B2 - Planning Techniques - Forecasting and Projection

Question 1

What is another name for cost-volume-profit analysis?

Answer 1

Breakeven analysis

Question 2

What is the formula for contribution approach (direct costing/variable costing)?

Answer 2

Revenue
- Variable costs
= Contribution margin
- Fixed costs
= Net income

Question 3

How is the contribution margin ratio calculated?

Answer 3

Contribution margin / revenue

Question 4

What is the formula for absorption approach (GAAP)?

Answer 4

Revenue
- Cost of goods sold
= Gross profit margin
- Operating expenses
= Net income

Question 5

What is the only difference between variable costing and absorption costing?

Answer 5

The treatment of fixed manufacturing overhead (under variable it is a period cost and under absorption it is a product cost)

Question 6

If sales are greater than production, which costing approach (variable or absorption) will have the lower income?

Answer 6

Absorption costing (GAAP); units produced last period are sold this period, thus increasing COGS for the current period

Question 7

T/F: If there is an increase in ending inventory from one period to the next, absorption net income will be higher than variable net income

Answer 7

True; if ending inventory increases, the cost is being deferred to the subsequent periods (through inventory/COGS)

Question 8

How are breakeven units calculated?

Answer 8

Total fixed costs / contribution margin per unit

Question 9

How are breakeven sales dollars calculated?

Answer 9

Total fixed costs / contribution margin ratio

Question 10

How is contribution margin per unit calculated?

Answer 10

Sales price (per unit) - variable cost (per unit)

Question 11

How is contribution margin ratio calculated?

Answer 11

Contribution margin / sales price

Question 12

How is a target profit calculated for sales dollars?

Answer 12

Total fixed costs + target profit / contribution margin ratio

Question 13

How is margin of safety calculated?

Answer 13

Total sales - breakeven sales

Question 14

How is margin of safety percentage calculated?

Answer 14

Margin of safety / total sales

Question 15

How is target cost calculated?

Answer 15

Market price (as set by cost leader) - required profit

Question 16

What are marginal costs and what do they include?

Answer 16

Marginal costs are the costs (all variable and avoidable fixed) that are associated with producing one more unit

Question 17

T/F: When operating at full capacity, only the variable cost is considered in determining whether or not to accept a special order

Answer 17

False; the variable cost and the opportunity cost (amount of contribution margin forgone / units of special order) is considered when operating at full capacity

Question 18

What is the definition of multiple regressions?

Answer 18

Having more than one variable

Question 19

What is the most accurate way to classify costs of an object as either fixed or variable?

Answer 19

The regression analysis method

Question 20

T/F: In making decisions about which products to emphasize, managers should select products with the lowest contribution margin per unit of the constraining resource

Answer 20

False; they should select the products with the highest contribution margin per unit of the constraining resource

Question 21

What is the Delphi method and what does it do?

Answer 21

The Delphi method is a systematic, interactive forecasting method which relies on a panel of experts and requires significant judgment