Exam 3 Flashcards
When a company is operating at its breakeven point
A.
its contribution margin will be equal to its variable expenses.
B.
its selling price will be equal to its variable expense per unit.
C.
its fixed expenses will be equal to its variable expenses.
D.
its total revenues will be equal to its total expenses.
D.
its total revenues will be equal to its total expenses.
Total contribution margin less total fixed expenses equals
A.
sales revenue.
B.
gross profit.
C.
contribution margin ratio.
D.
operating income.
D.
operating income.
If a company sells one unit above its breakeven sales, then its operating income would be equal to
A.
the unit contribution margin.
B.
the unit selling price.
C.
the fixed expenses.
D.
zero.
A. the unit contribution margin.
How is the sales volume in dollars necessary to reach a target profit calculated?
A.
target profit divided by contribution margin ratio
B.
target profit divided by unit contribution margin
C.
(fixed expenses + target profit) divided by unit contribution margin
D.
(fixed expenses + target profit) divided by contribution margin ratio
D.
(fixed expenses + target profit) divided by contribution margin ratio
The number of units to be sold to reach a certain target profit is calculated as
A.
(fixed expenses + target profit) divided by contribution margin ratio
B.
(fixed expenses + target profit) divided by unit contribution margin
C.
target profit divided by unit contribution margin
D.
target profit divided by contribution margin ratio
B.
(fixed expenses + target profit) divided by unit contribution margin
The breakeven point on a CVP graph is
A.
the intersection of the sales revenue line and the y-axis.
B.
the intersection of the sales revenue line and the total expense line.
C.
the intersection of the fixed expense line and the sales revenue.
D.
the intersection of the fixed expense line and the total expense line.
B.
the intersection of the sales revenue line and the total expense line.
If the sales price of a product increases while everything else remains the same, what happens to the breakeven point?
A.
The breakeven point will increase.
B.
The breakeven point will remain the same.
C.
The breakeven point will decrease.
D.
The effect cannot be determined without further information.
C.
The breakeven point will decrease.
Target profit analysis is used to calculate the sales volume that is needed to
A.
avoid a loss.
B.
earn a specific amount of net operating income.
C.
cover all fixed expenses.
D.
cover all expenses.
B.
earn a specific amount of net operating income.
A shift in the sales mix from a product with a high contribution margin ratio toward a product with a low contribution margin ratio will cause the breakeven point to
A.
increase.
B.
increase or decrease, but the direction of the change cannot be determined from the information given.
C.
decrease.
D.
remain the same.
A.
increase.
What is the margin of safety?
A.
the excess of expected sales over breakeven sales
B.
the sales level at which operating income is zero
C.
the amount of fixed and variable costs that make up a company’s total costs
D.
the difference between the sales price per unit and the variable cost per unit
A.
the excess of expected sales over breakeven sales
All of the following would be considered a company with high operating leverage, except a(n)
A.
airline company.
B.
hotel chain.
C.
amusement park.
D.
t-shirt kiosk in a mall.
D.
t-shirt kiosk in a mall.
The process of experimenting with base case, best case, and worst case scenarios to see what would happen to company profits under those conditions would be an example of
A.
target profit analysis.
B.
scenario analysis.
C.
breakeven analysis.
D.
sequencing analysis.
B.
scenario analysis.
When making decisions, managers should consider
A.
costs that do not differ between alternatives.
B.
only variable costs.
C.
sunk costs.
D.
revenues that differ between alternatives.
D.
revenues that differ between alternatives.
In making short-term special decisions, the decision-maker should
A.
use a traditional absorption costing approach.
B.
separate variable costs from fixed costs.
C.
focus on total costs.
D.
focus only on quantitative factors.
B.
separate variable costs from fixed costs.
Which of the following costs is irrelevant to business decisions?
A.
Variable costs
B.
Costs that differ between alternatives
C.
Avoidable costs
D.
Sunk costs
D.
Sunk costs
When pricing a product, managers must consider which of the following costs?
A.
All costs
B.
Only manufacturing costs
C.
Only period costs
D.
Only variable costs
A.
All costs
Which of the following costs is relevant to Paper Mart’s decision to accept a special order at a lower sales price from a large customer?
A.
The cost of shipping the order to the customer
B.
The cost of Paper Mart’s warehouses located across the United States
C.
