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Managerial Accounting > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Units produced = Units Sold

True or False

A

True

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2
Q

____________ is the amount remaining from sales revenue after variable expenses have been deducted.

A

Contribution Margin

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3
Q

Contribution is used first to cover what?

A

Fixed expenses

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4
Q

Any remaining Contribution Margin contributes to _____________.

A

Net Operating Income

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5
Q

What is the level of sales at which profit is zero?

A

Break-Even

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6
Q

Selling price is _____.

A

Constant

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7
Q

Costs are _______ and can be accurately divided into variable and fixed elements.

A

Linear

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8
Q

In multi-product companies, the mix of products sold remains _______.

A

Constant

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9
Q

The contribution format income statement can be expressed in the follow equation:

A

Profit=(sales-variable expenses)-fixed expenses

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10
Q

Quantity sold(Q)
x Selling price per unit(P)
————————-

A

Sales (Q x P)

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11
Q

Quantity sold(Q)
x Variable expenses per unit(V)
———————————

A

Variable expenses (Q x V)

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12
Q

Profit=(Sales-Variable expenses)-Fixed expenses

Can also be expressed how?

A

Profit=(PxQ-VxQ)-Fixed expenses

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13
Q

Express the simple profit equation in term’s of the unit contribution margin

A

Unit CM=Selling price per unit-Variable expenses per unit

Unit CM=P-V

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14
Q

Express the CVP Relationship in Equation Form(3 forms):

A

Profit=(PxQ-VxQ)-Fixed expenses

Profit=(P-V)xQ-Fixed expenses

Profit = Unit CM x Q - Fixed expenses

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15
Q

What is calculated by dividing the total contribution margin by total sales?

A

Contribution Margin Ratio

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16
Q

What is the Contribution Margin Ratio?

A

CM per unit/SP per unit

*SP=selling price
CM=contribution margin

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17
Q

What can also be calculated by divining the contribution margin per unit by the selling price per unit?

A

Contribution Margin Ratio

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18
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of
coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is
$1,300. An average of 2,100 cups are sold each month. What is the CM Ratio for Coffee Klatch?

a. 1.319
b. 0.758
c. 0.242
d. 4.139

A

CM Ratio=unit cm/unit sp

=($1.49-$0.36)/$1.49

=$1.13/$1.49

=$0.758

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19
Q

How can the relationship between profit and the CM ratio be expressed?

A

Profit=(CM ratio x Sales)-Fixed expenses

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20
Q

The variable expense ratio is the ratio of variable expenses to _______

A

Sales

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21
Q

What is the profit impact if Racing
Bicycle can use higher quality raw
materials, thus increasing variable costs
per unit by $10, to generate an increase
in unit sales from 500 to 580?
500 units 580 units
Sales 250,000 290,000
Less:Var. exp. 150,000 179,800
CM 100,000 110,200
Less:Fixed exp. 80,000 80,000
————————————
Net op. inc. $20,000 $30,200

A

Sales increase by $40,000 and net operating income increases by $10,200.

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22
Q

If RBC has an opportunity to sell 150
bikes to a wholesaler without disturbing sales to other customers or fixed
expenses, what price would it quote to
the wholesaler if it wants to increase
monthly profits by $3,000? The variable cost per bike is $300.

A

$ 3,000 ÷ 150 bikes = $ 20 per bike
Variable cost per bike = 300 per bike
————————————–
Selling price required = $320 per bike

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23
Q

What is the break-even in unit sales equation method?

A

Profits=Unit SM x Q - Fixed exp.

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24
Q

What are the profits at break-even points?

A

$0

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25
Q

What is unit sales to break-even point formula method?

A

Fixed expenses/CM per unit

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26
Q

What is the equation method for break-even in dollar sales?

A

Profit=CM ratio x sales - fixed exp.

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27
Q

What is the formula method of break-even in dollar sales?

A

Fixed exp./CM ratio

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28
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales dollars?

a. $1,300
b. $1,715
c. $1,788
d. $3,129

A

Fixed expenses/CM Ratio

$1,300/0.758= $1,715

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29
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units?

a. 872 cups
b. 3,611 cups
c. 1,200 cups
d. 1,150 cups

A

=Fixed Exp./CM per unit

=$1,300/($1.49/cup - $0.36/cup)

=$1,300/($1.13/cup?

=1,150 cups

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30
Q

What is the equation method?

A

Profit=Unit CM x Q - Fixed exp.

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31
Q

What is the target analysis in terms of unit sales to attain the target profit formula method?

A

Target profit+Fix exp./CM per unit

32
Q

What is the dollar sales to attain the target profit formula method?

A

Target profit+Fixed exp./CM ratio

33
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine how many cups of coffee would have to be sold to attain target profits of $2,500 per month.
a. 3,363 cups

b. 2,212 cups
c. 1,150 cups
d. 4,200 cups

A

=$2,500 + $1,300/($1.49 - $0.36)

=$3,800/$1.13

=3,363 cups

34
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine the sales dollars that must be generated to attain target profits of $2,500 per month.

a. $2,550
b. $5,013
c. $8,458
d. $10,555

A

=$2,500+$1,300/[($1.49-0.36)/$1.49]

=$3,800/0.758

=$5,013

35
Q

What is the excess of budgeted sales over the break-even volume of sales?

A

The Margin of safety in dollars

36
Q

What is the formula for margin of safety in dollars?

