ACC Smartbook 2

JVL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?

$9,000

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 Blank______.

$244,068

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

$27.25

Fixed costs should not be expressed on a per-unit basis because

it may make managers believe they can reduce costs by producing more

A statistical technique for finding the best fitting line based on historical data is called

least squares regression

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

least-square regression

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

least-square regression

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called Blank______.

least-squares regression

When using Blank______, proper interpretation of the results is critical.

least-squares regression

The excess of the budgeted (or actual) sales dollars over break-even sales is called the ______ of _________

margin of safety

If fixed costs are zero, the degree of operating leverage will be Blank______.

one

A useful first step in analyzing cost behavior is Blank______.

preparing a scattergraph

According to the assumptions of CVP, Blank______ will not change as the volume of a product increases or decreases.

price

At the break-even point, Blank______.

profit is zero total revenue equals total cost

The extent to which a company uses fixed costs (as opposed to variable costs) in its operations is called

cost structor

Contribution margin Blank______.

covers fixed cost and 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

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will Blank______.

decrease

The formula to calculate the variable cost per unit using the high-low method is

difference in total cost divided by difference in activity

When constructing a CVP graph, the vertical axis represents

dollars

The break-even point is reached when total revenue is Blank______ total costs.

equal to

True or false: CVP analysis is only used for break-even and target profit analysis.

false

True or false: Cost structure refers to how a company uses product and period costs in an organization.

false

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

Costs that remain constant in total and vary per unit are called ____________ cost

fixed

Costs that remain constant in total and vary per unit are called ____________ costs

fixed

A simple approach that uses the two most extreme activity observations is the ___________ - ______________ method

high low method

The high-low method is easy to apply may produce inaccurate results is preferable to least-squares regression always uses data points that represent normal levels of activity

is easy to apply may produce inaccurate results

Using the high-low method, the fixed cost is calculated

-after the variable cost per unit is calculated-using either the high or low level of activity

Using the high-low method, a company calculated the variable cost as $1.75 per unit. The high level of activity was 5,000 units and $10,000 of total cost. Total fixed costs equals

1250

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is Blank______.

2.5

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

20%

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell __________ desks per month in order to break-even

250

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?

2800

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

32.90

Webster, LLC sells its product for $20 per unit. Variable costs are $11 per unit and total fixed costs are $35,000. The company sells 8,000 units per year. Webster's contribution margin ratio is

45%

Given budgeted sales of $982,000, break-even sales of $932,200, and fixed expenses of $429,000, the budgeted margin of safety in dollars is Blank______.

49,800

Given fixed costs of $30,000, variable costs of $2.00 per unit, and a contribution margin of $5.00 unit, ____________ units have to be sold in order to break even

6000

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 $

695000

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $_____________ of revenue must be earned to break even

87500

Larson's Ltd. sells its product for $12.00 per unit. The contribution margin per unit is $8.00 and fixed costs are $75,000. Larson has to sell to Blank______ units to break even. Multiple choice question. 6,250

9375

Step costs __________ may be either step-fixed or step-variable are fixed over some range of activity are always treated like variable costs when doing cost analysis

A B

A statistical technique for finding the best fitting line based on historical data is

A statistical technique for finding the best fitting line based on historical data is

Which of the following statements are true? Within the relevant range of activity, total variable costs do not change. Within the relevant range of activity, fixed costs remain constant in total. The relevant range of activity is approximated by a straight line. Outside of the relevant range, cost behavior conclusions may not be valid.

B C D

Degree of operating leverage equals Blank______.

Contribution margin ÷ Net operating income

When performing a multiproduct CVP analysis, the weighted-average contribution margin per unit is computed using the ___________ mix, and the _________ mix is used to compute the weighted-average contribution margin ratio.

Blank 1: product or products Blank 2: sales or sale

Why is it important to analyze mixed costs? Within the relevant range of activity, fixed costs change as activity changes. Within the relevant range of activity, variable costs do not change. To make decisions, managers need to know how costs change. Managers need to know how much of a cost is variable and how much is fixed.

C D

Which of the following are assumptions of cost volume profit analysis? Production volume is equal to sales volume. All costs can be classified as either fixed or variable. Total cost and total revenue are affected by both volume and price changes. In multi-product companies, the sales mix is constant.

Production volume is equal to sales volume. All costs can be classified as either fixed or variable. In multi-product companies, the sales mix is constant.

How much of the variability of y is explained by x is identified by

R-squared

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs?

Relevant range analysis

Contribution margin is

Sales - Variable Costs

Which of the following statements are true? Scattergraphs are a way to diagnose cost behavior. When plotting a scattergraph, cost is plotted on the horizontal (x) axis. Scattergraphs should be used after high-low or regression analysis is performed. Scattergraphs are used to help determine if the linear assumption is reasonable.

