ACC-240 Chapter 12: Managerial Accounting and Cost–Volume–Profit Relationships
Which of the following cost examples are fixed costs?
- Building depreciation - Executive salaries - Property taxes
In managerial accounting, planned activity is compared to actual performance results in order to _____ the activities of the organization.
Blank 1: control
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
Managerial accounting helps support what kind of planning decisions made by an entity's management?
Internal forward-looking decisions
What is the term for the magnifying effect a change in revenue has on operating income?
Operating leverage
The relevant range assumption relating to fixed costs refers to:
a firm's range of activity
Revenues minus variable expenses equals:
contribution margin
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 Reason: The margin of safety is a relative measure of risk that describes a company's current sales performance in relation to its break-even sales.
Managerial accounting provides information for:
planning, control, and decision-making
A firm calculates the average contribution margin ratio when _____.
the firm sells more than one product
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:
the planning and control cycle
The indifference point is found between alternative cost structures when _____ are equal for both alternatives.
total costs
If total cost is $12,000 and total fixed cost is $4,000, then:
variable costs total $8,000
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 _____.
$400,000 Reason: Total revenues at breakeven = Fixed expenses / Average contribution margin ratio $200,000 / 50% = $400,000
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 _____.
$50,000 Reason: Margin of safety = Sales revenue - Break-even sales $200,000 - $150,000 = $50,000
Which of the following elements are included in the contribution margin income statement format?
- Fixed expenses - Operating income - Variable expenses - Revenues
If sales revenue is $25,000 and the contribution margin ratio is 40%, then variable expenses is $_____.
Blank 1: 15,000 OR 15000
_____ accounting provides information to support an organization's planning, control and decision-making needs.
Blank 1: Managerial OR Management
In managerial accounting, the term _____ means different things depending on the situation.
Blank 1: cost
True or false: Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.
True
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 _____.
cost-volume-profit analysis
The simplifying assumption made when using variable cost behavior pattern data is:
linearity
Another term used to describe a semivariable cost behavior pattern is:
mixed cost
A cost behavior pattern describes the relationship of total cost to volume of _____.
Blank 1: activity
The contribution margin ratio is calculated by dividing contribution margin by:
revenue
When the number of units sold is _____.
- 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
Following is the information of a product of a firm: Selling price per unit = $50. Variable expenses per unit = $20. Fixed expenses per month = $30,000. The breakeven point volume in units is _____.
Blank 1: 1,000 OR 1000
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.
Blank 1: 2,000 OR 2000
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 $_____.
Blank 1: 20
If ABC Company's sales revenue is $250,000, and its margin of safety is $25,000, ABC's breakeven sales revenue is $_____.
Blank 1: 225,000 OR 225000
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 = $_____
Blank 1: 70,000 OR 70000
_____ accounting is focused on the future, whereas _____ accounting is focused on the past.
Blank 1: Managerial OR Management Blank 2: financial
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.
Blank 1: 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.
Blank 1: capacity
A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized by _____ _____ pattern.
Blank 1: cost Blank 2: behavior
As the volume of activity changes, a(n) _____ cost changes when expressed on a per unit basis.
Blank 1: fixed
If a firm has revenues of $80,000, variable expenses of $25,000, operating income of $20,000, then its contribution margin is _____ 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
Cost behavior implies that people accountable for costs would react negatively to increases in the cost.
False
Which of the following are considered fixed costs? (Check all that apply.)
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:
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
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
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.
Blank 1: linear
The linearity assumption suggests that the cost behavior pattern will graph as a straight line within the _____ _____.
Blank 1: relevant Blank 2: range
To calculate the volume in units at breakeven, fixed expenses are divided by the:
contribution margin per unit
The higher a firm's contribution margin ratio, the greater its operating:
leverage
If average contribution margin is $28 and fixed expenses per month are $67,200, the breakeven point volume is _____ units.
Blank 1: 2,400 OR 2400
The principal characteristic that distinguishes managerial accounting from financial accounting is its emphasis on the _____ future.
Blank 1: future
The high-low method of analyzing the cost behavior of a mixed cost uses a(n) _____ to illustrate cost and volume data relationships.
Blank 1: scattergram
Some costs include elements that are both fixed and variable. Costs that have this type of mixed behavior pattern are known as _____ costs.
Blank 1: semivariable
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
In managerial accounting, control is achieved by:
comparing planned activity to actual performance results
A company's margin of safety calculation is an indication of how closely the company is operating relative to _____.
its breakeven point
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
The expanded contribution margin model provides a structure for explaining the effect on operating income of changes in:
- fixed expenses - the volume of activity - variable expenses - selling price
ABC Company used the high-low method to analyze monthly mixed costs. The resulting cost formula is $3,600 + $5 per unit produced. If ABC produces 4,000 units the next month, total mixed costs expected will be _____.
Blank 1: $23,600 OR 23600
If sales revenue is $10,000 and variable expenses is $6,000, the contribution margin ratio is _____%.
Blank 1: 40
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 _____ units.
Blank 1: 1,500 OR 1500
In the planning and control cycle, feedback is obtained by comparing planned activity with _____ results.
Blank 1: actual
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 $_____.
Blank 1: 12,000 OR 12000
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 _____.
Blank 1: activity
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 $_____.
Blank 1: 160,000 OR 160000
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 $_____.
Blank 1: 25,000 OR 25000 Blank 2: 15,000 OR 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 _____ units.
Blank 1: 4,000 OR 4000
The following information exists for ABC Company: Sales revenue: $300,000 Contribution margin ratio: 30% Fixed expenses for the period: $60,000 Sales volume in units: 10,000. If sales revenue increases by $20,000, operating income will increase by $_____.
Blank 1: 6,000 OR 6000
_____ accountants work extensively with their colleagues in many functional areas of the organization to support the organization's planning, control, and decision-making activities.
Blank 1: Management OR Managerial
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.
Blank 1: relevant Blank 2: range
At the breakeven point, operating income is equal to _____.
Blank 1: zero OR 0
Which of the following are considered variable costs? (Check all that apply.)
- Maintenance materials - Sales commissions
Which are true statements about cost-volume-profit (CVP) analysis?
- It is useful for planning and for evaluating the results of actual operations as it emphasizes the cost behavior pattern of various costs. - It is an analytical technique that explains the impact on profit for any changes in revenues, costs, or the volume of activity.
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.
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 $2,500 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 × $15 (CM) = $35,000 CM minus $37,500 FC = loss of $2,500 rounded.
To calculate total revenues at breakeven, fixed expenses are divided by the:
contribution margin ratio
Which of the following best describes the management process?
The process of steering an organization's activities to best support its goals
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
As the volume of activity increases, fixed costs _____ when expressed on a per unit basis.
decrease
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.
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 x 6,000 units) + ($5 x 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).
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: 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).
