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Managerial Accounting > Midterm#2 > Flashcards

Midterm#2 Flashcards

1
Q

The Traditional Format Income Statement is vital in performing a Cost-Volume-Profit (CVP) Analysis.

A

FALSE, Why, How would you switch this statement for it to be true

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2
Q

Sales less Variable Costs equals Gross Margin or Gross Profit.

A

FALSE, Why, How would you switch this statement for it to be true

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3
Q

The Contribution Margin is a critical concept in understanding CVP analysis.

A

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4
Q

Breakeven is achieved when Sales less Variable Costs equals zero.

A

FALSE, Why, How would you switch this statement for it to be true

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5
Q

Fixed Costs are used to determine contribution margin.

A

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6
Q

Contribution margin can be determined using total sales and total variable expense amounts as well as sales per unit and variable costs per unit amounts.

A

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7
Q

Net Operating Income increases or decreases at the rate of contribution margin.

A

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8
Q

The higher the contribution margin, the faster net operating income grows.

A

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9
Q

Changes in fixed costs impact contribution margin.

A

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10
Q

The contribution margin ratio can be determined by dividing Sales per unit by CM per unit.

A

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11
Q

Net Operating Income is usually achieved after CM is greater than zero.

A

FALSE, Why, How would you switch this statement for it to be true

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12
Q

CM per unit is equal to Sales per unit less Variable Expenses per unit.

A

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13
Q

When a company has fixed costs, the company’s net operating income is zero when CM is zero.

A

FALSE, Why, How would you switch this statement for it to be true

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14
Q

The CM ratio can be computed by dividing the contribution margin per unit by the sales price per unit.

A

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15
Q

The CM ratio can be computed by dividing the total contribution margin by total sales.

A

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16
Q

The CM ratio can be computed by dividing sales per unit less variable expenses per unit by sales per unit.

A

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17
Q

Given a constant Sales level, a decrease in Variable Expenses will result in an increase in CM.

A

TRUE, Why, How would you switch this statement for it to be false

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18
Q

An increase in fixed costs typically results in an decrease in net operating income.

A

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19
Q

In considering the CVP graph, a decrease in the sales price would result in a lower breakeven point.

A

FALSE, Why, How would you switch this statement for it to be true

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20
Q

In considering the CVP graph, a decrease in variable costs would result in a lower breakeven point.

A

TRUE, Why, How would you switch this statement for it to be false

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21
Q

When determining target profit in terms of units, the CM per unit is used for both the equation and formula methods.

A

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22
Q

When determining breakeven in sales dollars, the CM per unit is used for both the equation and formula method.

A

FALSE, Why, How would you switch this statement for it to be true

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23
Q

When determining target profit in terms of sales dollars, you can used the equation method to solve for “Q”.

A

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24
Q

The margin of safety is the excess of budgeted or actual sales over the breakeven point.

A

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25
Q

Operating leverage is the impact on net operating income given a percentage change in sales.

A

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26
Q

Variable Manufacturing Overhead Costs is the key difference between Absorption Costing and Variable Costing.

A

FALSE, Why, How would you switch this statement for it to be true

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27
Q

Variable Costing treats all Manufacturing Costs as product costs.

A

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28
Q

Absorption Costing uses the traditional income statement format.

A

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29
Q

Unit Product Costs under the Variable Costing approach include fixed manufacturing costs.

A

FALSE, Why, How would you switch this statement for it to be true

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30
Q

Selling and administrative expenses are period costs under both the Absorption and Variable Costing approaches.-

A

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31
Q

When units produced are greater than those sold in a given year, the company’s cost of goods sold will be less under the Absorption Costing approach.

A

TRUE, Why, How would you switch this statement for it to be false

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32
Q

When units produced are less than those sold in a given year, the Variable Costing Approach will show a lower net operating income than the Absorption Costing Approach.

A

FALSE, Why, How would you switch this statement for it to be true

33
Q

Segment Margin equals sales minus variable expenses.

A

FALSE, Why, How would you switch this statement for it to be true

34
Q

Common costs are allocated among segments before determining segment profitability in the long run.

A

FALSE, Why, How would you switch this statement for it to be true

35
Q

Traceable costs are costs that are identifiable by a segment.

A

TRUE, Why, How would you switch this statement for it to be false

36
Q

Segment Breakeven determination involves the use of allocated common costs.

