Chapter 4
Identify the relationships that the expanded contribution margin model shows. Multiple select question. Total contribution margin depends on the volume of activity. Contribution margin divided by revenue is equal to contribution margin ratio. Contribution margin is earned when revenue is less than the fixed expenses. Revenue minus variable expenses is equal to contribution margin. Contribution margin must cover fixed expenses before an operating income is earned. Total assets divided by contribution margin is equal to contribution margin ratio.
1, 2, 4, 5.
Which of the following are considered variable costs? (Check all that apply.) Multiple select question. Maintenance materials Sales commissions Advertising expenses Depreciation expense
1, 2.
Which of the following elements are included in the contribution margin income statement format? Multiple select question. Operating income Cost of goods sold Revenues Gross profit Variable expenses Fixed expenses Operating expenses
1, 3, 5, 6.
Which are true statements about cost-volume-profit (CVP) analysis? Multiple select question. 1. It is an analytical technique that explains the impact on profit for any changes in revenues, costs, or the volume of activity. 2. It is useful for preparing financial statements as it emphasizes the recording of the historical cost of various assets and expenses. 3. It is an analytical technique that explains the impact on profit for any changes in current assets or current liabilities. 4. It is useful for planning and for evaluating the results of actual operations as it emphasizes the cost behavior pattern of various costs.
1, 4.
Which of the following characteristics apply to managerial accounting as opposed to financial accounting? Multiple select question. 1. Breadth of concern is on individual units of the organization plans and activities. 2. Focus is external to investors and creditors. 3. Financial statements are issued monthly, a week or more after month-end. 4. Time frame involved is present and future for planning and control. 5. Reporting standards imposed by generally accepted accounting principles
1, 4.
An analytical technique that determines the impact on profit of volume and cost changes using knowledge about the behavior pattern of the costs involved is known as Blank______. Multiple choice question. 1. cost-volume-profit analysis 2. financial analysis 3. managerial analysis 4. differential analysis
1.
Another term used to describe a semivariable cost behavior pattern is: Multiple choice question. 1. mixed cost 2. sunk cost 3. controllable cost 4. indirect cost
1.
Multiple Choice Question A firm calculates the average contribution margin ratio when Blank______. Multiple choice question. the firm sells more than one product the firm incurs more expenses than revenues the firm's average revenue is more than the total current liabilities the firm's going concern becomes an issue
1.
Multiple Choice Question If the selling price and variable expense per unit were to drop $2 and fixed expenses remain the same, the breakeven point would Blank______. Multiple choice question. remain the same increase decrease
1.
The management activity that occurs in each phase of the planning and control cycle is: Multiple choice question. 1. decision making 2. managing 3. planning 4. controlling
1.
The simplifying assumption made when using variable cost behavior pattern data is: Multiple choice question. linearity liquidity semivariability variability
1.
What is the term for the magnifying effect a change in revenue has on operating income? Multiple choice question. Operating leverage Contribution ratio Operating cost Contribution leverage
1.
When classifying costs for managerial accounting purposes, it is important to recognize that each cost must be viewed ________ for each planning, control, or decision-making situation. Multiple choice question. 1. differently 2. historically 3. consistently 4. accurately
1.
Which of the following are considered fixed costs? (Check all that apply.) Multiple select question. 1. Supervisory salaries 2. Housekeeping materials 3. Sales commissions 4. Raw materials
1.
Which of the following best describes the management process? Multiple choice question. 1. The process of steering an organization's activities to best support its goals 2. The process of training and deploying human capital most efficiently 3. The process of disseminating information throughout an organization 4. The process of reviewing past performance to ensure an organization's future success
1.
Contribution margin represents the amount of revenue left over after covering variable expenses from the sale of products or services available to cover fixed expenses and provide for operating income. True false question. 1. True 2. False
1. True
As the volume of activity increases, fixed costs __ when expressed on a per unit basis. Multiple choice question. 1. increase 2. decrease 3. remain constant
2.
Cost behavior implies that people accountable for costs would react negatively to increases in the cost. True false question 1. True 2. False
2.
Cost behavior implies that people accountable for costs would react negatively to increases in the cost. True false question. 1. True 2. False
2.
Expressing a fixed cost on a per unit basis of activity is misleading because: Multiple choice question. 1. the fixed cost per unit increases as the activity increases 2. the fixed cost per unit decreases as the activity increases 3. the total fixed cost increases as the activity increases 4. the total fixed cost decreases as the activity decreases
2.