A

Total sales - Break-even sales

37
Q

What is the margin of safety that can be expressed in terms of the number of units sold? The margin of safety at RBC is $50,000, and each bike sells for $500.

A

=$50,000/$500

=100 bikes

38
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the
margin of safety expressed in cups?

A

=Total sales - Break-even sales

=2,100 cups - 1,150 cups

=950 cups

39
Q

What term refers to the relative proportion of fixed and variable costs in an organization?

A

Cost Structure

40
Q

What is a advantage of a high fixed cost structure?

A

Income will be higher in good years compared to companies with lower proportion of fixed costs

41
Q

What is a disadvantage of a high fixed cost structure?

A

Income will be lower in bad years compared to companies with lower proportion of fixed costs

42
Q

What is a measure of how sensitive net operating income is to percentage changes in sales? It is a measure, at a given level of sales, of how a percentage change in sales volume will affect profits?

A

Operating Leverage

43
Q

What is the formula for degree of operating leverage?

A

CM / Net Operating Income

44
Q 
Figure the degree of operating leverage.
Sales                       $250,000
Less: Var. Exp.          150,000
CM.                            100,000
Less: Fixed Exp.         80,000
Net Inc.                        20,000
A

=CM / Net Op. Inc.

=100,000/20,000

=5

45
Q

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the operating leverage?

A

=CM/Net Op. Inc.

=$2,373/$1,073

=2.21

46
Q

At Coffee Klatch the average selling price of a cup of
coffee is $1.49, the average variable expense per cup is $0.36, the average fixed expense per month is $1,300, and an average of 2,100 cups are sold each
month.
If sales increase by 20%, by how much should net operating income increase?

A

=% Inc. in sales x Degree of Op. Lev.

=20.0% x 2.21

=44.20%

47
Q

Commissions based on sales dollars can lead to ___________ in a company.

A

Lower Profits

48
Q

What is the relative proportion in which a company’s products are sold?

A

Sales Mix

49
Q

What are the variable costing product cost from the following?
Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling and Administrative Expenses
Fixed Selling and Administrative Expenses

A

Direct materials, Direct labor, Variable manufacturing overhead

50
Q

Direct materials, direct labor, variable selling and admin. exp., and variable manufacturing overhead are what kind of cost in absorption costing?

Product or Period

A

Product Costs

51
Q

What are the variable costing period cost from the following?
Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling and Administrative Expenses
Fixed Selling and Administrative Expenses

A

Fixed manufacturing overhead, Variable selling and admin. exp., Fixed selling and admin. exp.

52
Q

What are the absorption costing product cost from the following?
Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling and Administrative Expenses
Fixed Selling and Administrative Expenses

A

Direct materials, Direct labor, Variable manufacturing overhead, Fixed manufacturing overhead

53
Q

What are the absorption costing period cost from the following?
Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling and Administrative Expenses
Fixed Selling and Administrative Expenses

A

Variable selling and admin. exp., Fixed selling and admin. exp.

54
Q

Which method will produce the highest values for work in process and finished goods inventories?

A

Absorption costing

55
Q

T or F

Units produced = Units sold

A

True

56
Q

T or F

Units produced > Units sold

A

True

57
Q

T or F

Units produced < Units sold

A

True

58
Q

Variable costing categorizes costs as _______ and ________ so it is much easier to use this income statement format for CVP analysis.

A

Fixed and variable

59
Q

Variable costing income is only affected by changes in _________.

A

unit sales

60
Q

As a general rule, when sales go _____, net operating income goes _____, and vice versa.

A

Up, Up

61
Q

Absorption costing income is influenced by changes in ______________________.

A

Unit sales and units of production

62
Q

Net operating income can be increased simply by producing _____ units even if those units are not sold.

A

More

63
Q

A _____ is any part or activity of an organization about which a manager seeks cost, revenue, or profit data.

A

Segment

64
Q

What arises because of the existence of a particular segment and would disappear over time of the segment itself disappeared?

A

Traceable fixed costs

65
Q

What arises because of the overall operation of the company and would not disappear if any particular segment were eliminated?

A

Common fixed costs

66
Q

What is computed by subtracting the traceable fixed costs of a segment from its contribution margin?

A

Segment margin

67
Q

The segment margin is the __________ of the long-run profitability of a segment.

A

Best gauge

68
Q

_________ should not be allocated to the divisions. These costs would remain even if one of the divisions were eliminated.

A

Common costs

69
Q

Fixed costs that are traceable to one segment can become common if the company is divided into ______ segments.

A

Smaller

70
Q

Costs assigned to a segment should include all costs attributable to that segment from the company’s entire ______.

A

Value chain

71
Q

How much of the common fixed cost of $200,000 can be avoided by eliminating the bar?

A

None of it

-a common fixed costs cannot be eliminated by dropping one of the segments

72
Q

Suppose square feet is used as the basis for allocating the common fixed cost of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet?

A

$20,000

-the bar would be allocated 1/10 of the cost or $20,000

73
Q

The profit was $44,000 before
eliminating the bar. If we eliminate
the bar, profit drops to $30,000.

Should the bar be eliminated?

A

No

74
Q

Fixed manufacturing costs must be assigned to products to properly match revenues and costs in what costing?

A

Absorption costing

75
Q

Fixed manufacturing costs are capacity costs and will be incurred even if nothing is produced in what costing?

A

Variable costing

76
Q

Companies must report segmented results to shareholders using the ______ that are used for internal segmented reports.

A

same methods

Managerial Accounting (1 decks)

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