Chapter 5, 6, 8 SmartBook Questions

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

Polly's Day Planners sells its planners for 35each.Salesthisyearequals927,500. The margin of safety is $27,300. The margin of safety in units is ____

780

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

target profit

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

True or False: Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.

False

Barrons has an operating leverage of 4 and Wilkens has an operating leverage of 3. If sales decrease, the company that will experience the greatest drop in profits is _____

Barrons

The two general costing approaches used by manufacturing companies to prepare income statements are ____ costing and _____ costing

absorption, variable

selling and administrative expenses

are always treated as period costs

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

formula

Net operating income under absorption costing is generally _____ net operating income under variable costing in periods in which inventory increases.

higher than

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will _____ in total as the number of units produced increases.

increase

the statistic R^2

is a measure of goodness of fit

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

CVP analysis is enabled when using ______ costing income statements.

variable

Direct costing or marginal costing are other terms for ________ costing.

variable

The number of units produced does not affect net operating income when using ______ costing. Multiple choice question. variable

variable

the contribution margin equals sales minus all ____ expenses

variable

The variable costing income statement separates

variable and fixed expenses

The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit =

variable cost per unit + desired profit per unit

the variable expense ratio is the ration of variable expense to

sales

Absorption and variable costing net income are usually different due to the accounting for

fixed manufacturing overhead

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

Company A sells its product for 10perunit.IfCompanyAhasvariableexpensesof5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is _____

40,000 units and $400,000 $200,000/5 = 40,000 40,000 x 10=400,000

Fixed manufacturing overhead costs are included as part of Work in Process inventory under

absorption costing only

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

JVL Enterprises has set a target profit of 126,000.Thecompanysellsasingleproductfor50 per unit. Variable costs are 15perunitandfixedcoststotal98,000. How many units does JVL have to sell to BREAK-EVEN?

breakeven is to have the contribution margin equals fixed costs 98,000/(50-15)=2800

margin of safety in dollars is

budgeted (or actual) sales minus break-even sales

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______.

change in sales dollars * contribution margin ratio

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

contribution

The calculation of contribution margin (CM) ratio is ___

contribution margin / sales

Simple CVP analysis is

generally not valid outside the relevant range

An absorption costing income statement calculates:

gross margin by deducting cost of goods sold from sales

When units sold exceed units produced, net income under variable costing will generally be ______ net income under absorption costing.

higher than

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

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

least squares regression

a measure of how sensitive net operating income is to a given percentage change in unit sales is known as operating ______

leverage

True or False: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

Financial statement users need to be aware of changes in inventory levels when using ______ costing.

absorption

the degree of operating leverage =

Contribution Margin / Net Operating Income

the sales volume at which profits equal zero is the

break even point

CM ratio = 1 ______ the variable expense ratio

minus

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

selling price

Adam's Sports Store sells an item with a contribution margin ratio of 55% and total fixed costs of 8,000.IfAdam′sgeneratesadditionalsalesof25,000 for this item, net operating income will increase by ____

$13,750 Net operating income change = 25,000×5513,750 increase.

ABC Inc. sells a product for 10perunit.Variablecostsare4 per unit and total fixed costs equal $40,000. If sales increase from 10,000 units to 14,000 what will be the increase in overall profit?

$24,000

Shonda's Shoes sell for 95perpair.IfShondamustsell284pairsofshoestobreak−even,salesdollarsneededtobreak−evenequals

$26,980

A company's current profit is 25,000foraproductthatsellsfor100 and has a unit contribution margin of 65.Fixedcostsare40,000. If the company increases sales by 50 units, total profit will increase by $_______

$3,250

Blissful Blankets' target profit is 520,000.Eachblankethasacontributionmarginof21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ____

$40,000 [(520,000+320,000) / $21 = 40,000]

A company sells 500 sleds per month for 80.Variablecostsare41 per unit and fixed expenses are 3,500permonth.Thecompanythinksthatusinganewmaterialwouldincreasesalesby70unitspermonth.Ifthenewmaterialincreasesvariablecostsby4 per unit, the impact on contribution margin would be a ____

$450 increase Reason:The current contribution margin is 39perunit(80 - 41)or19,500 (500 units × 39)total.Thenewcontributionmarginwouldbe35 per unit (39−4 new cost) or 19,950(570units×35), an increase of $450.

Budgeted sales are 982,000,break−evensalesare932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is _______

$49,800 982,000−932,200 = $49,800

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

1. selling price is constant. - the price of a product or service will not change as unit sales change 2. Costs are linear and can be accurately divided into variable and fixed components. - the variable costs per unit and total fixed costs are constant over the entire relevant range 3. in multiproduct companies, the mix of products sold remains constant

Jump-It Corporation has a margin of safety of 272,000.Thecompanysold100,000unitsthisyear.Ifthecompanysellseachunitfor17, the margin of safety percentage is ____

16% Margin of safety = 272,000/(100,000×17) = 16%

Steel, Inc. has a margin of safety in dollars of 559,740.Ifactualsaleswere2,946,000, Steel's margin of safety percentage is ____%

19%

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______

20% 0.05 * 4 = 0.2 * 100 = 20%

A company's selling price is 90perunit,variablecostperunitis28 and total fixed expenses are 320,000.Thenumberofunitsalesneededtoearnatargetprofitof200,800 is

8400 units (200,800+320,000)/((90−28)/90) = 756,000756,000/$90 = 8400 units

Gifts Galore had sales revenue of 189,000.Totalcontributionmarginwas100,170 and total fixed expenses were $27,500. The contribution margin ratio was ____

CM ratio = CM/sales $100,170/189,000 = 53%

CVP is the acronym for

Cost Volume Profit

A company's current sales are 300,000andfixedexpensestotal85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by 70,000andfixedexpensesby15,000. If these results occur, net operating income will _____

Increase by $6,000 Change in net operating income = 70,000×3015,000 = $6,000 increase.

