Exam 2 SB

A fixed cost that is relatively easy for a manager to change in the short-run, such as travel or advertising, is called a(n) fixed cost

discretionary

In a least-squares regression line, the vertical intercept (a) of the line represents the total cost.

fixed

Contribution margin first goes to cover

fixed costs

Decisions about whether to use fixed or variable costs to run a business impact a company's ______.

operating leverage

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. Multiple choice question.

within

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 ______.

$1,520,000 Reason: Sales = ($240,400 + $930,000)/0.77= $1,520,000.

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is ______.

$12.55 Reason: ($10 × 25% + $15 × 35% + $12 × 40%) = $12.55

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______.

$2,200,000 Reason: Sales = ($564,000 + $800,000)/0.62 = $2,200,000

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 ______. Multiple choice question.

$244,068 Reason: Sales =$144,000 / 0.59 = $244,068

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)? Multiple choice question.

$27.25 Reason: Costs + Target Profit: ($19 × 20,000 + $90,000 + $75,000) = $545,000 / 20,000 = $27.25

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

$39.20 Reason: Costs + Target Profit = ($28 x 12,500 + $80,000 + $60,000) = $490,000/12,500 = $39.20

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 ______. Multiple choice question.

$400,000 Reason: $180,000/45% = $400,000

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 ______. Multiple choice question.

$49,800 Reason: $982,000 - $932,200 = $49,800.

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 Reason: $1,630,000 - $935,000 = $695,000

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 ______. Multiple choice question.

$695,000 Reason: $1,630,000 - $935,000 = $695,000

The goal of break-even analysis is to find the level of sales where profit is equal to ____

0

The Greenery sells three products with a weighted-average contribution margin ratio of 51.5%. Given total fixed costs of $42,830 and a target profit of $20,000 per month, target sales equals $ per month.

122000

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 Reason: $98,000/($50 - $15) = 2,800

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is ______.

2.5 Reason: $75,000/$30,000 = 2.5

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______.

20% Reason: Increase in net operating income = 5% × 4 = 20%.

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of

3

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 Reason: Sales volume = ($4,000 + $3,200)/($15.00 - $13.50) = 4,800 bottles.

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 ______. Multiple choice question.

44% Reason: ($5.00 - $2.80) / $5.00 = 44%

A company sells its product for $40 per unit. Variable costs are $12 per unit. Total fixed costs are $50,000. In order to reach the profit goal of $90,000 the company must sell units of the product

5000

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 %.

55%

A company sells two products. Product A sales total $28,000 and Product B sales total $12,000. Total contribution margin is $18,000 for Product A and $9,000 for Product B. The weighted average contribution margin ratio is

6.75

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.

6000

Tess's Tidbits sells three different snack packs. The weighted average contribution margin is $15.00 and total fixed costs are $20,000 per month. Of her total sales, 40% are for the deluxe snack pack, 35% are standard snack packs and 25% are mini snack packs. In order to earn the target profit of $10,000 per month, Tess needs to sell deluxe snack packs each month

800

Given total fixed costs of $35,000 and a contribution margin ratio of 40%, $ of revenue must be earned to break even.

87500

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. Multiple choice question.

9,375 Reason: $75,000/$8.00 = 9,375 units

Which of the following are assumptions of cost volume profit analysis?

All costs can be classified as either fixed or variable. Production volume is equal to sales volume. In multi-product companies, the sales mix is constant.

Which of the following is NOT a method used for basic CVP analysis?

Break-even 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?

CVP Analysis

Degree of operating leverage equals ______.

Contribution margin/Net operating income

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

F

True or false: CVP analysis is only used for break-even and target profit analysis.

False

True or false: CVP analysis is only used for break-even and target profit analysis. True false question.

False

True or false: Cost structure refers to how a company uses product and period costs in an organization.

False

True or false: The terms operating leverage and financial leverage refer to the same concept. True false question.

