ACCY 200 Unit 2 Module 9

the contribution margin ratio equation

contribution margin divided by revenue

when considering the decision for solving production mix problems involving multiple products and scarce production resources, the decision should focus on:

contribution margin per unit of scarce resource

the term to describe that costs increase or decrease with changes in the volume of activity

cost behavior

semivariable

cost behavior pattern where some costs include elements that are both fixed and variable

differential costs

costs that would result from selecting one alternative instead of the other

as the volume of activity increases, fixed costs ____ when expressed on a per unit basis

decrease

as the volume of activity changes, a ____ cost changes when expressed on a per unit basis

fixed

managerial accounting is focused on the ____ while financial accounting is focused on the ____

future; past

a company's margin is safety calculation is an indication of how closely the company is operating relative to ____

its break-even point

when analyzing variable costs, it is assumed that cost behavior pattern is ____ but in reality, because of economies of scale, per unit variable costs will typically change slightly

linear

____ are incurred for each unit unsold below the break-even point multiplied by the contribution margin per unit

losses

outsourcing is a fundamental decision alternative of the ____ type decision

make or buy

____ accountants work extensively with colleagues in many other functional areas of the organization to support the organization's planning, control, and decision making activities

management

target cost

minimum cost that can be incurred which allows for a desired profit to be earned at a predetermined selling price

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

mixed cost

when considering the sell as-is or process further decision, relevant costs to be considered are

only those costs or revenue opportunities that are different between the alternatives

managerial accounting provides information for

planning, control, and decision-making

____ are earned for each unit sold above the break-even point multiplied by the contribution margin per unit

profits

contribution margin equation

revenues minus variable expenses

when considering the production mix decision and the allocation of scarce production capacity resources, the objective is to maximize contribution margin in terms of the ____

scarce resource

the planning and control cycle

the management process is illustrated through a series of management key activities

full capacity

the operating condition when all available production resources are being utilized

idle capacity

the operating condition when some available production resources are not being utilized

capital budgeting

the process of analyzing proposed investments in plant and equipment and other long-lived assets

linearity

the simplifying assumption made when using variable cost behavior pattern data

using the high-low method produces a cost formula for expressing the total of a mixed cost at any level of activity

total cost = fixed cost + (variable rate & *volume of activity)

the indifference point is found between alternative cost structures when ____ are equal for both alternatives

total costs

if total costs are planned to be $12,000, fixed costs total $4,000, and the variable cost per unit of activity is $4, total activity being planned for is ____ units

2,000

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

$15,000

what should management consider when considering the make or buy decision

- costs that are avoidable by buying outside the company - opportunity cost of making internally - technical expertise of supplier

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

- fixed expenses - variable expenses - selling price

from the following cost examples identify the fixed costs

- shipping costs - executive salaries - production labor wages - building depreciation - property taxes - bonus compensation based on volume of sales

sunk cost characteristics

- the cost is never a differential cost - the cost has been incurred and cannot be eliminated - the cost is never relevant in decision-making

equations that describe the break-even point

- total revenue = total expenses - contribution margin = fixed expenses - operating income = zero

relevant cost

a cost classification used in analyzing costs of decision alternatives representing future differences between the alternatives

target costing

a cost management technique in which the firm determines the required cost for a product or service to earn a desired profit when the selling price is determined by the marketplace

allocated cost

a cost that has been assigned to a product or activity using some sort of systematic process

sunk cost

a cost that has been incurred and that cannot be unincurred, or reversed, by some future action

opportunity cost

an economic concept relating to income forgone because an opportunity to earn income was not pursued

the relevant range assumption is about ____ 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

comparing planned activity to actual performance results

contribution margin format income statement correct order

1.) revenues 2.) variable expenses 3.) contribution margin 4.) fixed expenses 5.) operating income

true or false: operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure

true

true or false: the concept of "different costs for different purposes" means that cost must be viewed differently depending on the planning, control or decision-making situation

true

the analytical technique that explains the impact on profit for any changes taking place in revenues, costs, or the volume of activity

- cost-volume-profit analysis - CVP analysis

which are variable costs: - building rent - manager salaries - hourly wages - production supplies - sales commissions - real estate taxes

- hourly wages - production supplies - sales commissions

managerial accounting as contrasted to financial accounting:

- is focused on the future - supports internal planning decisions

differential cost

a cost that will differ based on the selection of an alternative activity

to calculate total revenues at break-even, fixed expenses are divided by the:

contribution margin ratio