Chapter 12

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

$3000

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.

(50-20)=30 30,000+15,000=45,000 45,000/30=1,500

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 $

1000

If the total cost is planned to be $12,000, the total fixed costs is $4,000, and the variable cost per unit of activity is $4, the total activity being planned for is

2000 units

If ABC Company's sales revenue is $250,000, and its margin of safety is $25,000, ABC's break-even sales revenue is $

225000

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

50000 because 30000/.6

Following is the information of a product of a firm: Selling price per unit = $60 Variable expenses per unit = $25 The breakeven point volume is 2,000 units Fixed expenses per month = $

70,000 (60-25)(20000)

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 rate x volume of activity)

the relevant range assumption relating to fixed costs refers to

a firm's range of activity

managerial accounting

accounting used to provide information and analyses to managers inside the organization to assist them in decision making

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 ________

activity

a cost behavior pattern describes the relationship of total cost of volume of

activity

in the planning and control cycle, feedback is obtained by comparing planned activity with _______ results

actual

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

average contribution margin ratio

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.

capacity

revenues minus variable expenses equals:

contribution margin

operating income

contribution margin - fixed expenses

To calculate the breakeven point volume in units, 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

in managerial accounting, planned activity is compared to actual performance results in order to ______ the activities of the organization

control

contribution margin format income statement is organized by

cost behavior pattern

A __________ can be used to forecast the total cost expected to be incurred at various levels of activity.

cost formula

Cost behavior implies that people accountable for costs would react negatively to increases in the cost.

false. costs react to changes in the volume of activity

A firm calculates the average contribution margin ratio when _____.

firm sells more than one product

as the volume of activity changes, a ______ cost changes when expressed on a per unit basis

fixed

as the volume of activity changes, a ______ cost remains constant in total

fixed

how to calculate indifference point

fixed+var/unit*volume = fixed + var/unit*vol

the principal characteristic that distinguishes managerial accounting from financial accounting is its emphasis on the _________

future

Managerial accounting in contrast to financial accounting:

is focused on future supports internal planning decisions

The higher a firm's contribution margin ratio, the greater its operating:

leverage

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.

linear

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

A relative measure of risk that describes a company's current sales performance in relation to its break-even sales is called the _____.

margin of safety

another term to describe a semi variable cost behavior pattern is:

mixed cost

The following information exists for ABC Company: Selling price per unit = $60 Variable expenses per unit = $45 If ABC's break-even 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 sequence of activities performed in the management planning and control cycle is:

planning managing controlling

when the number of units sold is above the breakeven point,

profit equals units sold above the breakeven point multiplied by the contribution margin per unit

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.

relevant 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

relevant range

The contribution margin ratio is calculated by dividing contribution margin by:

revenues

Which of the following elements are included in the contribution margin income statement format?

revenues variable expenses contribution margin fixed expenses operating income

contribution margin

revenues - variable expenses this amount is the contribution to fixed expenses and operating income from the sale of products or provision of services

The high-low method of analyzing the cost behavior of a mixed cost uses a(n) _______________ to illustrate cost and volume data relationships.

scattergram

Some costs include elements that are both fixed and variable. Costs that have this type of mixed behavior pattern are known as ______ costs

semivariable

contribution margin ratio

shows the proportion of each sales dollar that remains after covering the variable costs

The concept of different costs for different purposes means

that costs must be viewed differently depending on the planning, control, or decision-making situation.

breakeven point

there amount of revenue that must be realized for the firm to have neither profit or loss

breakeven point equations

total revenue = total expenses operating income = zero contribution margin = fixed expenses

Operating leverage should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.

true

as the volume of activity changes a _______ cost changes in total

variable

Contribution margin is defined as revenues minus:

variable expenses