Management Accounting Midterm

If a firm has revenues of $80,000, variable expenses of $25,000, operating income of $20,000, then its contribution margin is Blank______ and fixed expenses is ____.

$55,000; $35,000

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.

Identify the relationships that the expanded contribution margin model shows.

-Contribution margin divided by revenue is equal to contribution margin ratio. -Total contribution margin depends on the volume of activity. -Revenue minus variable expenses is equal to contribution margin. -Contribution margin must cover fixed expenses before an operating income is earned.

Identify the relationships that the expanded contribution margin model shows.

-Contribution margin must cover fixed expenses before an operating income is earned. -Contribution margin divided by revenue is equal to contribution margin ratio. -Total contribution margin depends on the volume of activity. -Revenue minus variable expenses is equal to contribution margin.

The following information exists for ABC Company: Selling price per unit = $60. Variable expenses per unit = $40. If ABC's breakeven point is 5,000 units and it sells 5,750 units in March, its operating income will be $____

15,000

ABC Company used the high-low method to analyze monthly mixed costs. The resulting cost formula is $3,600 + $5 per unit produced. If ABC produces 4,000 units the next month, total mixed costs expected will be ____.

23,600 Explanation: 3,600 + 5(4,000 units)

If sales revenue is $25,000 and the contribution margin ratio is 40%, then variable expenses is $____

25,000 x 60%= 15,000

The following information exists for ABC Company: Sales revenue: $300,000 Contribution margin ratio: 30% Fixed expenses for the period: $60,000 Sales volume in units: 10,000. If sales revenue increases by $20,000, operating income will increase by $_____

6000

mixed cost

Another term used to describe a semivariable cost behavior pattern is....

fixed expenses=

Breakeven Point (in units)×(Selling Price per Unit−Variable Expenses per Unit)

How can a company eliminate the need to be concerned about changes in the sales mix?

By having a similar contribution margin ratio for all of its products

Fixed expense =

Contribution margin - Operating income

A traditional income statement format is organized by function, whereas a contribution margin format income statement is organized by ____ ____ pattern.

Cost Behavior

Managerial accounting helps support what kind of planning decisions made by an entity's management?

Internal forward-looking decisions

_____ accountants work extensively with their colleagues in many functional areas of the organization to support the organization's planning, control, and decision-making activities.

Managerial

____ accounting provides information to support an organization's planning, control and decision-making needs.

Managerial accounting

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. Multiple choice question.

Reason: Year 2: Company's operating income = Total revenue - Variable expenses - Fixed expenses =$90,000 - $68,000 - $20,000 = $2,000 In Year 1, the company's operating income was $8,000 (given). Therefore, in Year 2, the company's operating income decreased by $6,000 ($8,000 - $2,000). =income is 6,000 dollars less than year 1

contribution margin per unit equation

Selling Price per Unit−Variable Expenses per Units

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

True or false: 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

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

Variable expenses Revenues Operating income Fixed expenses

The relevant range assumption relating to fixed costs refers to:

a firm's range of activity

The relevant range assumption is about the level of production ____ , Incorrect Unavailable and suggests that the level of fixed costs will remain constant only within certain ranges of activity.

capatiy

To calculate the volume in units at breakeven, fixed expenses are divided by the:

contribution margin per unit

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

control

he 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

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

When classifying costs for managerial accounting purposes, it is important to recognize that each cost must be viewed Blank______ for each planning, control, or decision-making situation. Multiple choice question.

differently

As the volume of activity changes, a(n) cost changes when expressed on a ____ per unit basis.

fixed

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

leverage

The simplifying assumption made when using variable cost behavior pattern data is:

linear

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

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

What is the term for the magnifying effect a change in revenue has on operating income?

operating leverage

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 This calculation is using the variable expense ratio. BE units is $150,000/$60 = 2,500 units. CM ratio is ($60-45 / $60) = 25%. FC = $150,000 * .25 = $37,500 at break even. $140,000 revenue / $60 = 2,333 units sold. 2,333 x $15 (CM) = $35,000 CM minus $37,500 FC = loss of $2,500 rounded.

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

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

revenue

operating income =

revenue-fixed expenses

Contribution margin =

revenue-variable

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

semivariable or mixed

A firm calculates the average contribution margin ratio when Blank______.

the firm sells more than 1 product

The management process is illustrated through a series of key management activities referred to as:

the planning and control cycle

The indifference point is found between alternative cost structures when ______ are equal for both alternatives.

total costs

Margin of safety equation=

total sales- breakeven sales

If total cost is $12,000 and total fixed cost is $4,000, then:

variable costs total $8,000

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 $ _____.

x(.03)-30,000=18,000 x=160000

At the breakeven point, operating income is equal to ____.

zero