Acc 1100 - Ch 12
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 $_____.
25,000 or 25000 15,000 or 15000
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 Blank______.
$50,000 Reason: Margin of safety = Sales revenue - Break-even sales = $200,000 - $150,000 = $50,000
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
operating expenses is a traditional income statement element.
True
A change of more than 12% in a firm's operating income is likely to result from a 12% change in a firm's revenues because:
not all of the firm's costs will change in proportion to the revenue change.
cost formula
An algebraic expression that reflects the fixed and variable elements of a cost.
What is the term for the magnifying effect a change in revenue has on operating income?
Operating leverage
Which of the following are considered fixed costs?
Supervisory salaries
A ______ can be used to forecast the total cost expected to be incurred at various levels of activity.
cost formula
In the planning and control cycle, control follows
feedback from actual operations.
Total cost =
fixed cost + variable cost
Which of the following are considered variable costs?
Maintenance materials Sales commissions
indifference point
The activity level that produces the same total cost when two different cost formulas or cost structures exist.
breakeven point
The amount of revenue required to have neither operating profit nor operating loss.
In the planning and control cycle, planning is the
first activity performed
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 $
$6,000 Reason:
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.
2,000 or 2000 Reason: (total - fixed) / variable cost per unit $12,000 -$4,000= $8,000 $8000/$4 per unit = $2,000 units
Following is the information of a product of a firm: Selling price per unit = $50. Variable expense ratio = 40%. Fixed expenses per month = $30,000. The breakeven point in total revenue is $_____.
50,000 or 50000 Reason:
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 = $
70,000 or 70000 Reason: $60-$25=$35 $35*2,000 units= $70,000 Fixed expenses per month = (total per unit - variable per unit) x breakpoint unit volume
(total per unit - variable per unit) x breakpoint unit volume
= Fixed expenses per month
variable cost
A cost that changes in total as the volume of activity changes.
fixed cost
A cost that does not change in total as the level of activity changes within the relevant range.
semivariable cost
A cost that has both fixed and variable elements—a mixed cost.
production standards
Expected or allowed times and costs to make a product or perform an activity.
From the following cost examples, identify those that are variable costs.
Hourly wages Sales commissions Production supplies
cost behavior pattern
Identification of whether a cost is fixed or variable.
Managerial accounting helps support what kind of planning decisions made by an entity's management?
Internal forward-looking decisions
Which of the following elements are included in the contribution margin income statement format?
Revenues Variable expenses Operating income Fixed expenses
margin of safety
The amount by which current sales exceed breakeven sales, providing a relative measure of risk before an operating loss would be incurred.
operating leverage
The concept that operating income changes proportionately more than revenues for any change in the level of activity given the relative trade-off of variable versus fixed costs in a firm's cost structure.
Which of the following best describes the management process?
The process of steering an organization's activities to best support its goals
sales mix
The proportion of total sales represented by various products or categories of products.
relevant range
The range of activity over which the fixed or variable cost behavior pattern exists.
contribution margin ratio
The ratio of contribution margin to revenues.
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
Cost of Goods Sold is a traditional income statement element.
True
Financial accounting provides information for external use.
True
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.
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 _____.
activity
In managerial accounting, the term _____ means different things depending on the situation.
cost
A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized by _____ _____ pattern.
cost behavior
The management activity that occurs in each phase of the planning and control cycle is:
decision making
As the volume of activity changes, a(n) _____ cost changes when expressed on a per unit basis.
fixed
The Total Cost =
fixed cost + (variable rate per unit of activity x # of units per activity)
The Total cost =
fixed cost + (variable rate x output)
Expressing fixed costs on a per unit basis of activity is misleading because:
fixed cost per unit decreases as activity increases.
A company's margin of safety calculation is an indication of how closely the company is operating relative to ______.
its breakeven point
The higher a firm's contribution margin ratio, the greater its operating:
leverage
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.
linear
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.
