accout test 2
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
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
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
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 ______.
$244,068
Given: Calculated variable cost per unit of $1.40 High level of activity: 2,500 units and $5,300 total cost The low level of activity was 1,000 units. Total cost at the low level of activity equals ______.
$3,200
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 ______.
$400,000
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 ______.
$695,000
The formula used to calculate the sales volume needed to achieve a target profit is ______.
(Target profit + Fixed expenses)/Unit contribution margin
The level of activity over which cost behavior assumptions are true is known as the
.Relevant range
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 $
1,250 or 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 ______.
16%
Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is
19
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
If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______.
20%
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
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
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
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
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.
9,375
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
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
Degree of operating leverage equals ______.
Contribution margin/Net operating income
CVP analysis is only used for break-even and target profit analysis.
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.
False
Setting two profit equations so that they yield the same profit allows managers to calculate the
Indifference
Managers should be willing to choose either alternative at the------------- because the profit is the same.
Indifference point
When is it profitable to continue processing a product instead of selling it as is?
It is profitable when the incremental revenue exceeds the incremental manufacturing cost.
A statistical technique for finding the best fitting line based on historical data is called
Least squares regression
Why is it important to analyze mixed costs?
Managers need to know how much of a cost is variable and how much is fixed. To make decisions, managers need to know how costs change.
Which of the following are assumptions of cost volume profit analysis?
Production volume is equal to sales volume. In multi-product companies, the sales mix is constant. All costs can be classified as either fixed or variable.
The measure of goodness of fit of a model is called
R square
The format used to prepare a contribution income statement is ______.
Sales - Variable expenses = Contribution margin - Fixed expenses = Net income
A useful first step in analyzing cost behavior is to prepare a(n)-------because it helps determine the nature of the relationship and whether the linearity assumption is valid.
Scattergraph or scaterplot
An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called----
Target Profit
ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?
The pieces of unfinished lumber should be processed. The sawdust should be sold as is without being processed into Presto Logs.
The equation for the profit equation method is ______.
Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit
True or false: A sunk cost may be used to evaluate the outcome of previous decisions.
True
True or false: An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.
True
True or false: Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.
True
True or false: When using the high-low method, fixed costs are calculated after variable costs are determined.
True
Which type of cost changes in total, in direct proportion to changes in activity level?
Variable
The linearity assumption states ______.
a straight line approximates the relationship between cost and activity
When inventory increases, the ______ costing method generally results in higher net operating income.
absorption
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
When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision.
are not
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.
avoidable
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.
avoidable incremental
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 cos
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
Margin of safety in dollars is ______.
budgeted (or actual) sales minus break-even sales
The high-low method ______.
calculates the line based on the most extreme activity data points only uses two data points provides a reasonable estimate as long as the data points are within the relevant range
CVP ______.
can be used for "what-if" analysis allows managers to see how changing one variable can impact another can be used to make many different decisions
A measure of the limit placed on a specific resource is known as its
capacity
Full absorption costing can have a different bottom line (profit) than variable costing because of ______.
changes in inventory levels
A fixed cost, such as a long-term lease, that is difficult for a manager to change in the short-run is called a(n)_____________ fixed cost.
committed
When performing a keep-or-drop decision analysis,______ fixed costs should be excluded from the analysis.
common
When performing a keep-or-drop decision analysis,________________ fixed costs should be excluded from the analysis
common or irrelevant
When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)__________ resource.
constrained
To calculate the degree of operating leverage, divide total----------by net operating income
contribution margin
The financial statement that organizes costs by their behavior instead of by their function is the ______.
contribution margin income statement
When a constraint exists, companies need to focus on maximizing ______.
contribution margin per unit of constraint
How much contribution margin is generated by every dollar of sales is shown by the ______.
contribution margin ratio
The contribution margin stated as a percentage of sales dollars is the ______.
contribution margin ratio
Once you have identified a problem, the next step is to determine the possible solutions, which are called-----
decision alternatives
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
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
The formula to calculate the variable cost per unit using the high-low method is ______.
difference in total cost divided by difference in activity
A fixed cost that can be traced to a specific business segment is called a(n)----- fixed cost.
direct
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)
discretionary cost
When constructing a CVP graph, the vertical axis represents ______.
