Accounting 204 Exam 2
If some products must be cut back because of a constraint, produce the products with the highest __________.
contribution margin per unit of constrained resource
Costs that can be traced directly to a segment
should not be allocated to other segments
Costs that can be traced directly to a segment ________.
should not be allocated to other segments
A one-time order that is not considered part of the company's normal ongoing business is called a __________ order.
special
Under variable costing the cost of a unit of inventory does not contain:
fixed manufacturing overhead
A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company ________.
has an overall net operating loss of $10,000
The company-wide break-even sales will always be ______ the sum of the segment break-even sales.
higher than
Common mistakes made by companies when assigning costs to segments include ______.
inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs omitting costs that should be included
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _________ _________.
income statement
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative __________ __________.
income statement
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ________.
income statements
If a segment is entirely eliminated, common fixed costs will ______.
not change
Using absorption costing for segmented income statements can lead to:
omission of upstream and downstream costs. under-costing of segments.
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.
opportunity
When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.
original cost of the car
When a segment cannot cover its own costs, that segment should ________.
probably be dropped
Differential revenue is an example of a(n) ______ benefit.
relevant
The variable expense ratio equals variable expenses divided by _____
sales
Assigning common fixed costs to segments impacts _______.
segment margin only
When preparing a segment margin income statement:
traceable fixed expenses are deducted from contribution margin. cost of goods sold consists of only variable manufacturing costs.
A special order should be accepted ________.
when the incremental revenue from the special order exceeds the incremental costs of the order
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n)
special order
Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is
$99,000
Applying a predetermined markup percentage to a cost base to determine the selling price is called _______.
cost-plus pricing
The lowest price a company can charge and still make incremental profits on the sale is the price ______.
floor
A variable costing income statement ______.
focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs calculates contribution margin while the absorption costing income statement calculates gross margin
Joint costs incurred prior to the split-off point are ______ relevant in decisions regarding what to do from the split-off point forward.
never
Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:
the incremental cost associated with the order
Variable expenses ÷ Sales is the calculation for the ______ ______ ratio
variable expense
Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.
variable; absorption
When demand for products exceeds the production capacity, a(n)
volume trade-off
The first step in decision making is to _______.
define the alternatives
When constructing a CVP graph, the vertical axis represents:
dollars
If price changes significantly impact product sales, demand for the product is said to be ________. If the change in price does not greatly impact sales, demand is _______.
elastic; inelastic
Using variable costing and the contribution approach for internal decision making ______.
enables CVP analysis facilitates explaining changes in net income supports decision making
Two companies with the same margin of safety in dollars will also have the same total contribution margin.
false
Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.
higher than
When units produced exceed units sold, net income will generally be ______ costing.
higher under absorption costing than under variable
When a constraint exists, companies need to focus on maximizing ______.
contribution margin per unit
When making a decision only ______ costs and benefits should to be included in the analysis.
relevant
Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.
$55
Less dependence on suppliers is an advantage of __________.
vertical integration
A future cost that is not the same between any two alternatives is known as a(n) ______, incremental, or avoidable cost
differential
Incorrectly or arbitrarily assigning common costs to segments:
holds managers responsible for costs they cannot control. could reduce the overall profits of the company. distorts the profitability of segments.
As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?
immediate product
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases.
increase
The number of units produced does not affect net operating income when using ______ costing.
variable
The variable costing income statement separates
variable and fixed expenses
When demand for products exceeds the production capacity, a(n) ________ _________ __________ decision must be made
volume trade offs
When using segmented income statements, the dollar sales for a company to break even quals the traceable fixed expense / by the overall contribution margin ratio
False
Which of the following best describes the price elasticity of demand?
This is the degree to which a change in price affects the unit sales of a product.
A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.
True
For a given level of sales, a low contribution margin ratio will produce more net operating income than a high contribution margin ratio.
True
The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.
True
The higher the margin of safety, the lower the risk of incurring a loss.
