Exam 2

Question 1

Units produced = Units Sold

True or False

Answer 1

True

Question 2

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

Answer 2

Contribution Margin

Question 3

Contribution is used first to cover what?

Answer 3

Fixed expenses

Question 4

Any remaining Contribution Margin contributes to _____________.

Answer 4

Net Operating Income

Question 5

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

Answer 5

Break-Even

Question 6

Selling price is _____.

Answer 6

Constant

Question 7

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

Answer 7

Linear

Question 8

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

Answer 8

Constant

Question 9

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

Answer 9

Profit=(sales-variable expenses)-fixed expenses

Question 10

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

Answer 10

Sales (Q x P)

Question 11

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

Answer 11

Variable expenses (Q x V)

Question 12

Profit=(Sales-Variable expenses)-Fixed expenses

Can also be expressed how?

Answer 12

Profit=(PxQ-VxQ)-Fixed expenses

Question 13

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

Answer 13

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

Unit CM=P-V

Question 14

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

Answer 14

Profit=(PxQ-VxQ)-Fixed expenses

Profit=(P-V)xQ-Fixed expenses

Profit = Unit CM x Q - Fixed expenses

Question 15

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

Answer 15

Contribution Margin Ratio

Question 16

What is the Contribution Margin Ratio?

Answer 16

CM per unit/SP per unit

*SP=selling price
CM=contribution margin

Question 17

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

Answer 17

Contribution Margin Ratio

Question 18

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

Answer 18

CM Ratio=unit cm/unit sp

=($1.49-$0.36)/$1.49

=$1.13/$1.49

=$0.758

Question 19

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

Answer 19

Profit=(CM ratio x Sales)-Fixed expenses

Question 20

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

Answer 20

Sales

Question 21

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

Answer 21

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

Question 22

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.

Answer 22

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

Question 23

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

Answer 23

Profits=Unit SM x Q - Fixed exp.

Question 24

What are the profits at break-even points?

Answer 24

$0

Question 25

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

Answer 25

Fixed expenses/CM per unit

Question 26

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

Answer 26

Profit=CM ratio x sales - fixed exp.

Question 27

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

Answer 27

Fixed exp./CM ratio

Question 28

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

Answer 28

Fixed expenses/CM Ratio $1,300/0.758= $1,715

Question 29

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

Answer 29

=Fixed Exp./CM per unit =$1,300/($1.49/cup - $0.36/cup) =$1,300/($1.13/cup? =1,150 cups

Question 30

What is the equation method?

Answer 30

Profit=Unit CM x Q - Fixed exp.

Question 31

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

Answer 31

Target profit+Fix exp./CM per unit

Question 32

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

Answer 32

Target profit+Fixed exp./CM ratio

Question 33

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

Answer 33

=$2,500 + $1,300/($1.49 - $0.36) =$3,800/$1.13 =3,363 cups

Question 34

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

Answer 34

=$2,500+$1,300/[($1.49-0.36)/$1.49] =$3,800/0.758 =$5,013

Question 35

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

Answer 35

The Margin of safety in dollars

Question 36

What is the formula for margin of safety in dollars?

Answer 36

Total sales - Break-even sales

Question 37

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.

Answer 37

=$50,000/$500 =100 bikes

Question 38

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?

Answer 38

=Total sales - Break-even sales =2,100 cups - 1,150 cups =950 cups

Question 39

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

Answer 39

Cost Structure

Question 40

What is a advantage of a high fixed cost structure?

Answer 40

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

Question 41

What is a disadvantage of a high fixed cost structure?

Answer 41

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

Question 42

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?

Answer 42

Operating Leverage

Question 43

What is the formula for degree of operating leverage?

Answer 43

CM / Net Operating Income

Question 44

``` 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 ```

Answer 44

=CM / Net Op. Inc. =100,000/20,000 =5

Question 45

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?

Answer 45

=CM/Net Op. Inc. =$2,373/$1,073 =2.21

Question 46

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?

Answer 46

=% Inc. in sales x Degree of Op. Lev. =20.0% x 2.21 =44.20%

Question 47

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

Answer 47

Lower Profits

Question 48

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

Answer 48

Sales Mix

Question 49

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

Answer 49

Direct materials, Direct labor, Variable manufacturing overhead

Question 50

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

Answer 50

Product Costs

Question 51

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

Answer 51

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

Question 52

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

Answer 52

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

Question 53

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

Answer 53

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

Question 54

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

Answer 54

Absorption costing

Question 55

T or F | Units produced = Units sold

Answer 55

True

Question 56

T or F | Units produced > Units sold

Answer 56

True

Question 57

T or F | Units produced < Units sold

Answer 57

True

Question 58

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

Answer 58

Fixed and variable

Question 59

Variable costing income is only affected by changes in _________.

Answer 59

unit sales

Question 60

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

Answer 60

Up, Up

Question 61

Absorption costing income is influenced by changes in ______________________.

Answer 61

Unit sales and units of production

Question 62

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

Answer 62

More

Question 63

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

Answer 63

Segment

Question 64

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

Answer 64

Traceable fixed costs

Question 65

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

Answer 65

Common fixed costs

Question 66

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

Answer 66

Segment margin

Question 67

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

Answer 67

Best gauge

Question 68

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

Answer 68

Common costs

Question 69

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

Answer 69

Smaller

Question 70

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

Answer 70

Value chain

Question 71

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

Answer 71

None of it -a common fixed costs cannot be eliminated by dropping one of the segments

Question 72

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?

Answer 72

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

Question 73

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

Answer 73

No

Question 74

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

Answer 74

Absorption costing

Question 75

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

Answer 75

Variable costing

Question 76

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

Answer 76

same methods