Managerial Chapter AC 210 Exam 3
Fixed Cost (Total Cost) Behavior -
Remains constant throughout the relevant range
CM Ratio =
CM Per Unit / SP per unit or Contribution Margin / Sales
Which of the following are most likely fixed costs? Factory insurance Electricity to operate factory machines Administrative salaries Factory rent
Factory insurance Administrative salaries Factory rent
Unit Sales to Break Even =
Fixed Expenses / CM per unit
The assumption that cost behavior is strictly linear is reasonably valid within the ______ _______ of activity
Relevant Range
Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is Blank______. $630,000 $(249,979) $380,000 $1,520,000
$380,000 Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000
Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is Blank______. 90% 24% 34% 66%
34% Reason: ($1,452,000 - $958,320) ÷ $1,452,000 = 34%
Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______. 38% 53% 68% 47%
53% Reason: $100,170 ÷ $189,000 = 53%
A cost that contains both variable and fixed cost elements is called a(n) ________ cost.
Mixed
Variable Cost (Unit Cost) Behavior -
Remains constant throughout the relevant range
Unit Sales to Attain the Target Profit =
Target Profit + Fixed Expenses / CM per unit
Variable Cost (Total Cost) Behavior -
Varies in direct proportion to changes in activity
Fixed Cost (Unit Cost) Behavior -
Varies inversely with changes in activity throughout the relevant range
A cost that contains both variable and fixed cost elements is a(n) Blank______ cost. sunk semifixed opportunity mixed
mixed
The contribution margin as a percentage of sales is referred to as the contribution margin or CM _______
ratio
The break-even point is reached when the contribution margin is equal to: total sales. total variable expenses. total fixed expenses. profit.
total fixed expenses.
At the break-even point ______. the company is experiencing a loss the company is earning a profit total revenue equals total cost net operating income is zero
total revenue equals total cost net operating income is zero
True or False. Variable costs remain fixed in total within the relevant range of activity.
False
Contribution margin is first used to cover ______ expenses. Once the break-even point has been reached, contribution margin becomes ______.
Fixed, Profit
Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes ________
Fixed, Profit
Within the relevant range of activity Blank______. variable costs do not change in total, only per unit fixed costs remain constant in total and vary per unit the assumption that cost behavior is strictly linear is reasonably valid
fixed costs remain constant in total and vary per unit the assumption that cost behavior is strictly linear is reasonably valid
The contribution margin equals sales minus all Blank______ expenses. period product fixed variable
variable
Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is Blank______. $241,000 $57,000 $99,000
$99,000 Reason: Net operating income = $184,000 - $85,000 = $99,000
Contribution margin: is not affected by changes in activity. is first used to cover variable expenses. becomes profit after fixed expenses are covered. equals sales minus fixed expenses.
becomes profit after fixed expenses are covered
Variable Costs -
changes in total in proportion to changes in the related level of activity or volume
Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the Blank______ approach. contribution margin balance sheet gross margin traditional
contribution margin
The calculation of contribution margin (CM) ratio is Blank______. variable expenses ÷ contribution margin contribution margin ÷ total expenses net operating income ÷ total contribution margin contribution margin ÷ sales
contribution margin ÷ sales
Within the relevant range of activity, Blank______ costs remain constant in total. fixed variable both fixed and variable neither fixed nor variable
fixed
Within the relevant range of activity, Blank______ costs remain constant in total. neither fixed nor variable both fixed and variable variable fixed
fixed
Variable costs Blank______. vary per unit remain constant per unit vary in total remain constant in total
remain constant per unit vary in total
Fixed Costs -
remain unchanged in total regardless of changes in the related level of activity or volume
The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit. organizational structure selling price cost volume
selling price cost volume
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _______ costs.
variable
Within the relevant range, _____ costs remain constant on a per unit basis.
variable
Within the relevant range, a cost that changes in direct proportion to changes in the activity level is a Blank______ cost. mixed fixed variable
variable
The break-even point is the level of sales at which the profit equals _______
zero