A

FALSE, Why, How would you switch this statement for it to be true

37
Q

Break Even Point

A

Level of sales at which profit is 0

38
Q

Contribution Margin Ratio (%) equation form

A

Contribution Margin Divded by Sales

39
Q

Cost Volume Profit Graph

A

graph representation of the relationships between organizations revenue, costs, and profits on one side, and its sales volume on other side

40
Q

Degree of Operating leverage (%)

A

Contribution Margin Divided by Net operating income

41
Q

Incremental Analysis

A

analytical approach that focuses only on those costs and revenues that change as a result of a decision

42
Q

Margin of safety

A

excess of budgeted or actual dollar sales over the break even dollar sales

43
Q

Operating leverage

A

Percent increase in sales x degree of operating leverage which gets you the percentage of how much net operating income increases

44
Q

Sales Mix

A

Relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.

45
Q

Target Profit Analysis

A

estimating the level of sales needed to achieve a desired target profit.

46
Q

Variable expense ratio in equation form

A

variable expenses divided by sales

47
Q

Contribution format Income statement in equation form

A

Profit = (Sales - Variable expenses) - Fixed expenses

48
Q

Sales equation form

A

Sales = selling price per unit x Quantity sold . (P x Q)

49
Q

Variable expenses equation form

A

Variable expenses = variable expenses per unit x Quantity sold (VxQ)

50
Q

Unit CM

A

Selling price per unit - variable expenses per unit (P-V)

51
Q

Unit CM in equation form

A

Profit = (P x Q - V x Q) - Fixed expenses

52
Q

CM ratio per unit

A

Contribution Margin per unit - selling price per unit

53
Q

Unit sales equation method (BREAK EVEN ANALYSIS)

A

Profit = Unit CM x Q - fixed expenses

54
Q

Unit Sales formula method PER UNIT (BREAK EVEN ANALYSIS)

A

fixed expenses divided by CM per unit

55
Q

Dollar Sales equation method (BREAK EVEN ANALYSIS)

A

Profit = CM ratio x Sales - fixed expenses

56
Q

Dollar Sales formula method (BREAK EVEN ANALYSIS)

A

Fixed expenses divided by CM ratio

57
Q

Target Profit Analysis - Equation method (Unit)

A

Profit = Unit CM x Q - fixed expenses

58
Q

Target Profit Analysis - Formula Method (Unit)

A

Target profit + fixed expenses divided by CM per unit

59
Q

Target Profit Analysis - Equation Method (Dollar Sales)

A

Profit = CM ratio x Sales - fixed expenses

60
Q

Target Profit Analysis - Formula Method (Dollar Sales)

A

Target profit + fixed expenses divided ny CM ratio

61
Q

Margin of safety equation

A

total sales minus break even sales

62
Q

Margin of safety percentage

A

margin of safety divided by sales

63
Q

Margin of safety units

A

margin of safety divided by price of unit

64
Q

Absorption Costing

A

method that includes all manufacturing costs such as direct materials, direct labor and fixed manufacturing costs as unit product costs. Also uses the traditional income statement

65
Q

Common fixed cost

A

costs that support one business segment but not traceable in whole or in part to any one of the business segments

66
Q

Segment

A

part or activity of an organization about which managers seeks cost, revenue and profit data (department)

67
Q

Segment Margin

A

Sales - Variable expenses - traceable fixed costs

68
Q

Traceable fixed cost

A

cost that can be incurred because of the existence of a particular business segment and would dissapear if segment was eleminated

69
Q

Variable costing

A

costing method that includes variable dm, dl, and mo as product costs, and fixed mo as period cost

70
Q

If units produced equal units sold

A

No change in inventory and absoption NOI would equal variable NOI

71
Q

If units produced are greater than units sold

A

inventory increases, absorption NOI would be higher than variable

72
Q

If units produced are less than units sold

A

inventory decreases, absorption NOI would be lower than variable NOI

73
Q

What costing is better used for CVP analysis?

A

Variable costing, since it categorizes variable and fixed

74
Q

What is variable costing only affected by

A

change in unit sales

75
Q

What is absorption costing affected by

A

changes in unit sales and units of production

76
Q

Companywide break-even point

A

company’s traceable fixed expense + common fixed expense divded by company’s overall CM ratio.

77
Q

Segment break even point

A

traceable fixed expense divided by CM ratio (for that segment)

78
Q

What makes up a value chain

A

R&D, Product Design, Manufacturing, Marketing, Distribution, Customer Service

79
Q

What are the 3 tools for segmented income analysis ?

A
  1. Review the Segment Margin. 2. Compute the CM ratio for each segment. 3. Determine the degree of operating leverage

Managerial Accounting (3 decks)

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