ACCT 202 EXAM 2
total; per-unit
Both the _______ cost and the __________________ cost of mixed costs change with changes in the level of activity.
break-even analysis
Solving for the sales level needed to achieve a profit of zero is
margin of safety percentage
margin of safety in dollars divided by total budgeted (or actual) sales in dollars
3
Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of
and total cost
To prepare a CVP graph, lines must be drawn representing total revenue, ______.
Step-variable
What costs have a fairly narrow range and rise in multiple steps across the relevant range.
fixed
What costs should not be expressed on a per-unit basis because it may make managers believe they can reduce costs by producing more
constrained resource
What is a limitation of some type that restricts a company's ability to satisfy demand?
The high-low method
is easy to apply; may produce inaccurate results
committed fixed cost
A fixed cost, such as a long-term lease, that is difficult for a manager to change in the short-run
capacity
A measure of the limit placed on a specific resource is known as its
least-squares regression
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.
special
A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.
6,000
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.
2.5
Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is ______.
55%
Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is
$3,200
Given: Calculated variable cost per unit of $1.40 High level of activity: 2,500 units and $5,300 total cost The low level of activity was 1,000 units. Total cost at the low level of activity equals ______.
unit; margin ratio
Methods that can be used to model the relationship between revenues, costs, profit and volume include the ________ contribution margin method and the contribution _______ _________ method.
highest contribution margin per unit of the constrained resource
To maximize total contribution margin when a constrained resource exists, produce the products with the ______.
Contribution margin/Net operating income
Degree of operating leverage equals ______.
is a critical step in the decision-making process
Determining decision alternatives ______.
CVP
- can be used for "what-if" analysis - allows managers to see how changing one variable can impact another - can be used to make many different decisions
The high-low method
- calculates the line based on the most extreme activity data points - only uses two data points - provides a reasonable estimate as long as the data points are within the relevant range
bottleneck
A(n) ______ limits a system's overall output.
operating leverage
Decisions about whether to use fixed or variable costs to run a business affects a company's
44%
A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______.
irrelevant
A cost that can be eliminated by choosing one alternative over another is called a(n) __________ cost.
avoidable
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.
variable cost
A cost that changes in direct proportion to changes in the activity level
scattergraphs
A limitation of ______ is that it is (they are) subjective and inexact.
price
According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.
- avoiding more direct fixed costs than the company loses in contribution margin - an overall increase in net operating income
Advantages of dropping a division or other segment include ______.
how net income can be increased
CVP analysis can help answer the question of _____.
$244,068
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 ______.
incremental
Comparing the costs and benefits of decision alternatives is done using ____________ analysis because it focuses on the factors that will change between the decision alternatives.
incremental analysis
Comparing the relevant costs and benefits of alternative decision choices is called
keep or drop
Continue-or-discontinue decisions are commonly known as _________ ______ ________ decisions.
49,800
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 ______.
opportunity
If a company has a resource that could be used for something else, the _____________ cost is the profit that could be derived from the best alternative use of the resource.
decision alternatives
Once you have identified a problem, the next step is to determine the possible solutions, which are called
direct
One of the benefits of dropping a product line is that a company can eliminate the product line's _________ fixed costs.
capacity is limited
Opportunity costs are only relevant when ______.
maximum capacity
Opportunity costs become relevant when a company is operating at
first
The ______ step in the decision-making process is to identify the decision problem.
contribution margin
The amount each unit sold contributes towards fixed costs and profit is the unit..?
unit contribution margin
The amount that each unit sold contributes to fixed costs and profit is ______.
linear assumption
The assumption that the relationship between total cost and activity can be approximated by a straight line is called the
within
The high-low method may provide a reasonable estimate of fixed and variable costs as long as the high and low data points fall ______ the relevant range.
managerial decision
The key to most ____________ _____________ is understanding cost behavior.
relevant range
The level of activity over which cost behavior assumptions are true
R square
The measure of goodness of fit of a model is called
excess
When a company has more than enough resources to satisfy demand it is operating with _________ capacity
opportunity costs
When considering a keep-or-drop decision, it is important to consider __________ ________ , such as whether the elimination of the segment will free resources that could be used in another way.
fixed
When constructing a CVP graph, the place where the total cost line intercepts the y-axis represents total _______ costs.
dollars
When constructing a CVP graph, the vertical axis represents ______.
irrelevant
When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ______ costs.
a, b, d
Which of the following are assumptions of cost volume profit analysis? a. In multi-product companies, the sales mix is constant. b. Production volume is equal to sales volume. c. Total cost and total revenue are affected by both volume and price changes. d. All costs can be classified as either fixed or variable.