The logical sequence of the activities performed in the management planning and control cycle is: Multiple choice question. 1. controlling, managing, planning 2. planning, managing, controlling 3. planning, controlling, managing 4. managing, planning, controlling
2.
The need for management accountants to have a breadth of knowledge and interest about the organization and its operating environment in order to support planning, control, and decision making also suggests: Multiple choice question. 1. management accountants are required to also have an MBA 2. people in other functional areas of the organization should have a general understanding of managerial accounting 3. management accountants will exercise control over people in other functional areas of the organization
2.
The relevant range assumption relating to fixed costs refers to: Multiple choice question. a firm's range of rates of return a firm's range of activity a firm's range of profitability a firm's range of sales
2.
Using the high-low method produces a cost formula for expressing the total of a mixed cost at any level of activity, which is: Multiple choice question. Total cost = Fixed cost - Variable cost Total cost = Fixed cost + Variable cost Total cost = Fixed cost x Variable rate Total cost = Fixed cost x Volume of activity
2.
When a firm's sales mix includes products that range in quality, the highest quality products will have which of the following? Multiple choice question. Higher variable expenses Higher contribution margin ratios Lower contribution margin ratios Lower fixed expenses
2.
A ______ can be used to forecast the total cost expected to be incurred at various levels of activity. Multiple choice question. 1. variable cost 2. fixed cost 3. cost formula 4. semivariable cost
3.
A relative measure of risk that describes a company's current sales performance in relation to its breakeven sales is called the Blank______. Multiple choice question. DuPont point operating leverage margin of safety breakeven point
3.
In managerial accounting, control is achieved by: Multiple choice question. 1. directly supervising every subordinate employee 2. developing company policy manuals 3. comparing planned activity to actual performance results 4. reporting the financial performance of the organization
3.
Revenues minus variable expenses equals: Multiple choice question. fixed expenses gross profit contribution margin operating income
3.
The term to describe the concept that costs increase or decrease with changes in the volume of activity is known as: Multiple choice question. cost classification cost incurrence cost behavior cost avoidance
3.
How can a company eliminate the need to be concerned about changes in the sales mix? Multiple choice question. By pricing all its products using the same variable expense ratio By reducing the number of products it offers By having the same advertising budget for all its products By having a similar contribution margin ratio for all of its products
4.
Managerial accounting helps support what kind of planning decisions made by an entity's management? Multiple choice question. 1. Internal present-day decisions 2. External forward-looking decisions 3. External present-day decisions 4. Internal forward-looking decisions
4.
Managerial accounting provides information for: Multiple choice question. 1. preparing an organization's balance sheet 2. publishing an organization's income statement 3. generally accepted accounting principles 4. planning, control, and decision-making
4.
The higher a firm's contribution margin ratio, the greater its operating: Multiple choice question. income loss expenses leverage
4.
The indifference point is found between alternative cost structures when Blank______ are equal for both alternatives. Multiple choice question. total operating income total revenues total contribution margin total costs
4.
If total cost is $12,000 and total fixed cost is $4,000, then: Multiple choice question. 1. mixed costs total $8,000 2. semivariable costs total $8,000 3. relevant costs total $8,000 4. variable costs total $8,000
4. 12,000 - 4,000
True or False Question True or false: Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure. True false question
True
A cost behavior pattern describes the relationship of total cost to volume of _________.
activity.
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.
When a company has different products with different contribution margin ratios, the relationship of total company contribution margin to total company sales revenue is known as the _____ contribution margin ratio.
average
The relevant range assumption is about the level of production of ________ and suggests that the level of fixed costs will remain constant only within certain ranges of activity.
capacity
In managerial accounting, planned activity is compared to actual performance results in order to ________ the activities of the organization.
control.
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.
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.
________ accounting is focused on the future, whereas __________ accounting is focused on the past.
managerial, financial
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
Some costs include elements that are both fixed and variable. Costs that have this type of mixed behavior pattern are known as _________ costs.
semivariable.
As the volume of activity changes, a(n) _________ cost remains constant when expressed on a per unit basis.
variable.
Fill in the Blank Question Fill in the blank question. As the volume of activity changes, a(n)________ cost changes in total.
variable.
At the breakeven point, the amount of operating income is equal to $______
zero