True
Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has ______.
a contribution margin equal to fixed costs
Discontinuing a profitable segment results in ________.
a reduction in the overall profits of the company the loss of the segment's revenues
In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.
false
Opportunity costs are not found in accounting records because they are not relevant to decisions.
false
When making a volume-trade off decision, managers should ignore
fixed costs
Absorption and variable costing net income are usually different due to the accounting for ______.
fixed manufacturing overhead
Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing.
fixed manufacturing overhead
When there is a constrained resource, the best way to increase profits is to ______.
increase the capacity of the bottleneck
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $6.75 per bottle which is expected to decrease sales by 5%. If the price is raised profits are expected to _________ (increase/decrease) by ______ per year.
increase, $9,375
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
incremental
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) ______ cost.
incremental, avoidable
If a price change has little effect on unit sales, the demand is considered to be _________.
inelastic
When a product is past the split-off point, but is not yet a finished product, it is called a(n)
intermediate product
Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.
irrelevant
In order to prevent confusion and keep attention focused on critical information, it is desirable to
isolate relevant costs from irrelevant costs
Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called _______
joint
Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called _________ costs.
joint
The split-off point is the point in the manufacturing process at which the products can be recognized as separate products
joint
Two or more products that are produced from a common input are known as
joint
The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as
joint costs
Two or more products produced from a common input are called
joint products
If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should ______ the product line.
keep
A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.
make or buy
Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.
pricing; drop
When a segment cannot cover its own costs, that segment should ______.
probably be dropped
When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ______.
produced
The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____
ratio
When making a decision, only relevant items are included in the analysis of the alternatives when using _________.
the differential cost approach only
When calculating the profit impact of discontinuing a segment, consider ________.
the segment's contribution margin the segment's traceable fixed costs
When making a decision, irrelevant items are included in the analysis of both alternatives when using _________.
the total cost approach only
A set of activities ranging from development to production to after-sales service is called ________.
the value chain
The difference in net operating income between absorption costing and variable costing is due to the ______.
time when fixed overhead is expensed
When considering decision alternatives, both relevant and irrelevant costs are included when using the ______ cost approach.
total
The calculation of contribution margin (CM) ratio is
Contribution margin / sales
CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.
False
Net operating income will be greater under variable costing when units produced are greater than units sold.
False
The break-even point can be determined by simply adding together all of the expenses from the income statement.
False
The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.
False
True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.
False
Financial statement users need to be aware of changes in inventory levels when using _______ costing.
absorption
Net income computed under ______ costing may not agree with the results of CVP analysis
absorption
When inventory increases, which costing method generally results in higher net income?
absorption costing
Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ______ costing, and expensed in full with period costs under _____ costing
absorption; variable
For external reporting, income statements are generally prepared using ______ costing, while _____ costing is used for internal decision making purposes.
absorption; variable
A company has reached its break-even point when the contribution margin ______ fixed expenses
equals
Absorption costing and variable costing always result in the same net operating income each year.
false
Depreciation of existing assets is relevant to decisions.
false
If a company prices all of its products above the price floor, they will always make a profit.
false
The break-even point is the level of sales at which the profit equals
zero
When a resource, such as space in the factory, has no alternative use, its opportunity cost is _________.
zero
The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is
$124,020
Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by year-end, net operating income will increase by ______
$137,500
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit; Direct labor: $75/unit; Variable manufacturing overhead: $27/unit; Fixed manufacturing overhead: $30,000; Units produced: 10,000; Units sold: 6,000.
$155
Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be
$17,483
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals ________.
$175,000
A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.
$180,000
A company's break-even point is 17,000 units. If the contribution margin is $22 per unit and 26,000 units are sold, net operating profit will be ______.
$198,000
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 ______.
$2,200
The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is
$20,376
Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is
$68
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
$695,000
Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is
$79,398
Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be
$94,304
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?
2,800
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 required to meet the company's goal is
21,645
Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is
27%
Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is
34%
Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ____.
380,000
Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is
4,800
Ferkil Corporation manufacturers a single product that has a selling price of $35.00 per unit. Fixed expenses total $49,000 per year, and the company must sell 7,000 units to break even. If the company has a target profit of $14,000, sales in units must be:
8,364 units
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 ______
8,400
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 ________.
ABC
Which of the following can make a product line look less profitable than it really is?
Allocated common fixed costs
Grant Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:
Be greater than the net operation income under the variable costing
Absorption costing treats fixed manufacturing overhead as a _____ cost
Product
A segment should probably be dropped when the segment ______.
cannot cover its own costs has a contribution margin that cannot cover traceable fixed costs
Customers and competitors play important roles in determining a company's price
ceiling
Customers and competitors play important roles in determining a company's price _______.
ceiling
Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.
decrease
Absorption costing net income is calculated by subtracting selling and administrative expenses from
gross margin
An absorption costing income statement calculates ______.
gross margin by deducting cost of goods sold from sales
Break-even analysis assumes that:
unit variable expense is constant
When preparing a CVP graph, the horizontal axis represents:
unit volume
Activities ranging from development to production to after-sales service are called a(n) _______ ________.
value chain
Activities ranging from development to production to after-sales service are called a(n) ________.
value chain
The contribution margin equals sales minus all ______ expenses.
variable
Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by
$0.35
Majid Corporation sells a product for $155 per unit. The product's current sales are 41,500 units and its break-even sales are 33,135 units. What is the margin of safety in dollars?
