Managerial Exam 2

To determine the slope, intercept and R² using Excel, select the Trend/Regression type

Linear

The amount by which sales can drop before losses are incurred is the ________of __________.

Margin of safety

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

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

The break-even point calculation is affected by: sales mix. costs per unit. selling price per unit. number of batches produced.

cost of unit, sales mix, selling price per unit

CVP analysis focuses on how profits are affected by ________

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

The rise-over-run formula for the slope of a straight line is the basis of

the high-low method

To prepare a CVP graph, lines must be drawn representing total revenue,

total expense, and total fixed expense

When using Excel, the intercept (a), slope (b) and R² is determined by selecting any data point in the scattergraph plot and selecting Add

trendline

The contribution margin equals sales minus all ______ expenses.

variable

The term "cost structure" refers to the relative proportion of ________ and ______costs in an organization.

fixed and variable

When using the high low method, the change in cost divided by the change in units equals

variable cost per unit

A non-profit organization is trying to determine the fixed and variable costs of providing meals. During the first six months of the year, the following meals were served and the following costs were incurred. Month Meals Costs January 1,500 $5,200 February 1,700 $5,700 March 1,200 $4,100 April 1,100 $4,200 May 1,150 $4,250 June 1,650 $5,550 The cost equation using the high-low method is

y = $1,450 + $2.50x.

The relative proportions in which a company's products are sold is referred to as

sales mix

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 ________

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

Profit Equals

(P × Q - V × Q) - fixed expenses.

A company incurred $12,000 of maintenance cost for 6,500 machine hours in June and $14,250 of maintenance costs for 8,000 hours in August. Assuming these are the high and low months of activity, the estimated fixed maintenance costs using the high-low method is $

2250

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

305,000/40 = 7,625

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?

98,000/(50-15) = 2,800

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ________

Change in net operating income = $70,000 x 30% - $15,000 = increase $6,000

To prepare a scattergraph plot in Excel, highlight the data and select the "Scatter" subgroup from the ________ group within the Insert tab.

Charts

The calculation of contribution margin (CM) ratio is

Contribution / sales

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the

Degree of operating leverage

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

Profit = 300 x ($20-$7) - $1,700 = $2,200

The percentage of the variation in cost that is explained by activity is

R^2

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity,

choose the periods with the highest and lowest levels of activity and their associated costs

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

TRUE

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

The higher the margin of safety, the lower the risk of incurring a loss

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.

True

Contribution Margin:

becomes profit after fixed expenses are covered

The measure of how a percentage change in sales affects profits at any given level of sales is the

degree of operating leverage

When constructing a CVP graph, the vertical axis represents:

dollars

When a company produces and sells multiple products

each product most likely has different costs a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin

In a least-squares regression equation, a represents the ______ and b represents the _______.

intercept, slope

The statistic R² Blank______. is a measure of goodness of fit provides the best estimate when the number is small varies from 1 to 2 is a component of the high-low method

is a measure of goodness of fit

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.

least squares regression

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

ratio

The term used for the relative proportion in which a company's products are sold is

sales mix

The slope of the regression line represents the ______ cost per unit of activity.

variable

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes ___________.

fixed, profit

When using the high-low method, the slope of the line equals the ________cost per unit of activity.

variable

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

volume, selling price, costs

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 is

320,000+200,800 / 90-28 = 8,400

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is

40000

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

Decrease by 2,000

Cost structure refers to the relative portion of product and period costs in an organization.

False

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

False

Using the high-low method, the fixed cost is calculated______. Multiple select question. after the variable cost per unit is calculated by adding the total cost to the variable cost before the variable cost is calculated using either the high or low level of activity

after the variable cost per unit is calculated using either the high or low level of activity

The variable cost per unit using the high-low method is calculated as

change in cost / change in units (activity)

When a company produces and sells multiple products ______. the sales mix has no effect on the company's profit each product most likely has different costs a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin

each product most likely has different costs a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin

In a least-squares regression line, the vertical intercept (a) of the line represents the total ________cost.

fixed

The high-low method Blank______.

is based on periods where the activity tends to be unusual uses only two data points

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

A company with a high ratio of fixed costs:

is more likely to experience greater profits when sales are up than a company with mostly variable costs. is more likely to experience a loss when sales are down than a company with mostly variable costs.

The best fitting line minimizes the sum of the squared errors when using

least square regression