Study Guide Accounting #2

65

If a company has a variable expense ratio of 35%, its CM ratio must be ____%

contribution margin ÷ net operating income

The degree of operating leverage =

the high-low method

The rise-over-run formula for the slope of a straight line is the basis of ______.

sales mix

The term used for the relative proportion in which a company's products are sold is ______.

The variable unit

What is the total cost slope?

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 ______.

$10,000 net operating loss

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______.

3,560

Using the high-low method, variable cost has been calculated as $1.20 per unit. At the highest level of activity, total cost is $5,000 for 1,200 units. Therefore, total fixed costs equal $______.

dollars

When constructing a CVP graph, the vertical axis represents:

variable expense

CM Ratio is equal 1-_____ ______ ratio.

increase by $7,750

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will ______.

7,625

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

decrease in the unit variable cost.

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

False

Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

40,000

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

selling price volume costs

CVP analysis allows companies to easily identify the change in profit due to changes in: location selling price volume costs management

sales volume unit variable cost selling price mix of products sold total fixed costs

CVP analysis focuses on how profits are affected by ______. break-even point sales volume unit variable cost selling price mix of products sold total fixed costs

cost volume profit

CVP is the acronym for _____ _____ _____.

becomes profit after fixed expenses are covered

Contribution Margin:

2,800

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?

$2,200

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

Net Operating Income

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

(P × Q - V × Q) - fixed expenses.

Profit equals:

$3,000 decrease

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow and fixed costs are $2,500 per month. The company is considering a new material which will increase variable costs to $19 and increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a ______.

margin safety

The amount by which sales can drop before losses are incurred is the ______ of ______.

least-square regression

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

selling price per unit costs per unit sales mix

The break-even point calculation is affected by: selling price per unit. number of batches produced. costs per unit. sales mix.

total fixed expenses

The break-even point is reached when the contribution margin is equal to:

contribution margin/sales

The calculation of contribution margin (CM) ratio is ______.

ratio

The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____.

variable

The contribution margin equals sales minus all ______ expenses.

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 Blank______. using either the high or low level of activity after the variable cost per unit is calculated before the variable cost is calculated by adding the total cost to the variable cost

engineering

Estimating the fixed and variable components of a mixed cost using the ______ approach involves a detailed analysis of what cost behavior should be.

change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision

When making a decision using incremental analysis consider the ______. change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision old income statement in comparison to the new income statement volume that would occur regardless of the decision

sales mix

The relative proportions in which a company's products are sold is referred to as ______.

number of units

When constructing a CVP graph, the horizontal axis represents:

$100

A company reported $100,000 in sales and $80,000 in variable costs at the breakeven point of 200 units. If the company sells 201 units, net profit will be ______.

total revenue equals total cost net operating income is zero

At the break even point __________. total revenue equals total cost. the company is earning a profit net operating income is zero the company is experiencing a loss

a straight line approximates the relationship between cost and activity

Cost behavior is considered linear whenever ______.

False

Cost structure refers to the relative portion of product and period costs in an organization.

53%

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______.

30

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $ ____.

volume selling price cost

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit. volume selling price organizational structure cost

degree of operating leverage

The measure of how a percentage change in sales affects profits at any given level of sales is the ______.

variable fixed

The term "cost structure" refers to the relative proportion of _____ and _____ costs in an organization.

The higher the margin of safety, the lower the risk of incurring a loss.

Which of the following statements is correct? The higher the margin of safety, the higher the risk of incurring a loss. The risk of loss is not impacted by the margin of safety. The higher the margin of safety, the lower the risk of incurring a loss.

unit volume

When preparing a CVP graph, the horizontal axis represents:

$450 increase

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a ______.

8,400

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

34%

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is ______.

Scattergraphs are a way to diagnose cost behavior. Plotting data on a scattergraph is an important diagnostic step.

Which of the following statements are true? Scattergraphs are a way to diagnose cost behavior. Plotting data on a scattergraph is an important diagnostic step. When plotting a scattergraph, cost is the independent variable. Scattergraphs should be used after high-low or regression analysis is performed.

CVP analysis

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?

16,500 13,500 0

Whirly Corporation's contribution format income statement for the most recent month is shown below: What would be the revised net operating income per month if the sales volume increases by 100 units? What would be the revised net operating income per month if the sales volume decreases by 100 units? What would be the revised net operating income per month if the sales volume is 9,000 units?

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

A company with a high ratio of fixed costs: will be able to avoid some of the fixed costs when sales decrease by lowering production. is more likely to experience a loss when sales are down than a company with mostly variable costs. will not be concerned about fluctuating sales. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

increase by $6,000

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

leverage

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating _____.

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 ______.

each product most likely has different costs each product most likely has a unique contribution margin a change in the sales mix will most likely change the break-even point

When a company produces and sells multiple products ______. each product most likely has different costs each product most likely has a unique contribution margin the sales mix has no effect on the company's profit a change in the sales mix will most likely change the break-even point

incremental

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using ______ analysis.

greater profit stability lower net income in good years better protection from loss in bad years

When compared to a company with higher fixed costs and lower variable costs, a company with lower fixed costs and higher variable costs, has ______. greater profit stability chosen the best cost structure when the future is unknown lower net income in good years better protection from loss in bad years

variable

When using the high-low method, the slope of the line equals the _____ cost per unit of activity.

net loss

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

sales

The variable expense ratio equals variable expenses divided by ______.

sales

The variable expense ratio is the ratio of variable expense to ______.

total expense, and total fixed expense

To prepare a CVP graph, lines must be drawn representing total revenue, ______.

contribution margin

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.