$1,296,575
Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows
$28,990
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor time, the contribution margin per unit of constraint for Product XYZ is ______ per minute
$3
A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is ______
$36,000
Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is
45%
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 ______
53%
Which of the following statements are correct regarding income statements prepared under variable and absorption costing?
Both income statements include product and period costs. Reported net income on the statements often differ.
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
Which of the following items are found above the contribution margin on a contribution margin format income statement?
Sales, variable expenses
CVP analysis allows companies to easily identify the change in profit due to changes in:
Selling price, volume, costs
The margin of safety is the amount by which sales can decrease before losses are incurred by the company
True
The two general costing approaches used by manufacturing companies to prepare income statements are ______ costing and ______ costing.
Variable; absorption
Because nonmanufacturing costs are not included as costs of a product, the use of ________ costing can lead to the omission of segment costs
absorption
Generally speaking, net operating income under variable and absorption costing will:
be equal only when production and sales are equal
Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to
decrease by 16,000
Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.
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.
irrelevant
When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost.
irrelevant
Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.
the contribution margin per putter is $65. the sale of 12,000 putters results in net operating income of $380,000
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax of a store is the ______ fixed cost of the store and ______ the fixed cost of each product line sold in the store
traceable; common
The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______.
traceable; contribution margin
A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales volume than a company with low operating leverage.
true
When a company applies a predetermined markup to a cost base to determine the selling price, it is using _____ - ________ pricing
cost-plus
Product markup is generally expressed as a(n) _______of cost.
percentage
The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.
potentially
The degree to which a change in price affects unit sales of a product or service is the ________ _________ of ___________
price elasticity; demand
The degree to which a change in price affects unit sales of a product or service is the ________ _______ of _________.
price, elasticity, demand
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead cost divided by units:
produced
When a manager increases the capacity of the bottleneck, it is called ____________ or elevating the constraint.
relaxing
Which of the following involves increasing the capacity of a bottleneck?
relaxing the constraint
Costs and benefits that always differ between alternatives are ______ costs and benefits.
relevant
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
$100
Softie, 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, Softies' sales must be
$1,520,000
Chitter-Chatter sells phones and has set a target profit of $975,000. The contribution margin ratio is 65%, and fixed costs are $195,000. Sales dollars needed to earn the target profit total
$1,800,000
A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be
$5,000
Profit equals:
(P × Q - V × Q) - fixed expenses.
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
40,000
Under absorption costing, fixed manufacturing overhead costs:
are deferred in inventory when production exceeds sales
A cost that can be eliminated by choosing one alternative over another is a(n) ______ cost.
avoidable
Contribution margin:
becomes profit after fixed expenses are covered.
Net operating income is less under absorption costing than under variable costing when inventory for the period ______.
decreases
joint costs are:
irrelevant in decisions regarding what to do with a product after split-off
Irrelevant costs include _________.
sunk costs future costs that do not differ between alternatives
Under absorption costing product costs consist of costs.
both variable and fixed manufacturing
The machine or process that is limiting overall output is a(n)
bottleneck
A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 on advertising will increase sales by 750 units per month and enable them to increase the selling price to $45 per unit. If this change is implemented, profits will
increase by $24,000
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
increase by $6,000
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
increase by $7,750
The segment margin equals the segment's contribution margin less the segment's ______ fixed costs.
traceable
When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _________.
constraint
Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal ______.
$101,000
Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals ______.
$11,834.25
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
$450 increase
Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ______ per unit.
$47
Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was
$5,763.15
Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was ______.