False

Lilly's Lilacs sells two different potted plants - A and B. The weighted average per unit contribution margin is $30 and Lily's fixed costs are $24,000. The sales mix is 60% - A and 40% - B. Which of the following statements are true?

Lily must sell a total of 800 plants to break-even. If Lily sells 480 units of both A and B she will have a net profit.

How much of the variability of y is explained by x is identified by ______.

R square

Which of the following is not a method used to estimate the fixed and variable portions of mixed costs?

Relevant range analysis

Which of the following statements are true?

Scattergraphs are a way to diagnose cost behavior. Scattergraphs are used to help determine if the linear assumption is reasonable.

The equation for the profit equation method is ______

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

When using ______, proper interpretation of the results is critical. Multiple choice question.

When using ______, proper interpretation of the results is critical. Multiple choice question.

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity, choose the periods with the highest and lowest ______.

activity

Using the high-low method, the fixed cost is calculated ______.

after the variable cost per unit is calculated using either the high or low level of activity

Contribution margin equals sales minus ______.

all variable costs variable selling and administrative costs variable manufacturing costs

The difference between break-even analysis and target profit analysis is the ______.

amount that profit is set to

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

and total cost

The weighted average unit contribution margin ______.

assumes that the percentage of each product sold is constant is used instead of the single product contribution margin in multi-product break-even analysis is based on the relative percentage of each unit sold

A shift from product costing to a focus on cost is the key to making most managerial decisions.

behavior

How total costs changes as some level of activity changes is called cost ______.

behavior

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______.

both increase

Solving for the sales level needed to achieve a profit of zero is ______ analysis.

break-even

A contribution margin income statement ______.

can assist with management decision making separates costs into their fixed and variable components

CVP ______.

can be used to make many different decisions allows managers to see how changing one variable can impact another can be used for "what-if" analysis

Sales revenue minus variable costs equals

contribution margin

The amount each unit sold contributes towards fixed costs and profit is the unit .

contribution margin

How much contribution margin is generated per dollar of sales revenue is the . (

contribution margin ratio

The contribution margin stated as a percentage of sales dollars is the ______. Multiple choice question.

contribution margin ratio

The weighted-average is based on the relative percentage of total sales revenue in dollars, not units.

contribution margin ratio

Contribution margin ______.

covers fixed cost and profit

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 ______.

decrease

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 increase advertising and reduce the selling price. The advertising would increase fixed costs by $60,000. Management believes the advertising along with a $2 reduction in the selling price per box 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 Reason: If the change is implemented, total contribution margin would increase by $44,000 ((74,000 boxes x $6) - (50,000 boxes x $8)). Additional contribution margin of $44,000 - $60,000 in new fixed costs = a net operating income decrease of $16,000.

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

Multi-product target profit analysis ______.

depends upon the sales mix is calculated the same way as single product analysis

The formula to calculate the variable cost per unit using the high-low method is ______. Multiple choice question.

difference in total cost divided by difference in activity

When constructing a CVP graph, the vertical axis represents ______.

dollars

The break-even point is reached when total revenue is ______ total costs.

equal to

True or false: When computing target sales using the weighted-average contribution margin ratio, the ratio is computed according to the product mix.

false

Decisions about the use of debt versus equity affects a company's

financial leverage

Fixed costs ______.

generally include rent and supervisor salaries remain constant in total within the relevant range of activity should not be expressed on a per unit basis when making decisions

A simple approach that uses the two most extreme activity observations is ______.

high to low method

Fill in the blank question. 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

A fixed cost remains fixed ______ within the relevant range of activity.

in total

Variable costs vary ______ within the relevant range of activity.

in total

Managers should be willing to choose either alternative at the because the profit is the same.

indifference point

Setting two profit equations so that they yield the same profit allows managers to calculate the .

