exam 3

Question 1

what is the loneral behavior within relevant range?

Answer 1

Range of activity over which a company expects to operate during a year.

Question 2

mixed costs

Answer 2

Costs that have both a variable cost and a fixed component.
Change in total but not proportionately with changes in activity level.

Question 3

high low method - equation for unit variable costs

Answer 3

change in total cxosts as high versus low activity level / high minute low activity level = unit variable costs

Question 4

computation of fixed costs

Answer 4

Determine the total fixed cost by subtracting the total variable cost at either the high or the low activity level from the total cost at that activity level.

Question 5

what are the basic components/ assumptions of the high low method

Answer 5

The behavior of both costs and revenues is linear throughout the relevant range of the activity index.
Costs can be classified accurately as either variable or fixed.
Changes in activity are the only factors that affect costs.
All units produced are sold.
When more than one type of product is sold, the sales mix will remain constant.

Question 6

what is sales mix?

Answer 6

Sales mix is the relative percentage in which a company sells its products.
If a company’s unit sales are 80% printers and 20% P Cs, its sales mix is 80% to 20%.
Sales mix is important because different products often have very different contribution margins.

Question 7

what is cost structure

Answer 7

Cost Structure is the relative proportion of fixed versus variable costs that a company incurs.
May have a significant effect on profitability
Company must carefully consider its cost structure.

Question 8

variable costing product costs consist of :

Answer 8

Direct Materials
Direct Labor
Variable Manufacturing Overhead

Question 9

difference between absorption and variable costing is

Answer 9

absorption costing/ product costs( fixed manufacturing overhead)
- both variable and fixed manufacturing costing are product costs

variable costing/ period costs(fixed manufacturing overhead)
- product costs consist of - direct materials, direct labor, variable manufacturing overhead

Question 10

t or f—-If a problem gives you that variable costs are 60% of sales then the CMR is 40%

Answer 10

t

Question 11

can contribution margin be expresses in total or as per-unit amount?

Answer 11

yes

Question 12

Can contribution Margin can be expressed as the percentage of sales left after variable costs

Answer 12

yes

Question 13

t or f —- Under the Variable costing model Fixed MOH is an expense in the current operating period

Answer 13

t

Question 14

what is cost behavior analysis

Answer 14

the study of how specific costs respond to changes in the level of business activity
- changes in the level or volume of activity of activity should be correlated with changes in costs
- activity level selected us called activity or volume index

Question 15

what is an activity index

Answer 15

identifies the activity that causes changes in the behavior of costs
allows costs to be classified as variable, fixed, or mixed

Question 16

what are variable costs

Answer 16

costs that vary in total directl and proportionately with changes in the activity level
- unit variable costs remain the same at every level of activity
- ex- activity level increases by 10% total variable costs increase by 10% so on so on etc

Question 17

what are fixed costs

Answer 17

costs that remain the same in total regardless of changes in the activity level within a relevant range
- unit fixed costs vary inversely with activity: as volume increases unit cost declines so on so on etc

Question 18

what are examples of fixed costs

Answer 18

property taxes, insurance, rent, supervisor salaries, depreciation on buildings and equipment

Question 19

what is relevant range

Answer 19

range of activity over which a company expects to operate during the year
- relationship between variable costs and changes in activity level is often curvilinear
- for levels of activity and fixed cost the relationship is nonlinear

Question 20

what are mixed costs

Answer 20

costs that have both a variable cost and a fixed cost component
- change in total but not proportionately with changes in activity level

Question 21

what are the types of variable costs

Answer 21

• direct materials, direct labor, indirect materials

Question 22

what are the types of fixed costs

Answer 22

depreciation, and rent

Question 23

what are types of mixed costs

Answer 23

maintenance and utilities

Question 24

what is the high low method

Answer 24

a method that uses the total costs incurred at the high and the low levels of activity to classify mixed costs into fixed and variable components
- the difference in costs between the high and low levels represents variable costs, since only the variable cost component can change as activity levels change
negative is that it only considers the highest and lowest not the middle

Question 25

what is cost volume profit- CVP

Answer 25

the study of the effects of changes in costs and volume(quantity) on a companies profits
- important in profit planning
critical factor in management decisions like setting sales prices, determining product mix, and maximizing use of production facilities

Question 26

what are the basic componenets of the cost volume profit analysis- CVP

Answer 26

• volume or level of activity
  -unit selling price
• unit variable costs
• total fixed costs
• sales mis

Question 27

what are the 5 assumptions of cost volume profit analysis

Answer 27

1. behavior of both costs and revenues is linerr throughout the relevant range of activity indexz
2. costs can be classified accurately as either variable or fixed
3. changes in activity are the only factors that affect costs
4. all units produced are sold
5. when more than one type of product is sold, the sales mix will remain constsnt

Question 28

what is the cost volume profit analysis - CVP- income statement

Answer 28

• statemtnt for internal use
• classifies costs as fixed or variable
• reports contribution margin in the body statement
• reports the same net income as a traditional income statement

Question 29

what is contribution margin?

Answer 29

the amount of revenue remaining after deducting variable costs

Question 30

what does the contribution margin ratio do ?

Answer 30

shows the percentage of each sales dollar available to apply toward fixed costs and profits

Question 31

what is break even in mathematical equation

Answer 31

occurs when total sales equal variable costs plus fixed costs, net income in zero

Question 32

what is target net income

Answer 32

the level of sales necessary to achieve a target income expresses in sales units or sales dollars

Question 33

what is the margin of safety?

Answer 33

the difference between actual or expected sales and sales at the break even point
- tells us how far sales can drop before the company will operate at a loss
- measures the “cushion” that a particular level of sales provides
- expressed as dollars or as a ratio
- the higher the dollars or percentage the greater the margin of safety

Question 34

what is the sales mix with limited resources?

Answer 34

an approach used to identify and manage constraints so as to maximize the contribution margin given the constraint

Question 35

what must a company continually do when doing salex mix with limited resources?

Answer 35

• identify its constraints
• find ways to reduce or eliminate them where appropriate