$5,763.15
Anything that prevents you from getting more of what you want is a(n) __________.
constraint
At the break-even point ______.
total revenue equals total cost net operating income is zero
When dealing with a constrained resource, managers should focus their attention on managing the ______.
bottleneck
The highest price customers are willing to pay is called the price
ceiling
When a company sells one unit above the number required to break-even, the company's net operating income will ______.
change from zero to a net operating profit
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
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
Using the contribution margin ratio, the impact on net income for a change in sales dollars is
change in sales dollars × contribution margin ratio
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) ________ fixed cost.
common
One mistake companies make when preparing segmented income statements is arbitrarily assigning _______ fixed costs to segments
common
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $7.00 per bottle which is expected to decrease sales by 20%. If the price is raised profits are expected to _____ (increase/decrease) by _______ per year
decrease; $45,000
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead ______.
deferred in the inventory account on the balance sheet
Only costs that would disappear over time if a segment disappeared should be treated as ______ fixed costs.
traceable
Isolating relevant costs is desirable because ______.
irrelevant costs may be used incorrectly in the analysis critical information may be overlooked with the total cost approach all information needed for the total cost approach is rarely available
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.
make or buy
The amount by which sales can drop before losses are incurred is the _______ of ______
margin; safety
Deciding what to do with a joint product at the split-off point is a ______ decision.
sell or process further
Deciding what to do with a joint product at the split-off point is a(n) ______ or ______ ______.
sell or process further
CVP analysis focuses on how profits are affected by ______.
selling price unit variable cost sales volume total fixed costs mix of products sold
The point in the manufacturing process at which joint products can be recognized as separate products is called the Blank______ point.
split-off
Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant.
traceable fixed cost to the plant and a common fixed cost
When a segment is eliminated, a _________.
traceable fixed cost will disappear common fixed cost will remain unchanged
Effectively managing an organization's constraints is a key to increased profits.
true
Segment margin is sales less variable expenses less traceable fixed expenses
true
Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______.
$119
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
7,625
One of the great dangers in allocating common ________ costs is that such allocations can make a product line look less profitable than it really is.
fixed
Pricing all a company's products above the price floor does not guarantee a profit because all ______ costs may not be covered.
fixed
The difference between reported net income on variable costing and absorption costing income statements is based on how Blank______.
fixed overhead is accounted for
To maximize total contribution margin when a constrained resource exists, produce the products with the
highest contribution margin per unit of the constrained resource
The difference between selling price and cost is called a product's
markup
The number of units produced does not affect net operating income when using
variable
Under variable costing, fixed manufacturing overhead is treated as a product cost.
false
When a product has an established market price
consumers will not pay more than the established price there is no reason for suppliers to charge less than the established price
When a product has an established market price _______.
consumers will not pay more than the established price there is no reason for suppliers to charge less than the established price
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ________.
contribution margin
After reaching the break-even point, a company's net operating income will increase by the ______ _________ per unit for each additional unit sold.
contribution margin
When a product has an established _______ price, customers will not pay more for it and there is no reason for a supplier to charge less.
market
When a product has an established ________ price, customers will not pay more for it and there is no reason for a supplier to charge less
market
Segmented income statements ______.
may be prepared for activities at many levels in a company
If a cost is traced to a segment using activity-based costing, it ______ an avoidable cost of the segment.
may or may not be
Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales
net operating income will increase by $0.70 total contribution margin will increase by $0.70
When considering accepting a special order, ____________.
normal sales must not be affected there must be idle capacity
Segment break-even calculations include ______ fixed expenses.
only traceable
Variable costing treats manufacturing costs as product costs.
only variable
The potential benefit given up when selecting one alternative over another is a(n) ______ cost.
opportunity
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
relevant
A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) _______ cost
sunk
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.
sunk
costs that have no impact on future cash flows and are irrelevant to decisions are _______ costs.
sunk
Using variable costing and the contribution approach for internal decision making _________.
supports decision making enables CVP analysis facilitates explaining changes in net income
Sorin Incorporated, a company that produces and sells a single product, has provided its contribution format income statement for January.
$55,350
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was
$6,473.14
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by ________.
$11,000
A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include
alternative uses for the equipment salvage value
An example of a traceable fixed cost for General Motors' Corvette Division is the _____.
depreciation cost on the equipment used to manufacture the Corvettes
When considering decision alternatives, only relevant costs are included when using the _______ cost approach.
differential
A company must make a volume trade-off decision when they __________.
do not have enough capacity to satisfy the demand for all of its products must trade off units of one product for units of another due to limited production capacity
A company must make a volume trade-off decision when they
do not have enough capacity to satisfy the demand for all of its products. must trade off units of one product for units of another due to limited production capacity.
Some decisions have only one alternative and cannot consider steps in decision making.
false
A cost that would be included in product costs under both absorption costing and variable costing:
variable manufacturing costs
Being less dependent on suppliers and making profits on both parts and the final product are advantages of
vertical integration