Break-even analysis
Which of the following is NOT a method used for basic CVP analysis?
a
Which of the following is NOT a question managers need to consider when making a keep-or-drop decision? a. How much is the salary of the company CEO? b. Are there other qualitative factors to consider? c. Are there opportunity costs associated with keeping the segment? d. Will other segments or product lines be affected? e. How much will total revenues and costs change if the segment is eliminated?
d
Which of the following is not a method used to estimate the fixed and variable portions of mixed costs? a. Scattergraph plot b. Least-squares regression c. High-low method d. Relevant range analysis
mixed costs
change both in total and per unit as activity changes
Segment margin
includes both variable and direct fixed costs
common fixed costs
will be incurred even if a segment is eliminated
scattergraph
A visual representation of the relationship between cost and activity is provided by a(n)
step costs
- may be either step-fixed or step-variable - are fixed over some range of activity
Relevant costs
- occur in the future - differ between alternatives
fixed costs
- should not be expressed on a per unit basis when making decisions - generally include rent and supervisor salaries - remain constant in total within the relevant range of activity
a, e
ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs? a. The sawdust should be sold as is without being processed into Presto Logs. b. The sawdust should be processed into Presto Logs. c. The pieces of lumber should be sold as is without being processed into finished lumber. d. The $1,000 cost for cutting down the tree is relevant to the decision. e. The pieces of unfinished lumber should be processed.
degree of operating leverage
An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.
total revenue equals total cost; profit is zero
At the break-even point, ______.
covers fixed cost and profit
Contribution margin ______.
variable costs
Contribution margin equals sales minus ______.
relevant range
Cost assumptions are reasonably valid within the ________ _________ of activity.
sunk
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.
special order
Deciding to accept a sales request that is outside the scope of normal sales is called a(n) _____________ _________ decision.
make-or-buy
Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.
buy; 600
Given the following, determine if a buy price of $4.00 per unit for 3,000 units should be accepted or if the company should continue to make the units. Total variable costs of making the units (materials, labor, and overhead) equal $11,100, and total fixed costs are $3,500. Of the fixed costs, $1,500 is avoidable if the units are purchased. Based on price, the company should (make/buy) _________ the units at a net benefit of $__________.
87,500
Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $_________ of revenue must be earned to break even.
True
Presenting fixed costs on an average per unit basis makes them look like they are variable costs. (T/F)
ABC
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for product ______.
21,645
Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans that must be sold to meet the company's goal is ______.
segment margin
Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.
$1,520,000
Sniffles, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Sniffles' sales rounded to the nearest dollar must be ______.
19%
Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is
least-square regression
The best fitting line minimizes the sum of the squared errors when using ______.
zero
The break-even point is the level of sales at which the profit equals ?
contribution margin ratio
The contribution margin stated as a percentage of sales dollars is the ______.
total amount of either profit or loss
The distance between the total revenue line and the total cost line a on a cost-volume-profit graph represents the ______.
straight line
The equation for a ______________ ________ can be used to express the relationship between mixed costs and the level of activity.
- opportunity costs - qualitative factors - all variable production costs
When evaluating a make-or-buy decision, managers should consider ______.
when the incremental revenue exceeds the incremental manufacturing cost.
When is it profitable to continue processing a product instead of selling it as is?
relevant costs and benefits
When making a decision a company should consider ______.
relevant
When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost.
common
When performing a keep-or-drop decision analysis, _______ fixed costs should be excluded from the analysis.
irrelevant
When planning a trip and making a decision to drive or take the train, the cost of boarding your dog while you are away is a(n) ______ cost.
relevant
When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) ______ cost.
variable cost per unit
When preparing a CVP graph, the slope of the total cost line represents ______.
excluded
When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.
mixed costs
contain both fixed and variable cost elements.
variable costs
remain constant per unit and vary in total
discretionary fixed cost
A fixed cost that is relatively easy for a manager to change in the short-run, such as travel or advertising
$400,000
A company sells a product for $80 per unit and has a contribution margin ratio of 45%. Fixed costs total $180,000. Sales dollar to break even equals ______.
in total
A fixed cost remains fixed ______ within the relevant range of activity.
direct
A fixed cost that can be traced to a specific business segment is called a(n) ________ fixed cost.
committed fixed costs
A fixed cost that is relatively easy for a manager to change in the short-run, such as travel or advertising
behavior
A shift from product costing to a focus on cost _____________ is the key to making most managerial decisions.
the high-low method
A simple approach that uses the two most extreme activity observations is ______.
high-low method
A simple approach that uses the two most extreme activity observations is the
least squares regression
A statistical technique for finding the best fitting line based on historical data is ______.
least-squares regression
A statistical technique for finding the best fitting line based on historical data is called
scattergraph
A useful first step in analyzing cost behavior is to prepare a(n) ____________ because it helps determine the nature of the relationship and whether the linearity assumption is valid.
sell-or-process-further
Deciding what to do with a product that is salable or could be enhanced is a ______ decision.