indifference point

Fixed costs should not be expressed on a per-unit basis because ____

it may make managers believe they can reduce costs by producing more

A statistical technique for finding the best fitting line based on historical data is called

least squares regression

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

least-square regression

the assumption that the relationship between total cost and activity can be approximated by a straight line is called the assumption.

linearity assumption

The excess of the budgeted (or actual) sales dollars over break-even sales is called the of .

margin of safety

The margin of safety percentage is ______.

margin of safety in dollars divided by total budgeted (or actual) sales in dollars

Decisions about whether to use fixed or variable costs to run a business affects a company's leverage

operating

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

price

The single point where the total revenue line crosses the total expense line on the CVP graph indicates ______.

profit equals zero the break-even point

At the break-even point, ______.

profit is zero total revenue equals total cost

Cost assumptions are reasonably valid within the

relevant range

When multiple products are sold, the break-even point depends on the mix.

sales

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ______ will not change.

sales mix

In the profit equation, total ______ is a function of the number of units sold (Q).

sales revenue variable costs

A visual representation of the relationship between cost and activity is provided by a(n) .

scatterplot

Mixed costs are also commonly known as costs.

semivariable

In the equation Y = a + bX, b denotes the ______.

slope of the line variable cost per unit of activity

The distance between the total revenue line and the total cost line a on a cost-volume-profit graph represents the ______.

total amount of either profit or loss

In the equation Y= a + bX, Y is the ______.

total cost

In the equation Y = a + bX, a denotes the ______.

total fixed cost intercept

The amount that each unit sold contributes to fixed costs and profit is ______.

unit contribution margin

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to ______.

units sold

The high-low method ______.

uses only two data points is based on the two most extreme periods of activity

A cost that changes in direct proportion to changes in the activity level is a ______ cost.

variable

Step- costs have a fairly narrow range and rise in multiple steps across the relevant range.

variable

Within the relevant range, costs remain constant on a per unit basis.

variable

When preparing a CVP graph, the slope of the total cost line represents ______.

variable cost per unit

CVP analysis can be useful in deciding ______.

what price to charge for goods or services which services to offer what cost structure to implement what marketing strategy to use which products to offer

A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is ______. Multiple choice question.

$6.55 Reason: $7.00 × 70% + $5.50 × 30% = $6.55

JVL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?

$9,000 Reason: ($10 - $4) = $6 CM × 1,500 units = $9,000.

The formula used to calculate the sales volume needed to achieve a target profit is ______. Multiple choice question.

(Target profit + Fixed expenses)/Unit contribution margin

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 $.

1250

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 ______. Multiple choice question.

16% Reason: Margin of safety = $272,000/(100,000 × $17) = 16%.

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 ______.

21,645 Reason: Sales volume = ($470,000 + $222,640)/$32 = 21,645 fans.

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell desks per month in order to break-even

250

A company has fixed costs of $25,000 and a weighted average unit contribution margin of $25. Of the sales, 65% are Product XYZ and 35% are Product TDW. In order to break even the company must sell units of Product XYZ and units of Product TDW.

650; 350

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27 and fixed costs are $174,000. The company believes that spending $30,000 on advertising will allow them to increase the selling price to $45. If these changes are made, how many units will have to be sold to earn $100,000 per year?

9,500 Reason: ($174,000 + $30,000 + $100,000)/($27 + $5 increase in sales price) = 9,500

Margin of safety in dollars is ______.

budgeted (or actual) sales minus break-even sales

Contribution margin ratio is ______.

unit contribution margin / unit sales price

Methods that can be used to model the relationship between revenues, costs, profit and volume include the ___ contribution margin method and the contribution ___ ___ method

unit; margin ratio

Contribution margin equals sales minus ______. Multiple select question.

variable selling and administrative costs variable manufacturing cost

The term cost structure refers to how a company uses costs versus costs in its operations.

variable; fixed.

Drawing a line though a scattergraph's data to provide an estimate of total fixed and variable cost per unit is called the method.

visual fit