Accounting Ch 12
The logical sequence of activities performed in the management planning and control cycle is:
1. planning 2. managing 3. controlling
Following is the information of a product of a firm: Selling price per unit = $50. Variable expenses per unit = $20. Fixed expenses per month = $30,000. The breakeven point volume in units is .
Blank 1: 1,000 or 1000
The following information exists for a firm: Selling price per unit = $50. Variable expenses = 20. Fixed expenses per month = $30,000. Desired operating income = $15,000. The volume necessary to earn the desired operating income is units.
Blank 1: 1,500 or 1500
If a firm has revenues of $50,000, variable expenses of $25,000, and fixed expenses of $10,000, then the contribution margin is $ and the operating income is $.
Blank 1: 25,000 or 25000 Blank 2: 15,000 or 15000
In Year 1, a company sold 4,000 units each of Product A and Product B. For products A and B, the selling prices were $10 and $15, respectively. Also, the variable expenses were $8 and $10, respectively. The fixed expenses of the company amounted to $20,000. The company's average contribution margin ratio was 0.28, and the operating income was $8,000. In Year 2, the company was able to sell 6,000 units of Product A and 2,000 units of Product B. There was no change in the selling price, variable expenses, and the fixed expenses in Year 1. Based on the scenario, identify a true statement about the company's average contribution margin ratio.
The company's average contribution margin ratio decreased by 0.04 in Year 2.
Identify the relationships that the expanded contribution margin model shows.
Total contribution margin depends on the volume of activity. Contribution margin must cover fixed expenses before an operating income is earned. Contribution margin divided by revenue is equal to contribution margin ratio. Revenue minus variable expenses is equal to contribution margin.
Using the high-low method produces a cost formula for expressing the total of a mixed cost at any level of activity, which is:
Total cost = Fixed cost + Variable cost
The relevant range assumption relating to fixed costs refers to:
a firm's range of activity
When the number of units sold is ______.
below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit
To calculate the volume in units at breakeven, fixed expenses are divided by the:
contribution margin per unit
To calculate total revenues at breakeven, fixed expenses are divided by the:
contribution margin ratio
The term to describe the concept that costs increase or decrease with changes in the volume of activity is known as:
cost behavior
A ______ can be used to forecast the total cost expected to be incurred at various levels of activity.
cost formula
Managerial accounting in contrast to financial accounting:
is focused on the future supports internal planning decisions
As the volume of activity increases, fixed costs:
remain constant in total
If the selling price and variable expense per unit were to drop $2 and fixed expenses remain the same, the breakeven point would ______.
remain the same
If total cost is $12,000 and total fixed cost is $4,000, then:
variable costs total $8,000
Contribution margin is defined as revenues minus:
variable expenses
A firm has two products, Product A and Product B. The firm's average contribution margin ratio is 50 percent and fixed expenses is $200,000. Based on the scenario, the firm's total revenue at breakeven is ______.
$400,000
A firm's sales revenue amounts to $200,000, fixed expenses amount to $50,000, and variable expenses amount to $100,000. If the breakeven sales revenue is $150,000, the firm's margin of safety is ______.
$50,000
If a firm has revenues of $80,000, variable expenses of $25,000, operating income of $20,000, then its contribution margin is ______ and fixed expenses is ______.
$55,000; $35,000
A firm has revenues of $240,000, a contribution margin ratio of 30%, and fixed expenses that total $112,000. If revenues increase by $40,000, then operating income will increase by $.
Blank 1: 12,000 or 12000
The following information exists for a firm: Selling price per unit = $50. Contribution margin ratio = 30%. Fixed expenses per month = $30,000. Desired operating income = $18,000. The total revenues necessary to earn the desired operating income is $ .
Blank 1: 160,000 or 160000
If the total cost is planned to be $12,000, the total fixed costs are $4,000, and the variable cost per unit of activity is $4, the total activity being planned for is units.
Blank 1: 2,000 or 2000
If average contribution margin is $28 and fixed expenses per month are $67,200, the breakeven point volume is units.
Blank 1: 2,400 or 2400
During a year, ABC Company had monthly mixed costs that ranged between $5,000 and $15,000 and units produced ranged that between 1,000 and 1,500 for the same months. Using the high-low method, the variable rate per unit produced is $.
Blank 1: 20
If ABC Company's sales revenue is $250,000, and its margin of safety is $25,000, ABC's breakeven sales revenue is $.
Blank 1: 225,000 or 225000
Company A has fixed expenses of $100,000 and variable expenses of $50 per unit. Company B has fixed expenses of $200,000 and variable expenses of $25 per unit. The indifference point sales volume for Company A and Company B is units.
Blank 1: 4,000 or 4000
If sales revenue is $10,000 and variable expenses is $6,000, the contribution margin ratio is %.
Blank 1: 40
Following is the information of a product of a firm: Selling price per unit = $50. Variable expense ratio = 40%. Fixed expenses per month = $30,000. The breakeven point in total revenue is $.
Blank 1: 50,000 or 50000
Arrange the following items on the contribution margin income statement in the correct order.
Revenue Variable expenses Contribution margin Fixed income Operating income
Which of the following equations describes the breakeven point?
Total revenue = Total expenses Operating income = Zero Contribution margin = Fixed expenses
Contribution margin represents the amount of revenue left over after covering variable expenses from the sale of products or services available to cover fixed expenses and provide for operating income.
True
An analytical technique that determines the impact on profit of volume and cost changes using knowledge about the behavior pattern of the costs involved is known as ______.
cost-volume-profit analysis
The management activity that occurs in each phase of the planning and control cycle is:
decision making
As the volume of activity increases, fixed costs ______ when expressed on a per unit basis.
decrease
When classifying costs for managerial accounting purposes, it is important to recognize that each cost must be viewed ______ for each planning, control, or decision-making situation.
differently
Which of the following elements are included in the contribution margin income statement format?
