advantages of making a part rather than buying it (i.e. vertical integration)?

zero

when a resource, such as space in the factory, has no alternative use, its opportunity cost is ________.

False

When a constraint exists, managers can only increase profits by making the products with the highest contribution margin per unit of the constrained resource.T/F

relaxing

When a manager increases the capacity of the bottleneck, it is called______or elevating the constraint.

Probably be dropped

When a segment cannot cover its own costs, that segment should _______

The segment's contribution margin and traceable fixed costs.

When calculating the profit impact of discontinuing a segment, consider _______

volume trade-off

When demand for products exceeds the production capacity, a(n) - decision must

The higher the margin of safety, the lower the risk of not breaking even and incurring a loss.

Which of the statements is correct? A. The risk of loss is not impacted by the margin of safety. B. The higher the margin safety, the lower the risk of incurring a loss C. The higher the margin safety, the higher the risk of incurring a loss.

False. Opportunity costs are not found in accounting records because they are not cash outlays, Opportunity costs are relevant to decisions

opportunity costs are not found in accounting records because they are not relevant to decisions. T/F

the total cost approach only

when making a decision , irrelevant items are included in the analysis of both alternatives when using _____.

the total cost approach only

when making a decision, irrelevant items are included in the analysis of both alternatives when using______

should not

when making a decision, qualitative differences between alternatives _____ be ignored.

only relevant

when making a decision______costs and benefits should to be included in the analysis.

total

when wondering decision alternatives, both relevant and irrelevant costs are included when using the ______ cost approach.

non-differential future costs and sunk costs.

which of the following should not be included in the analysis when making a decision?

avoidable costs and opportunity costs

which should be included in the analysis when making a decision?

($10- $4) = $6 CM per unit x 14,000 units = $84,000 - $40,000 or $44,000 in profits - current profits of $20,000 ($6 CM X 10,000 - $40,000) = $24,000 increase

ABC Inc. sells a product for $10 per unit. Variable costs are $4 per unit and total fixed costs equal $40,000. If sales increase from 10,000 units to 14,000 what will be the increase in overall profit.

the company will lose the $124,000 contribution margin. Only $90,000 of the fixed costs are avoidable, so net income will decrease by $34,000

Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries $60,000 Rent 50,000 Advertising 20,000 Administrative 35,000 Total fixed expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped overall net operating income will Blank______.

Traceable fixed cost to the plant and a common fixed cost.

Arbor Co. manufactures appliances at three manufacturing facilities in the US. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a _____ for the individual product lines made in the plant.

intermediate product

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

must trade off units of one product for units of another, do not have enough capacity to satisfy all product demand.

a company must make a volume trade-off decision when they _______

differential analysis

the key to effective decision making is _______

$98,000/($50-$15)=2,800 to break-even. 6,4000 units is needed to earn the target profit.

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

Increased online sales contribution margin [$100000 x 10% x ($60000/$100000)] is $6000 + $5000 saved from stopping catalog sales = $11000

SPS Products has two divisions— Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5000). Online sales were $100000. Online Sales contribution margin was $60000, and its segment margin was $40000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by $________

False. Every decision involves choosing from at least two alternatives, even if the alternatives are yes or no.

Some decisions have only one alternative and cannot consider steps in decision making. T/F

sourcing

a decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is called a(n)________ decision.

($975,000+$195,000)/.65= $1,800,000

Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total _____.

the company will lose $84,000 in contribution margin ($170,000-$86,000). If $95,000 of the fixed costs are avoidable, net income will increase by $11,000

Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000 and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will Blank______.

Ratio

The contribution margin as a percentage of sales is referred to as the contribution margin or CM ____.