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