In the planning and control cycle, managing follows
planning
Managerial accounting is generally defined as including the following activities:
planning, organizing, controlling.
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.
relevant range
The high-low method of analyzing the cost behavior of a mixed cost uses a(n) _____ to illustrate cost and volume data relationships.
scattergram
A management decision that would have a long term influence on the operating leverage of a firm would be:
substituting robots for hourly paid production workers.
Managerial accounting in contrast to financial accounting:
supports internal planning decisions is focused on the future
The formula for expressing the total of a fixed, variable, or mixed cost at any level of activity is:
total cost = fixed cost + (variable rate × volume of activity).
As the volume of activity changes, a(n) _____ cost changes in total.
variable
As the volume of activity changes, a(n) _____ cost remains constant when expressed on a per unit basis.
variable
If total cost is $12,000 and total fixed cost is $4,000, then:
variable costs total $8,000
Contribution margin is defined as revenues minus:
variable expenses
From the following cost examples, identify those that are fixed costs.
Building rent Manager salaries Real estate taxes
The concept of operating leverage refers to which of the following?
Operating income changes proportionately more than revenues for any given change in activity level.
A cost behavior pattern describes the relationship of total cost to volume of _____.
activity
At the breakeven point, operating income is equal to _____.
zero or 0
fixed expenses are not included in
contribution margin.
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 x $15 (CM) = $35,000 CM minus $37,500 FC = loss of $2,500 rounded. Reason: ABC is operating below its breakeven point.
The logical sequence of the activities performed in the management planning and control cycle is:
planning, managing, controlling
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 Reason: The contribution margin remains the same and hence no change in breakeven point.
The term "relevant range" is used to describe:
the range of activity where a particular relationship between fixed and variable cost relationships are valid.
The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000. If selling price is reduced by $2 and sales volume increases by 3,000 units, total contribution margin will increase by $_____.
1,000 or 1000 Reason:
If ABC Company's sales revenue is $250,000, and its margin of safety is $25,000, ABC's breakeven sales revenue is $_____.
225,000 or 225000 Reason: $250,000 - $25,000 = $225,000 Sales Revenue - Margin of Safety = breakeven point
managerial accounting
Accounting that uses economic and financial information to plan and control many activities of the entity and to support the management decision-making process. Sometimes called management accounting.
contribution margin format
An income statement format in which variable costs are subtracted from revenues to show contribution margin, from which fixed costs are subtracted to determine operating income.
cost-volume-profit (CVP) analysis
Analysis of the impact on profit of volume and cost changes using knowledge about the behavior pattern of the costs involved.
Which of the following characteristics apply to managerial accounting as opposed to financial accounting?
Breadth of concern is on individual units of the organization plans and activities. Time frame involved is present and future for planning and control.
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
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
Which of the following characteristics apply to financial accounting as opposed to financial accounting?
Focus is external to investors and creditors. Reporting standards imposed by generally accepted accounting principles Financial statements are issued monthly, a week or more after month-end.
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 statements does not describe a characteristic of management accounting?
Management accounting must conform to GAAP.
_____ accounting is focused on the future, whereas _____ accounting is focused on the past.
Managerial or Management financial
Managerial accounting provides information for:
Planning, Control & Decision-making
management process
Planning, organizing, and controlling the activities of an organization so it can accomplish its purpose.
contribution margin
The difference between revenues and variable costs.
Managerial accounting provides information for use within an organization.
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 Reason: "Must" is the key term and makes this statement true.
True or false: Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.
True Reason: Measuring operating leverage helps assess the impact of fixed versus variable costs in a firm's cost structure.
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
Revenues minus variable expenses equals:
contribution margin
To calculate the volume in units at breakeven, fixed expenses are divided by the:
contribution margin per unit
To calculate total revenues at breakeven, fixed expenses are divided by the:
contribution margin ratio
The term to describe the concept that costs increase or decrease with changes in the volume of activity is known as:
cost behavior