financial leverage
Decisions about the use of debt versus equity affects a company's
scattergraph
To answer preliminary questions such as whether the linearity assumption is valid, accountants use a(n)
incremental profit from the special order will be $12,000
Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35; Direct labor $10; Factory overhead $20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______.
contribution margin ratio
How much contribution margin is generated per dollar of sales revenue is the
R squares
How much of the variability of y is explained by x is identified by ______.
cost behavior
How total costs changes as some level of activity changes
both increase
If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______.
higher
If operating leverage is high, a small percentage increase in sales produces a ________ (higher, lower) percentage increase in net operating income than if operating leverage is low.
higher
If operating leverage is high, a small percentage increase in sales produces a ___________ (higher, lower) percentage increase in net operating income than if operating leverage is low.
20%
If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______.
contribution margin per unit of constrained resource
If some products must be cut back because of a constraint, produce the products with the highest ______.
are not
In deciding whether to sell a product or continue to process it, costs incurred to get the product into its current condition ______ relevant to the decision.
- total fixed cost - intercept
In the equation Y = a + bX, a denotes the ______.
total cost
In the equation Y= a + bX, Y is the ______.
- increasing capacity - hiring more workers
In the long term, companies can manage constrained resources by ______.
sales revenue; variable costs
In the profit equation, total ______ is a function of the number of units sold (Q).
sunk costs; future costs that do not differ between alternatives
Irrelevant costs include ______.
increase; 40,000
Jay's Furniture makes several types of furniture, including couches and love seats. Last year the total contribution margin was $900,000 for couches and $350,000 for love seats. Love seats had a segment margin of $50,000 and common fixed costs of $100,000, so the company is considering stopping love seat production. If that happens, sales of couches are expected to increase by 10%, The net impact of stopping production of love seats will (increase/decrease) ___________ profits by $______________.
16%
Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is ______.
9,375
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 ______ units to break even.
indifference point
Managers should be willing to choose either alternative at the ____________ ______ because the profit is the same.
budgeted (or actual) sales minus break-even sales
Margin of safety in dollars is ______.
semivariable costs
Mixed costs are also commonly known as?
indifference point
Setting two profit equations so that they yield the same profit allows managers to calculate the
margin of safety
The excess of the budgeted (or actual) sales dollars over break-even sales is called the
difference in total cost divided by difference in activity
The formula to calculate the variable cost per unit using the high-low method is ______.
(Target profit + Fixed expenses)/Unit contribution margin
The formula used to calculate the sales volume needed to achieve a target profit is ______.
a straight line approximates the relationship between cost and activity
The linearity assumption states ______.
capacity
The number of customers who can be seated in an auditorium is a measure of the facility's ______.
is basically the same for all decisions
The process of making a decision ______.
variable; fixed
The term cost structure refers to how a company uses _______ costs versus ___________ costs in its operations.
True
True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.
False
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.
True
True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.
False
True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.
False
True or false: The terms operating leverage and financial leverage refer to the same concept.
True
True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.
$1250
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
- using either the high or low level of activity - after the variable cost per unit is calculated
Using the high-low method, the fixed cost is calculated ______.
decrease
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 ______.
incremental, avoidable
When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ (2) cost.
excludes fixed costs
When there is excess capacity, an analysis of a special order ______.
the variable cost per unit
When using the high low method, the difference in cost divided by the difference in activity is ______.
The high-low method
Which of the following may not represent the general trend in the data?
b, d
Which of the following statements are true? a. Direct fixed costs will still be incurred if a segment is eliminated. b. Advertising for a specific product line is a direct fixed cost. c. The general manager of a factory that has three separate product lines is a direct fixed cost. d. Direct fixed costs are avoidable if a segment is eliminated.
a, d
Which of the following statements are true? a. Eliminating non-value-added activities can help companies manage constrained resources. b. Strategies to manage constrained resources in the long term will always save costs. c. Increasing the capacity of the constraint is the best way to manage constrained resources in the short run. d. Hiring more workers or leasing additional machines are long-term strategies for managing constrained resources.
a, b
Which of the following statements are true? a. Scattergraphs are used to help determine if the linear assumption is reasonable. b. Scattergraphs are a way to diagnose cost behavior. c. Scattergraphs should be used after high-low or regression analysis is performed. d. When plotting a scattergraph, cost is plotted on the horizontal (x) axis.
variable
Which type of cost changes in total, in direct proportion to changes in activity level?
- Managers need to know how much of a cost is variable and how much is fixed. - To make decisions, managers need to know how costs change.
Why is it important to analyze mixed costs?
- remain constant per unit - vary in total
Within the relevant range of activity, variable costs...
variable
Within the relevant range, what costs remain constant on a per unit basis?
R square
measures goodness of fit; is usually provided by least-squares regression software.
