ACCT 2020 Test 2

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

After fixed costs have been covered, ___ ___ becomes net operating income

Contribution margin

Sales revenue minus variable costs equals ___

Contribution margin

How much contribution margin is generated by every dollar of sales is shown by the ___

Contribution margin ratio

Degree of operating leverage equals

Contribution margin/Net operating income

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

Target profit + Fixed expenses)/Unit contribution margin

When using the high low method, the difference in cost divided by the difference in activity is ___

The variable cost per unit

The equation for the profit equation method is ______.

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

effect on profit =

change in sales * degree of operating leverage

Both the total cost and the per-unit cost of mixed costs change with ___

changes in the level of activity

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

net operating income =

contribution margin - fixed costs

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

contribution margin ratio

Outside of the relevant range, ___ may not be valid

cost behavior conclusions

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

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 and the break even point

Range of activity within which assumptions about variable and fixed cost behavior are valid.

relevant range

unit contribution margin =

sales price per unit - variable cost per unit

The relevant range of activity is approximated by a ____

straight line

The equation for a straight line can be used to express ___

the relationship between mixed costs and the level of activity

At the break-even point, ______.

total revenue equals total cost and profit is zero

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

variable; fixed

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

zero

Contribution margin is

sales revenue minus variable costs

The unit contribution margin

tells how much each additional unit contributes to profit

margin of safety=

current sales - break even sales

Breakeven units =

fixed costs / CM per unit

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

financial leverage

target sales =

(fixed cost + target profit)/ CM per unit

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

1. All costs can be classified as either fixed or variable. 2. Production volume is equal to sales volume. 3. In multi-product companies, the sales mix is constant.

CVP analysis can be useful in deciding ______.

1. which services to offer 2. what price to charge for goods or services 3. what cost structure to implement 4. what marketing strategy to use 5. which products to offer

NOT a method used for basic CVP analysis

Breakeven analysis

degree of operating leverage =

CM / Net Operating Income

Contribution margin first goes to cover ___

Fixed costs

The format used to prepare a contribution income statement is ___

Sales - Variable expenses = Contribution margin - Fixed expenses = Net income

contribution margin =

Sales price - Variable Costs

What methods can be used to estimate the fixed and variable portions of mixed costs?

Scattergraph plot, High-low method, and Least-squares regression

Contribution margin equals sales minus ______.

all variable costs

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

discretionary

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

CVP analysis can help answer the question of _____.

how net income can be increased

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 -nit basis because ___

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

Margin of Safety Percentage =

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

The margin of safety percentage is ______.

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

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

unit contribution margin

contribution margin ratio =

unit contribution margin / unit sales price

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

Mixed costs ___

change both in total and per unit as activity changes

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 levels of activity and their associated costs

The financial statement that organizes costs by their behavior instead of by their function is the __

contribution format income statement

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

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

and total cost

Step costs ___

may be either step-fixed or step-variable and are fixed over some range of activity

The high-low method ___

may produce inaccurate results and is easy to apply

The high-low method ___

only uses two data points, provides a reasonable estimate as long as the data points are within the relevant rang, and calculates the line based on the most extreme activity data points

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

variable

In the profit equation, total ______ is a function of the number of units sold

variable costs and sales revenue

Using the high-low method, the fixed cost is calculated ___

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

Fixed cost per unit is ___

asymptotic (approaches 0 but never gets there)

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

behavior

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

behavior

Mixed costs contain ___

both fixed and variable cost elements.

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

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

dollars

Fixed costs should not be

expressed on a per unit basis when making decisions

The level of activity over which cost behavior assumptions are true is known as the ___ ___

relevant range

Within the relevant range of activity, fixed costs ___

remain constant in total

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

variable

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

variable cost per unit

Why is it important to analyze mixed costs?

1. Managers need to know how much of a cost is variable and how much is fixed. 2. To make decisions, managers need to know how costs change.

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

operating

An extension of break-even analysis that allows managers to determine units or sales needed to achieve an earning's goal is called ___ ___ analysis

target profit