The cost of maintaining Paper Mart’s website
D.
Paper Mart’s CEO’s salary
A.
The cost of shipping the order to the customer
Kent Embroidery Company has received a special sales order from Mahoney County for a large order. The incremental fixed costs that will be incurred to create a new pattern that can only be used for this order are
A.
relevant to the decision to accept the special order.
B.
opportunity costs.
C.
irrelevant to the decision to accept the special order.
D.
sunk costs.
A.
relevant to the decision to accept the special order.
When deciding whether to drop its CD label line, Avery Products Corporation would consider
A.
the costs it could save by dropping the product line.
B.
the revenues it would lose from dropping the product line.
C.
how dropping the CD label product line would affect sales of its other label products.
D.
all of the listed items should be considered.
D.
all of the listed items should be considered.
Common fixed costs that are allocated among departments are generally
A.
irrelevant to the decision of whether to discontinue the department.
B.
direct fixed costs of other departments.
C.
direct fixed costs of the department.
D.
relevant to the decision of whether to discontinue the department.
A.
irrelevant to the decision of whether to discontinue the department.
To maximize its total contribution margin when it has a limited supply of the mineral nickel, Telsa, Inc., should focus on producing the car model that has the highest
A.
profit per unit of product.
B.
contribution margin per unit of product.
C.
contribution margin ratio.
D.
contribution margin per pound of nickel.
D.
contribution margin per pound of nickel.
When making outsourcing decisions
A.
the manufacturing full unit cost of making the produce in-house is relevant.
B.
avoidable fixed costs are irrelevant.
C.
the variable cost producing the product in-house is relevant.
D.
expected use of the freed capacity is irrelevant.
C.
the variable cost producing the product in-house is relevant.
When deciding whether to sell banana powder as is or to process further to make banana bread mix, managers should ignore which of the following?
A.
The revenue if the banana powder is sold as is
B.
The revenue if the banana powder is processed further to make banana bread mix
C.
The cost of processing the banana powder further to make banana bread mix
D.
The costs of processing the banana powder thus far
D.
The costs of processing the banana powder thus far
Budget committees would include all of the following people except a
A.
human resources manager.
B.
shareholder.
C.
chief financial officer.
D.
product manager.
B.
shareholder.
A company expects to receive which of the following benefits when it uses its budgeting process?
A.
The budget helps to motivate employees to achieve the company’s sales growth and cost reduction goals.
B.
The planning required to develop the budget helps managers foresee and avoid potential problems before they occur.
C.
The budget provides the company’s managers with a benchmark against which to compare actual results for performance evaluation.
D.
All the listed items are benefits of the budget process.
D.
All the listed items are benefits of the budget process.
Budgets are
A.
required by U.S. Generally Accepted Accounting Principles (GAAP).
B.
prepared by the controller for the entire organization.
C.
future oriented.
D.
only used by large corporations.
C.
future oriented.
Which of the following is the starting point for the comprehensive budget?
A.
The sales budget
B.
The direct materials budget
C.
The production budget
D.
The operating expenses budget
A.
The sales budget
The income statement is part of which element of a company’s comprehensive budget?
A.
The operating budgets
B.
The financial budget
C.
The cash budget
D.
The capital expenditures budget
A.
The operating budgets
The usual starting point for a direct labor budget for a manufacturer is the
A.
sales budget.
B.
cash budget.
C.
direct materials budget.
D.
production budget.
D.
production budget.
Which of the following expenses would not appear in a cash budget?
A.
Depreciation expense
B.
Marketing expense
C.
Interest expense
D.
Wages expense
A.
Depreciation expense
The following budgets are all financial budgets except for the
A.
budgeted balance sheet.
B.
capital expeditures budget.
C.
combined cash budget.
D.
budgeted income statement.
D.
budgeted income statement.
Contribution Margin Ratio
Unit CM / sales price per unit
Contribution Margin
sales revenue - variable espenses
operating income
CM - fixed expenses
breakeven using the unit contribution margin
sales in units = (Fixed expeses + operating income) / contribution margin per unit
breakeven using the contribution margin ratio
sales in dollars = (fixed expenses + operating income) / contribution margin ratio
target profit using the contribution margin
sales in units = (fixed expenses + operating income) / contribution margin per unit
target profit using unit contribution margin ratio