Scattergraphs are used to help determine if the linear assumption is reasonable. Scattergraphs are used to help determine if the linear assumption is reasonable.

True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.

T

Which of the following may not represent the general trend in the data?

The high-low method

In the equation Y= a + bX, Y is the Blank______.

Total Cost

The equation for the profit equation method is Blank______.

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

Presenting fixed costs on an average per unit basis makes them look like they change with activity changes.

True

The key to most managerial decision is understanding cost behavior.

True

In the equation Y = a + bX, the dependent variable is Blank______.

Y

Fixed costs __________ remain constant in total within the relevant range of activity generally include rent and supervisor salaries can change over time but are not based on some measure of activity per unit become progressively larger as the level of activity increases

a b c

Which of the following statements are true? The equation for a straight line can be used to express the relationship between mixed costs and the level of activity. Mixed costs contain both fixed and variable cost elements. Mixed costs are also commonly known as step-fixed or step-variable costs. Both the total cost and the per-unit cost of mixed costs change with changes in the level of activity.

a b d

The difference between break-even analysis and target profit analysis is the Blank______.

amount that profit is set to

Step-fixed costs __________.

are fixed over a fairly wide range of activity

A shift from product costing to a focus on cost _______________ is the key to making most managerial decisions. (Enter only one word per blank.)

behavior

How total costs changes as some level of activity changes is called cost

behavior

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will Blank______.

both increase

Solving for the sales level needed to achieve a profit of zero is

break-even

CVP _____________. can be used to make many different decisions can be used for "what-if" analysis only works in single product companies allows managers to see how changing one variable can impact another

can be used to make many different decisions can be used for "what-if" analysis allows managers to see how changing one variable can impact another

Mixed Costs have a fixed component that is based on activity change both in total and per unit as activity changes cannot be analyzed using scattergraphs are the same as step costs

change both in total and per unit as activity changes

Sales revenue minus variable costs equals

contribution margin

The financial statement that organizes costs by their behavior instead of by their function is the

contribution margin income statement

The contribution margin stated as a percentage of sales dollars is the Blank______.

contribution margin ratio

The high-low method Blank______. provides a reasonable estimate as long as the data points are within the relevant range calculates the line based on the most extreme activity data points uses the highest and lowest level of total cost only uses two data points

provides a reasonable estimate as long as the data points are within the relevant range calculates the line based on the most extreme activity data points only uses two data points

How much contribution margin is generated per dollar of sales revenue is the contribution margin ________

ratio

The level of activity over which cost behavior assumptions are true is known as the ___________ _____________

relevant range

A visual representation of the relationship between cost and activity is provided by a(n) ______________

scattergraph

To answer preliminary questions such as whether the linearity assumption is valid, accountants use a(n) _____________

scattergraph or scatterplot

______ is that it is (they are) subjective and inexact.

scattergraphs

A contribution margin income statement Blank______. separates costs into their fixed and variable components is prepared primarily for external reporting purposes can assist with management decision making reports both gross margin and net income

separates costs into their fixed and variable components can assist with management decision making

Costs that have a fairly narrow range and rise in multiple steps across the relevant range are called ___________ __________ cost

step variable

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called _______ _______ analysis

target profit

The unit contribution margin Blank______. tells how much each additional unit provides to cover variable costs tells how much each additional unit contributes to profit is the difference between total sales revenue and total variable costs is valid both within and outside of the relevant range

tells how much each additional unit contributes to profit

A simple approach that uses the two most extreme activity observations is _________.

the high-low method

In the equation Y= a + bX, Y is the

total cost

The amount that each unit sold contributes to fixed costs and profit is Blank______.

unit contribution margin

Contribution margin ratio is Blank______.

unit contribution margin ÷ unit sales price

The high-low method Blank______. is difficult to apply and requires a statistical software package generally provides a good estimate of true fixed and variable cost behavior uses only two data points is based on the two most extreme periods of activity

uses only two data points is based on the two most extreme periods of activity

A cost that changes in direct proportion to changes in the activity level is a ______________ cost.

variable

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

variable

Which type of cost changes in total, in direct proportion to changes in activity level?

variable

When preparing a CVP graph, the slope of the total cost line represents

variable cost per unit

In the profit equation, total Blank______ is a function of the number of units sold (Q).

variable costs sales revenue

Contribution margin equals sales minus Blank______.

variable manufacturing costs variable selling and administrative costs

The high-low method may provide a reasonable estimate of fixed and variable costs as long as the high and low data points fall Blank______ the relevant range.

within

The goal of break-even analysis is to find the level of sales where profit is equal to

zero