BA201: Chapter 19 Cost-Volume-Profit Analysis

How many different types of operating capacities are there? Name them. (order: #, t, p, n)

3, theoretical, practical, normal

CVP equation can be expressed as: a. Variable Costs * Fixed Costs - Sales Revenue = Profit b. S.R. - V.C. - F.C. = P C. F.C. + V.C. - S.R. = P D. V.C. - F.C. - S.R. = P

B

Sales - Variable Costs =

CM

____ ____is the amount that remains after all variable costs are subtracted from sales.

Contribution margin

Once an organization's costs are classified as being either variable or fixed, the traditional income statement can be reorganized into a _____ ___ Income Statement.

Contribution margin (or variable costing income statement)

The way costs respond to changes in volume or activity is known as ____ ____.

Cost behavior

True or False: CVP analysis usually focuses on groups of products.

False

True or False: The traditional income statement and the CM income statement will produce two different results.

False

_____ _____ is the upper limit of an organization's productive output capability, given its existing resources.

Operating capacity

CM - Fixed Costs =

Profit

_____ ____ is the span of activity in which a company expects to operate.

Relevant range

Breakeven Point =

Sales - Variable Costs - Fixed Costs

True or False: According to economic theory, all costs tend to be variable in the long run; thus, a cost is fixed only within a limited period.

True

True or False: Although, total variable costs go up or down as volume increases or decreases, the cost per unit remains unchanged.

True

____ ___ is the point at which total revenues equal total costs.

breakeven point

___ _____ is an examination of the relationships among cost, volume of output, and profit.

cost-volume-profit (CVP) analysis

Fixed costs are constant within what amount of time? a. 3 years b. 6 months c. organization's operating quarter d. 1 year

d

Total variable cost = a. variable rate + units produced b. variable rate - units produced c. variable rate / units produced d. variable rate * units produced

d

Fixed costs are referred to as (unit or facility) level activities?

facility

Approach 2 to determining a the variable and fixed components in a fixed cost: ____ ____ is based on the premise that only two data points are necessary to define a linear cost-volume relationship.

high-low method

_____ __ _____ is the number of sales units or amount of sales dollars by which actual sales can fall below planned sales without resulting in a loss.

margin of safety

Electrical power, telephone, and heat are examples of a mixed, fixed, or variable cost?

mixed

____ cost: Part of a mixed cost changes with volume or usage, and part is fixed over a particular period.

mixed

____ capacity is the realistic measure of what an organization is likely to produce, NOT what it can produce.

normal

What level of capacity describes what an organization can accomplish in a given period?

operating capacity

_____ ____ is the amount that remains after all fixed costs are subtracted from the total contribution margin.

operating income

____ capacity is used primarily as a planning goal of what could be produced if all went well; but no company ever actually operates at such a level.

practical

To calculate the breakeven point for each product, its unit contribution margin must be weighted by the ____ ___.

sales mix

Approach 1 to determining a the variable and fixed components in a fixed cost: A ____ ____ is a chart of plotted points that helps determine whether a linear relationship exists between a cost item and its related activity measure.

scatter diagram

If a cost changes when activity exceeds the relevant range, this is an example of a ___ cost.

step

____ capacity is the maximum productive output for a given period in which all machinery and equipment are operating at optimum speed, without interruption. No company ever actually operates at such an ideal level.

theoretical

Variable costs are referred to as (unit or facility) level activities?

unit

Direct materials, direct labor, operating supplies, and gasoline are (variable or fixed) costs.

variable

Total costs that change in direct proportion to changes in productive output (or any other measure of volume) are called ____ ____.

variable costs