ACC test 2

Once all fixed expenses have been covered, the CM ratio defines the portion of each sales dollar contributing to

profits

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

ratio

The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a(n) _____ variance

revenue

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total ______.

revenue variable cost

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

sales

Both the production and selling and administrative expense budgets are prepared using information directly from the ______ budget.

sales

The first step in the budgeting process is preparing the _______ budget.

sales

The variable expense ratio equals variable expenses divided by _____.

sales

The variable expense ratio equals variable expenses divided by ______.

sales

The variable expense ratio equals variable expenses divided by _______.

sales

Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show ______.

sales of $44,000 Reason: $20 per manicure ($40,000 ÷ 2,000) × 2,200 = $44,000 net operating income of $19,500 Reason: $44,000 - $22,000 - $2,500 = $19,500

To convert the margin of safety in dollars to the margin of safety in terms of the number of units sold, divide the margin of safety in dollars by the ______.

sales price per unit

To simplify CVP calculations, it is assumed that ______ will remain constant.

selling price

CVP analysis focuses on how profits are affected by ______.

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

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) ______ variance

spending

Planning budgets are sometimes called _____ budgets.

static

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

target profit

If the actual cost is greater than what the cost should have been, the variance is labeled as _____.

unfavorable

The contribution margin equals sales minus all _____ expenses.

variable

Variable expenses ÷ Sales is the calculation for the _____ _____ ratio.

variable expense

Companies use the _____ ______ cycle to evaluate and improve performance.

variance analysis

A spending variance is the difference between ____.

what a cost should have been at the actual level of activity and the actual amount of the cost

Budgets _______.

communicate management's plan throughout the organization

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

contribution

The calculation of contribution margin (CM) ratio is

contribution margin ÷ sales

A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was ______ budgeted activity.

higher than

When a change in sales mix causes the average selling price to be ______ the amount expected, the revenue variance is labeled favorable.

higher than

A budget that is prepared before the beginning of the period for a specific level of activity is called a ______ budget.

planning

Developing goals and preparing various budgets to achieve those goals is part of the _____ process.

planning

Budgets are used for two distinct purposes: ______ and ______.

planning and control

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

product mix volume selling price

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?

production

favorable variance

Actual revenue is more than budgeted revenue.

To convert the formula for sales dollars required to attain a target profit to sales dollars required to break-even, set the target profit to $ ___

$0

Seth's Speakers had actual sales of $1,630,000 If break-even sales equals $935,000, Seth's margin of safety in dollars is _____.

$1,630,000 - $935,000 = $695,000

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______.

$100,170 ÷ $189,000 = 53%

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals ______.

$144,000 ÷ 0.59 = $244,068

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

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is ______.

$200,000 ÷ 5 = 40,000 units × $10 each = $400,000

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show ______.

$24,000 ÷ 1,000 = $24 per unit × 1,200 = $28,800 $6,250 ÷ 1,000 = $6.25 per unit × 1,200 = $7,500

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 _____.

$245,050 ÷ $845,000 or 29%

Adam's Sports Store sells an item with a contribution margin ratio of 55% and total fixed costs of $8,000. If Adam's generates additional sales of $25,000 for this item, net operating income will increase by

$25,000 × 55% = $13,750 increase

Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is ____.

$272,000 ÷ (100,000 × $17) = 16%

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

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals _____.

$564,000 ÷ 0.62 = $909,677

Anne's Antique Store sells an item with a contribution margin ratio of 29% and total fixed costs of $15,000. If the store generates an additional $60,000 of sales for the item this year, net operating income will increase by ______.

$60,000 × 29% = $17,400

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals _____.

$95 × 450 = $42,750

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

unfavorable variance

Actual revenue is less than budgeted revenue.

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is ____.

$982,000 - $932,200 = $49,800.

Given sales of $1,452,000, variable expenses of $958,320, and fixed expenses of $354,000, the contribution margin ratio is _______.

($1,452,000 - $958,320) ÷ $1,452,000 = 34%

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be _______.

($240,400 + $930,000) ÷ 0.77= $1,520,000

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 units

Paula's Perfumes 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 ____.

($4,000 + $3,200) ÷ ($15.00 - $13.50) = 4,800 bottles.

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 _____.

($975,000 + $195,000) ÷ 0.65 = $1,800,000

budgets ____.

- coordinate the activities of the entire organization by integrating the plans of its various parts - define goals and objectives that can serve as benchmarks for evaluating subsequent performance - and the budgeting process can uncover potential bottlenecks before they occur - encourage managers to think about and plan for the future

Which of the following budgets are directly based on information from the sales budget?

- production - selling and administrative expense

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 _____ %

19

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

2.43/9.00= 27%

Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.

2050 Reason: $380,000 ÷ 1,900 = $200 per client visit. $410,000 ÷ $200 = 2,050 client visits.

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. If the company increases sales by 50 units, total profit will increase by $__________

3250

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $ _____

675,000

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?

CVP analysis

CVP is the acronym for __-__-__

Cost Volume Profit

Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.

Flexible budget amount for supplies: $0.75 × 2,500 manicures = $1,875. Spending variance: $1,875 - $2,000 = $125 U.

Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?

Flexible budget expense: $16,000 ÷ 4,000 = $4 per unit × 2,900 units = $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable.

Which of the following are assumptions of cost-volume-profit analysis?

In multi product companies, the sales mix is constant. Costs are linear and can be accurately divided into variable and fixed elements.

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 × ($40 - $19) - $250,000 = $380,000

A detailed plan for the future that is usually expressed in formal quantitative terms is _______.

a budget

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) _____ variance.

activity

When preparing a flexible budget, the level of activity ______.

affects variable costs only

The variance analysis cycle _____.

begins with the preparation of performance reports

Solving for the sales level needed to achieve a profit of zero is the same process as solving for the sales level needed to ______.

break-even

The sales volume level at which profits equal zero is the ______.

break-even point

Multiplying unit selling price times the number of units required to break-even is one way to calculate ____.

break-even sales dollars

A detailed plan for the future that is usually expressed in formal quantitative terms is a(n) _______

budget

Margin of safety in dollars is______.

budgeted (or actual) sales minus break-even sales

A revenue variance is the ____.

difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.

Target profit analysis _____.

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

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) ______ activity variance.

favorable

A budget that takes into account how costs are affected by changes in level of activity is a(n) _____ budget.

flexible

Comparing actual costs to what the costs should have been for the actual level of activity is done on a(n) _____ budget.

flexible

A favorable activity variance may not indicate good performance because a favorable activity variance _____.

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity

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

formula

Operating budgets generally cover a ______ period.

one-year

Unfavorable activity variances may not indicate bad performance because _____.

increased activity should result in higher variable costs

The cash budget ______.

is prepared near the end of the master budget process

The spending variance is labeled as favorable when the actual cost is ______ level of activity.

less than what the cost should have been at the actual

The concept that focuses on important variances and ignores trivial ones is ______.

management by exception

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called ______ ______ _____.

management by exception

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the _____ budget.

master

An integrated business plan that formally lays out the company's goals is called the ______ budget.

master

CM ratio = 1 ______ the Variable expense ratio. Multiple choice question.

minus (-)

The percentage change in net income in the flexible budget is generally greater than the percentage change in activity due to ______.

mixed costs fixed costs

A perpetual budget keeps managers focused at least one year ahead by adding one ______.

month or quarter to the end of the budget as each month or quarter comes to a close

When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ______ 15%.

more than

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that _____.

net income is higher than expected but all or most expense variances are unfavorable