managerial accounting midterm 2

Which of the following is not involved in CVP analysis? (a)Sales mix. (b)Unit selling prices. (c)Fixed costs per unit. (d)Volume or level of activity.

Fixed costs per unit.

Which cost is not charged to the product under variable costing?

Fixed manufacturing overhead

Which is the first step in the management decision-making process?

Identify the problem and assign responsibility.

If Qualls Quality Airline cuts its domestic fares by 30%,

a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

margin of safety in dollars

actual (expected) sales - break even sales

Margin of safety is computed as:

actual sales - breakeven sales

The last step in determining the material loading charge percentage is to

add a desired profit margin on the materials themselves.

In incremental analysis,

all costs are relevant if they change between alternatives.

Incremental analysis would be appropriate for acceptance of an order at a special price. a retain or replace equipment decision. a sell or process further decision. all of these answers are correct.

all of these answers are correct.

A fixed cost is a cost which

remains constant in total with changes in the level of activity.

Cost behavior analysis is a study of how a firm's costs

respond to changes in the level of business activity.

break even point

refers to the point where total contribution margin exactly equals fixed costs

Kendra Corporation's total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method?

$0.075 variable and $450 fixed. variable is $0.075[($1,200-$600)/(10,000-2,000)] and fixed is $450[($1,200-($0.075 x 10,000)]

Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs? (a)$100,000. (b)$160,000. (c)$200,000. (d)$300,000.

$200,000. Unit contribution margin is$1($4x25%). fixed costs / unit contribution margin = break even point in units. Solving for fixed costs, 200,000 units x $1 per unit= $200,000

Wasson Widget Company is contemplating the production and sale of a new widget. Projected sales are $300,000 (or 75,000 units) and desired profit is $36,000. What is the target cost per unit?

$3.52

At the high level of activity in November, 7,000 machine hours were run and power costs were $18,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $9,000. Using the high-low method, the estimated fixed cost element of power costs is

$5,400.

For Buffalo Co., at a sales level of 4,000 units, sales is $75,000, variable expenses total $50,000, and fixed expenses are $21,000. What is the contribution margin per unit?

$6.25

The required sales in units to achieve a target net income is

(fixed cost + target net income) divided by contribution margin per unit.

required sales in dollars

(fixed costs + target NI) / C.M. Ratio

required sales in units

(fixed costs + target NI) / C.M. per unit

Warner Manufacturing reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 80,000 units. Warner's margin of safety ratio is

20%

Costs that will differ between alternatives and influence the outcome of a decision are

relevant costs.

Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio? (a)25%. (b)30%. (c). 33.3% (d)45%.

30%. The margin of safety ratio is computed by dividing the margin of safety in dollars of $180,000 ($600,000-$420,000) by actual sales of $600,000. The result is 30%($180,000/$600,000)

Which of the following is an irrelevant cost?

A sunk cost

contribution margin ratio

C.M. per unit / unit selling price

degree of operating leverage

Contribution Margin ÷ Net Income = Degree of Operating Leverage

Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income statement? (a)$700,000. (b)$900,000. (c)$500,000. (d)$1,000,000.

Contribution margin is equal to fixed costs plus net income ($300,000+$200,000=$500,000). Since variable expenses are the difference between total sales ($1,200,000) and contribution margin ($500,000), $700,000 must be the amount of variable expenses in the CVP income statement

Contribution margin:

Contribution margin is revenue remaining after deducting variable costs and it may be expressed on a per unit basis.

Which two methods are used most often when establishing a transfer price?

Cost-based transfer pricing and market-based transfer pricing

Two costs at Bradshaw Company appear below for specific months of operation. Month Amount Units Produced Delivery costs September $ 40,000 40,000 October 55,000 60,000 Utilities September $ 84,000 40,000 October 126,000 60,000

Delivery costs are mixed and utilities are variable.

Which of the following is not a true statement?

Incremental analysis is the same as CVP analysis.

To which function of management is CVP analysis most applicable?

Planning

Which is the true statement? In a CVP income statement, costs and expenses are classified only by function. The CVP income statement is prepared for both internal and external use. The CVP income statement shows contribution margin instead of gross profit. In a traditional income statement, costs and expenses are classified as either variable or fixed.

The CVP income statement shows contribution margin instead of gross profit.

Variable costs are costs that:

Variable costs vary in total directly and proportionately with changes in the activity level and remain the same per unit at every activity level.

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?

When incremental revenues exceed incremental costs

Your cell phone service provider offers a plan that is classified as a mixed cost. The cost per month for 1,000 minutes is $50. If you use 2,000 minutes this month, your cost will be:

between $50 and $100 Your cost will include the fixed-cost component (flat service fee) which does not increase plus the variable cost (usage charge) for the additional 1,000 minutes which will increase your cost to between $50 and $100

In most cases, prices are set by the

competitive market.

The desired ROI per unit is calculated by

dividing the ROI by the estimated volume and subtracting the result from the unit cost.

Margin of safety in dollars is

expected sales less break-even sales.

overhead costs

fixed costs + (variable cost x activity level)

break even point in units

fixed costs / contribution margin per unit

break even point in dollars

fixed costs / contribution margin ratio

margin of safety

how far sales could fall before the company begins operation at a loss

In CVP analysis, the term "cost"

includes manufacturing costs plus selling and administrative expenses.

The process of evaluating financial data that change under alternative courses of action is called

incremental analysis.

A revenue that differs between alternatives and makes a difference in decision-making is called a(n)

incremental revenue.

The first step for time-and-material pricing is to calculate the

labor charge per hour.

Internal reports that review the actual impact of decisions are prepared by

management accountants.

margin of safety ratio

margin of safety in dollars / actual (expected) sales

The margin of safety ratio is

margin of safety in dollars divided by expected sales.

A shift from low-margin sales to high-margin sales

may increase net income, even though there is a decline in total units sold.

In a sales mix situation, at any level of units sold, net income will be higher if

more higher contribution margin units are sold than lower contribution margin units.

When comparing a traditional income statement to a CVP income statement: (a)net income will always be greater on the traditional statement. (b)net income will always be less on the traditional statement. (c)net income will always be identical on both. (d)net income will be greater or less depending on the sales volume

net income will always be identical on both

In a CVP income statement, a selling expense is generally

partly a variable cost and partly a fixed cost.

Companies that sell products whose prices are set by market forces are called

price takers.

For analysis purposes, the high-low method usually produces a(n)

reasonable estimate.

The calculation to determine target cost is

sales price - desired profit.

target net income

sales required to meet target net income (can be computed in either units or dollars)

cost volume profit analysis

study of the effects of changes in costs & volume on a company's profit

A company must price its product to cover its costs and earn a reasonable profit in

the long run.

The relevant range is:

the range over which the company expects to operate during a year

Sales mix is

the relative percentage in which a company sells its multiple products.

In cost-plus pricing, the markup percentage is computed by dividing the desired ROI per unit by the

total cost per unit.

contribution margin per unit

unit selling price - unit variable cost

high / low method

uses the total costs incurred at the high and low levels of activity to classify mixed costs into fixed and variable components 1. determine variable cost per unit: change in total costs / high minus low activity 2. determine the fixed costs by subtracting the total variable costs at either the high or low activity level from the total cost at that activity level

A cost which remains constant per unit at various levels of activity is a

variable cost.

The mathematical equation for computing required sales to obtain target net income is Required sales =

variable costs + fixed costs + target net income

Mixed costs consist of a:

variable-cost element and a fixed-cost element