Managerial Chapter AC 210 Exam 3

Fixed Cost (Total Cost) Behavior -

Remains constant throughout the relevant range

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 Blank______. $241,000 $57,000 $99,000

$99,000 Reason: Net operating income = $184,000 - $85,000 = $99,000

CM Ratio =

CM Per Unit / SP per unit or Contribution Margin / Sales

Which of the following are most likely fixed costs? Factory insurance Electricity to operate factory machines Administrative salaries Factory rent

Factory insurance Administrative salaries Factory rent

Unit Sales to Break Even =

Fixed Expenses / CM per unit

The assumption that cost behavior is strictly linear is reasonably valid within the ______ _______ of activity

Relevant Range

Contribution margin: is not affected by changes in activity. is first used to cover variable expenses. becomes profit after fixed expenses are covered. equals sales minus fixed expenses.

becomes profit after fixed expenses are covered

Variable Costs -

changes in total in proportion to changes in the related level of activity or volume

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 Blank______. $630,000 $(249,979) $380,000 $1,520,000

$380,000 Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is Blank______. 90% 24% 34% 66%

34% Reason: ($1,452,000 - $958,320) ÷ $1,452,000 = 34%

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 ______. 38% 53% 68% 47%

53% Reason: $100,170 ÷ $189,000 = 53%

A cost that contains both variable and fixed cost elements is called a(n) ________ cost.

Mixed

Variable Cost (Unit Cost) Behavior -

Remains constant throughout the relevant range

Unit Sales to Attain the Target Profit =

Target Profit + Fixed Expenses / CM per unit

Variable Cost (Total Cost) Behavior -

Varies in direct proportion to changes in activity

Fixed Cost (Unit Cost) Behavior -

Varies inversely with changes in activity throughout the relevant range

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the Blank______ approach. contribution margin balance sheet gross margin traditional

contribution margin

The calculation of contribution margin (CM) ratio is Blank______. variable expenses ÷ contribution margin contribution margin ÷ total expenses net operating income ÷ total contribution margin contribution margin ÷ sales

contribution margin ÷ sales

Within the relevant range of activity, Blank______ costs remain constant in total. fixed variable both fixed and variable neither fixed nor variable

fixed

Within the relevant range of activity, Blank______ costs remain constant in total. neither fixed nor variable both fixed and variable variable fixed

fixed

A cost that contains both variable and fixed cost elements is a(n) Blank______ cost. sunk semifixed opportunity mixed

mixed

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

ratio

Variable costs Blank______. vary per unit remain constant per unit vary in total remain constant in total

remain constant per unit vary in total

Fixed Costs -

remain unchanged in total regardless of changes in the related level of activity or volume

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

selling price cost volume

The break-even point is reached when the contribution margin is equal to: total sales. total variable expenses. total fixed expenses. profit.

total fixed expenses.

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

total revenue equals total cost net operating income is zero

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _______ costs.

variable

True or False. Variable costs remain fixed in total within the relevant range of activity.

False

Contribution margin is first used to cover ______ expenses. Once the break-even point has been reached, contribution margin becomes ______.

Fixed, Profit

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes ________

Fixed, Profit

Within the relevant range of activity Blank______. variable costs do not change in total, only per unit fixed costs remain constant in total and vary per unit the assumption that cost behavior is strictly linear is reasonably valid

fixed costs remain constant in total and vary per unit the assumption that cost behavior is strictly linear is reasonably valid

The contribution margin equals sales minus all Blank______ expenses. period product fixed variable

variable

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

variable

Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a Blank______ cost. mixed fixed variable

variable

The break-even point is the level of sales at which the profit equals _______

zero