dollars
When a company has more than enough resources to satisfy demand it is operating with-------capacity
excess
When a company has more than enough resources to satisfy demand it is operating with-----capacity
excess or idle
When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.
excluded
When there is excess capacity, an analysis of a special order ______.
excludes fixed costs
Variable costing ______.
focuses on contribution margin instead of gross margin
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
Opportunity costs become relevant when a company is operating at
full capacity
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
Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases.
higher than
CVP analysis can help answer the question of _____.
how net income can be increased
Variable costs vary ______ within the relevant range of activity.
in total
Segment margin ______.
includes both variable and direct fixed costs
In the long term, companies can manage constrained resources by ______.
increasing capacity hiring more workers
Comparing the costs and benefits of decision alternatives is done using------ analysis because it focuses on the factors that will change between the decision alternatives
incremental or differential
Comparing the relevant costs and benefits of alternative decision choices is called------analysis.
incremental or differential
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
Determining decision alternatives ______.
is a critical step in the decision-making process
The process of making a decision ______.
is basically the same for all decisions
The high-low method ______!
is easy to apply may produce inaccurate results
Continue-or-discontinue decisions are commonly known as_________ or _______
keep or drop
The best-fitting line minimizes the sum of the squared errors when using ______.
least-square regression
When using ______, proper interpretation of the results is critical.
least-squares regression
The margin of safety percentage is ______.
margin of safety in dollars divided by total budgeted (or actual) sales in dollars
Step costs ______.
may be either step-fixed or step-variable are fixed over some range of activity
Incremental analysis ______.
may be referred to as relevant costing is also called differential analysis
R square ______.
measures goodness of fit is usually provided by least-squares regression software.
Nonmanufacturing costs are ______.
never reported as inventory
Relevant costs ______.
occur in the future differ between alternatives
Opportunity costs are ______.
only relevant when capacity is limited
Decisions about whether to use fixed or variable costs to run a business affects a company's--------- Leverage
operating
Decisions about whether to use fixed or variable costs to run a business impact a company's ______.
operating leverage
When considering a keep-or-drop decision, it is important to consider-----------, such as whether the elimination of the segment will free resources that could be used in another way.
opportunity cost
When evaluating a make-or-buy decision, managers should consider ______.
opportunity costs all variable production costs qualitative factors
The forgone benefit of choosing one decision alternative over another is its
opporunity cost
Make-or-buy decisions are also referred to as------decision
outsourcing
According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.
price
At the break-even point, ______.
profit is zero total revenue equals total cost
A cost that can be eliminated by choosing one alternative over another is called a(n)
relevant
When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost.
relevant
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.
relevant
When making a decision a company should consider ______.
relevant costs and benefits
Variable costs ______.
remain constant per unit and vary in total
Contribution margin is ______.
sales revenue minus variable costs
A limitation of ______ is that it is (they are) subjective and inexact.
scattergraphs
Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.
segment margin
Deciding what to do with a product that is salable or could be enhanced is a ______ decision.
sell-or-process-further
Mixed costs are also commonly known as___________cost.
semivariable
Deciding to accept a sales request that is outside the scope of normal sales is called a(n)
special order
Irrelevant costs include ______.
sunk costs future costs that do not differ between alternatives
The unit contribution margin ______.
tells how much each additional unit contributes to profit
A simple approach that uses the two most extreme activity observations is ______.
the high-low method
When using the high low method, the difference in cost divided by the difference in activity is ______.
the variable cost per unit
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
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--------
unit margin ratio
Using the high-low method, the fixed cost is calculated ______.
using either the high or low level of activity after the variable cost per unit is calculated
For internal decision making, it is best to use ______ costing.
variable
When preparing a CVP graph, the slope of the total cost line represents ______.
variable cost per unit
In the profit equation, total ______ is a function of the number of units sold (Q).
variable costs sales revenue
Contribution margin equals sales minus ______.
variable manufacturing costs variable selling and administrative costs
Within the relevant range of activity, variable costs ______.
vary in total remain constant per unit
Common fixed costs ______.
will be incurred even if a segment is eliminated
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.
within
The goal of break-even analysis is to find the level of sales where profit is equal to ______.
zero