Strategic Planning

Question 1

What is the breakeven point?

Answer 1

The point a which revenues equal total costs

Question 2

What is the total cost formula?

Answer 2

Total cost = fixed cost + (variable cost per unit x volume)

Question 3

The contribution approach is also known as what?

Answer 3

Variable costing or direct costing

Question 4

What is the contribution approach formula?

Answer 4

Revenue
less: variable cost 
= Contribution margin
less: fixed costs
= Net Income

Question 5

What is the unit contribution margin?

Answer 5

The unit sales price minus the unit variable cost

Question 6

What is the contribution margin ratio?

Answer 6

The contribution margin expressed as a percentage of revenue

Contribution margin / revenue

Question 7

What financial reporting approach is required under US GAAP?

Answer 7

The absorption approach

Question 8

What is the absorption approach formula?

Answer 8

Revenue
less: COGS  
= Gross margin
less: operating expenses 
= Net income

Question 9

What is the major difference between the contribution approach and the absorption approach?

Answer 9

The treatment of fixed factory overhead.

Absorption method : Fixed manuf OH = Product cost (only expense the portion related to unit sold)

Contribution margin method: Fixed manuf. OH = Period cost (expense 100%)

Question 10

What is breakeven analysis?

Answer 10

A determination of the sales required to achieve zero profit or loss

Question 11

What is the breakeven point in units formula?

Answer 11

Total fixed costs / contribution margin per unit

Question 12

What is the contribution margin per unit formula?

Answer 12

Unit price x breakeven points in units

Question 13

What is the contribution margin ratio formula?

Answer 13

Total fixed costs / contribution margin ratio

Question 14

What is the basic formula for target profit?

Answer 14

(Fixed cost + profit) / Contribution margin ratio

Question 15

What is the formula for the target breakeven point in sales?

Answer 15

Sales = Variable costs + fixed costs + target profit before tax

Question 16

What is the margin of safety?

Answer 16

The excess of sales over breakeven sales

Question 17

What is the target cost computation?

Answer 17

Market price - required profit

Question 18

When is the operational decision method(marginal analysis) used?

Answer 18

When analyzing business decisions. It focuses on the relevant revenues and costs associated with that decision.

Question 19

What are incremental costs(differential or out of pocket costs)?

Answer 19

Additional costs incurred to produce an additional amount of the unit

Also known as Prime cost

Question 20

What are sunk costs?

Answer 20

Unavoidable costs that were incurred in the past and cannot be recovered as a result of a decision

Question 21

What are opportunity costs?

Answer 21

The cost of foregoing the next best alternative when making a decision

Question 22

What are controllable costs?

Answer 22

A cost that a specific level of management is responsible for

Question 23

What are marginal costs?

Answer 23

The sum of all costs required for a one unit increase in activity

Question 24

What costs make up marginal costs?

Answer 24

All variable costs and any avoidable fixed costs

Question 25

What are special order decisions?

Answer 25

Opportunities that require a firm to decide if a specially priced order should be accepted or rejected

Question 26

When should a special order be accepted if there is excess capacity?

Answer 26

If the selling price per unit is greater than the variable cost per unit

Question 27

What are joint costs?

Answer 27

The costs of a single process that yields multiple products

Question 28

What are separable costs?

Answer 28

Costs incurred after the split off point

Question 29

What is sensitivity analysis?

Answer 29

The process of experimenting with different parameters and assumptions regarding a model and cataloging the results

Question 30

What is linear regression?

Answer 30

A method for studying the relationship between two or more variables

Question 31

What is regression analysis?

Answer 31

An explanation for variation in a dependent variable as a linear function of one or more independent variables

Question 32

What does the coefficient of correlation measure?

Answer 32

The strength of the linear relationship between the independent variable and dependent variable

Question 33

What does the coefficient of determination measure?

Answer 33

The proportion of the total variation in the dependent variable explained by the independent variable

Question 34

What is a learning curve analysis?

Answer 34

A step by step method of logically projecting costs when learning is a variable

Question 35

What is the high low method?

Answer 35

A technique used to estimate the fixed and variable portions of cost