Selling and administrative expenses are ______ on both the absorption and variable costing income statements.

the same amount

When there is no change in inventory, net operating income will be _____ costing

the same under both absorption and variable

The difference in net operating income between absorption costing and variable costing is due to the

time when fixed overhead is expensed

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 ______

unit sales to break even = fixed expenses / unit cm 144,000/.59 =$ 244,068

Anne's Antique Store sells an item with a contribution margin ratio of 29% and total fixed costs of 15,000.Ifthestoregeneratesanadditional60,000 of sales for the item this year, net operating income will increase by ____

Net operating income will increase by $17,400 (Net operating income change = 60,000X29174,000)

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

R^2

Tasty Tangerine is currently selling 50,000 boxes for 25perbox.Variablecostperboxis17 and fixed costs total 260,000.Aplanisbeingconsideredtospend60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to ___

decrease by $16,000 Reason:Total contribution margin would increase by 44,000((74,000boxes×6) - (50,000 boxes × 8)).IncreasedCMof44,000 - 60,000innewfixedcosts=16,000 decrease.

Chitter-Chatter sells phones and has set a target profit of 975,000.Thecontributionmarginratiois65195,000. Sales dollars needed to earn the target profit total

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

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for 40andhadavariablecostof19. Fixed expenses were $250,000. Net operating income for the year is ______

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

Put'er There manufactures baseball gloves that require 22ofdirectmaterialsand18 of direct labor. Variable manufacturing overhead cost is 7pergloveandfixedmanufacturingoverheadcostis19,000 in total. Variable selling and administrative costs are 11perunitsoldandfixedsellingandadministrativecostsare13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is

$47 per unit (22 + 18 + 7 = 47)

Seth's Speakers had actual sales of 1,630,000Ifbreak−evensalesequals935,000, Seth's margin of safety in dollars is ____

$695,000 1,630,000−935,000 = $695,000

Vivian's Violins has sales of 326,000,contributionmarginof184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ____

$99,000 Net operating income = $184,000 - 85,000 = 99,000

When the number of units produced equals the number of units sold, ______

- absorption costing net income is equal to variable costing net income - all fixed overhead incurred flows to the income statement under both costing methods

Target profit analysis...

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

The degree of operating leverage _____

- is greatest at sales levels near the break-even point - decreases as sales and profits rise - is not a constant

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

- selling prices - unit sales (aka sales volume) - unit variable costs - total fixed costs - mix of products sold

CVP analysis focuses on how profits are affected by:

- selling prices - unit sales (aka sales volume) - unit variable costs - total fixed costs - mix of products sold

Spice sells paprika for 9.00perbottle.Variablecostis2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is _______

27% 2.43/9.00 = 0.27 * 100 = 27%

The Cutting Edge sells ice skates. Total sales are 845,000,totalvariableexpensesare245,050 and total fixed expenses are $302,000. The variable expense ratio is ______.

29% 245,050/845,000 = ).29 * 100 = 29%

Given sales of 1,452,000,variableexpensesof958,320 and fixed expenses of $354,000, the contribution margin ratio is

34% (1,452,000−958,320) / $1,452,000 = 0.34 * 100 = 34%

A company has a target profit of 204,000.Thecompany′sfixedcostsare305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is _______

7,625 units Break-even point = #305,000/ $40 = 7,625

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by ______

90% 0.15 * 6 = 0.9 * 100 = 90%

True or false: if operating leverage is low, a small percentage increase in unit sales can produce a much larger percentage increase in net operating income

False

True or false: simple CVP analysis can be relied on for changes in volume outside the relevant range

False

True or False: Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing.

True

Variable costing net income may be computed by multiplying the number of units sold by the ______ ______ per unit and subtracting total ________

contribution margin, fixed

Net operating income is less under absorption costing than under variable costing when inventory for the period _____.

decreases

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ______.

deferred in the inventory account on the balance sheet

When using variable costing, fixed manufacturing overhead is _____

expensed in the period incurred

If two companies have the same total revenue and total expenses but different proportions of fixed and variable costs, then the company with the higher proportion of ______ costs will have higher operating leverage.

fixed

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

fixed

the difference between reported net income on variable costing and absorption costing income statements is based on how ____

fixed overhead is accounted for

It makes sense to perform a high-low or regression analysis if a scattergraph plot reveals _____ ______ behavior

linear cost

The target profit predicted by CVP analysis will _____ costing.

only work when using variable

The target profit predicted by CVP analysis will ______ costing.

only work when using variable

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.

period

Absorption costing treats fixed manufacturing overhead as a _____ cost

product

once all fixed expenses have been covered, the CM ration define 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 variable expense ratio equals variable expenses divided by

sales

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

variable