Operating income Fixed expenses Variable expenses Revenues
The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000. If selling price is reduced by $2 and sales volume increases by 3,000 units, total contribution margin will increase by $.
Blank 1: 1,000 or 1000
If sales revenue is $25,000 and the contribution margin ratio is 40%, then variable expenses is $.
Blank 1: 15,000 or 15000
The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000. If advertising of $15,000 is spent to increase sales volume by 2,000 units, operating income will increase by $.
Blank 1: 3,000 or 3000
During a year, ABC Company had monthly mixed costs that ranged between $6,000 and $12,000 and units produced that ranged between 800 and 1,800 for the same months. Using the high-low method, the variable rate per unit produced is $
Blank 1: 6
If a firm has an operating income of $50,000, variable expenses of $30,000, and fixed expenses of $10,000, then its contribution margin is $ and its revenues is $.
Blank 1: 60,000 or 60000 Blank 2: 90,000 or 90000
accountants work extensively with their colleagues in many functional areas of the organization to support the organization's planning, control, and decision-making activities.
Blank 1: Management
A cost behavior pattern describes the relationship of total cost to volume of .
Blank 1: activity
For a cost formula to forecast the total of fixed costs and variable costs expected to be incurred, it must be based on a specific level of .
Blank 1: activity
When a company has different products with different contribution margin ratios, the relationship of total company contribution margin to total company sales revenue is known as the contribution margin ratio.
Blank 1: average
The relevant range assumption is about the level of production and suggests that the level of fixed costs will remain constant only within certain ranges of activity.
Blank 1: capacity
Which of the following is a true statement about the contribution margin ratio?
It shows the portion of each sales dollar that remains after covering the variable costs.
In Year 1, a company sold 4,000 units each of Product A and Product B. For products A and B, the selling prices were $10 and $15, respectively. Also, the variable expenses for products A and B amounted to $8 and $10, respectively. The fixed expenses of the company amounted to $20,000. The company's average contribution margin ratio was 0.28, and the operating income was $8,000. In Year 2, the company was able to sell 6,000 units of Product A and 2,000 units of Product B. There was no change in the selling price, variable expenses, and the fixed expenses in Year 2. Based on the scenario, identify a true statement about the company's operating income in Year 2.
The company's operating income decreased by $6,000 in Year 2.
Managerial accounting provides information for use within an organization.
True
A company's margin of safety calculation is an indication of how closely the company is operating relative to ______.
its breakeven point
The higher a firm's contribution margin ratio, the greater its operating:
leverage
A relative measure of risk that describes a company's current sales performance in relation to its breakeven sales is called the ______.
margin of safety
Another term used to describe a semivariable cost behavior pattern is:
mixed cost
The need for management accountants to have a breadth of knowledge and interest about the organization and its operating environment in order to support planning, control, and decision making also suggests:
people in other functional areas of the organization should have a general understanding of managerial accounting
The contribution margin ratio is calculated by dividing contribution margin by:
revenue
A firm calculates the average contribution margin ratio when ______.
the firm sells more than one product
Expressing a fixed cost on a per unit basis of activity is misleading because:
the fixed cost per unit decreases as the activity increases
The indifference point is found between alternative cost structures when ______ are equal for both alternatives.
total costs
In managerial accounting, planned activity is compared to actual performance results in order to the activities of the organization.
Blank 1: control
In managerial accounting, the term means different things depending on the situation.
Blank 1: cost
As the volume of activity changes, a(n) cost changes when expressed on a per unit basis.
Blank 1: fixed
The principal characteristic that distinguishes managerial accounting from financial accounting is its emphasis on the .
Blank 1: future
When analyzing variable costs, it is assumed that cost behavior pattern is , but in reality, because of other factors such as economies of scale and quantity purchase discount, per unit variable costs will typically change slightly.
Blank 1: linear
The linearity assumption suggests that the cost behavior pattern will graph as a straight line within the .
Blank 1: relevant Blank 2: range
When analyzing fixed costs, a fundamental assumption about the range of activity over which the fixed cost behavior pattern exists is known as the assumption.
Blank 1: relevant Blank 2: range
The high-low method of analyzing the cost behavior of a mixed cost uses a(n) to illustrate cost and volume data relationships.
Blank 1: scattergram
Some costs include elements that are both fixed and variable. Costs that have this type of mixed behavior pattern are known as costs.
Blank 1: semivariable
As the volume of activity changes, a(n) cost changes in total.
Blank 1: variable
As the volume of activity changes, a(n) cost remains constant when expressed on a per unit basis.
Blank 1: variable
Which are true statements about cost-volume-profit (CVP) analysis?
It is an analytical technique that explains the impact on profit for any changes in revenues, costs, or the volume of activity. It is useful for planning and for evaluating the results of actual operations as it emphasizes the cost behavior pattern of various costs.
Managerial accounting provides information for:
Planning, Control & Decision-making
True or false: Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.
True
In managerial accounting, control is achieved by:
comparing planned activity to actual performance results
The simplifying assumption made when using variable cost behavior pattern data is:
linearity
The following information exists for ABC Company: Selling price per unit = $60. Variable expenses per unit = $45. If ABC's breakeven sales revenue is $150,000 and sales revenue for April totals $140,000, then for April the company's ______.
operating loss will be $2,500
The expanded contribution margin model provides a structure for explaining the effect on operating income of changes in:
the volume of activity fixed expenses selling price variable expenses