Accounting 2 Test 2

Question 1

Break-Even Point

Answer 1

Level of sales at which profit is zero.

Question 2

Contribution Margin Ratio (CM Ratio)

Answer 2

Ratio computed by dividing contribution margin by dollar sales.

Question 3

Degree of Operating Leverage

Answer 3

Measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.

Question 4

Incremental Analysis

Answer 4

Analytical approach that focuses only on those costs and revenues that change as a result of a decision.

Question 5

Margin of Safety

Answer 5

Excess of budgeted or actual dollar sales over the break-even dollar sales.

Question 6

Operating Leverage

Answer 6

Measure of how sensitive net operating income is to a given percentage change in dollar sales.

Question 7

Sales Mix

Answer 7

Relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.

Question 8

Target Profit Analysis

Answer 8

Estimating what sales volume is needed to achieve a specific target profit.

Question 9

Variable Expense Ratio

Answer 9

Ratio computed by dividing variable expenses by dollar sales.

Question 10

Action Analysis Report

Answer 10

Report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity.

Question 11

Activity

Answer 11

Event that causes consumption of overhead resources in an organization.

Question 12

Activity-based Costing (ABC)

Answer 12

Costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs.

Question 13

Activity-based Management

Answer 13

Management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects.

Question 14

Activity Cost Pool

Answer 14

“Bucket” in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Question 15

Activity Measure

Answer 15

Allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool.

Question 16

Batch-level Activities

Answer 16

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

Question 17

Benchmarking

Answer 17

Systematic approach to identifying the activities with the greatest potential for improvement.

Question 18

Customer-level Activities

Answer 18

Activities that are carried out to support customers, but that are not related to any specific product.

Question 19

Duration Driver

Answer 19

Measure of the amount of time required to perform an activity.

Question 20

First-Stage Allocation

Answer 20

Process by which overhead costs are assigned to activity cost pools in an activity based costing system.

Question 21

Organization-Sustaining Activities

Answer 21

Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

Question 22

Product-Level Activities

Answer 22

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.

Question 23

Second-Stage Allocation

Answer 23

Process by which activity rates are used to apply costs to products and customers in activity-based costing.

Question 24

Transaction Driver

Answer 24

Simple count of the number of times an activity occurs.

Question 25

Unit-Level Activities

Answer 25

Activities that are performed each time a unit is produced.

Question 26

Contribution Income Statement

Answer 26

Helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. Emphasis is on cost behavior.

Question 27

Contribution Margin

Answer 27

Amount remaining from sales revenue after variable expenses have been deducted. Used first to cover fixed expenses. Remaining amount contributes to net operating income.

Question 28

Budget

Answer 28

Detailed plan for the future that is usually expressed in formal quantitative terms.

Question 29

Cash Budget

Answer 29

Detailed plan showing how cash resources will be acquired and used over a specific time period.

Question 30

Continuous Budget

Answer 30

12-month budget that rolls forward one month as the current month is completed. aka Perpetual Budget

Question 31

Control

Answer 31

Process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change.

Question 32

Direct Labor Budget

Answer 32

Detailed plan that shows the direct labor hours required to fulfill the production budget.

Question 33

Direct Materials Budget

Answer 33

Detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

Question 34

Ending Finished Goods Inventory Budget

Answer 34

Budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.

Question 35

Manufacturing Overhead Budget

Answer 35

Detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.

Question 36

Master Budget

Answer 36

Number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

Question 37

Merchandise Purchases Budget

Answer 37

Detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.

Question 38

Planning

Answer 38

Developing goals and preparing budgets to achieve those goals.

Question 39

Production Budget

Answer 39

Detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.

Question 40

Responsibility Accounting

Answer 40

System of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.

Question 41

Sales Budget

Answer 41

Detailed schedule showing expected sales expressed in both dollars and units

Question 42

Self-Imposed Budget

Answer 42

Method of preparing budgets in which managers prepare their own budgets. Those budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement. aka Participative Budget

Question 43

Selling and Administrative Expense Budget

Answer 43

Detailed schedule of planned expenses that willb e incurred in areas other than manufacturing during a budget period.